Investment Policy Statement (IPS)

Constructed response

Objectives / Constraints Description

• List the objectives of the client.

Return objective
• Compute required and desired return based on data provided.

• Assess ability to bear risk and willingness to take risk.

Risk objective
• Chose the most conservative and point out any inconsistence.

• Overall statement about horizon length (short or long).

Time horizon • Identify the different stages of the time horizon (single or multi-period).
• Indicate the triggers of each stage (e.g. after retirement, until sons go college).

• Focus on one-time liquidity distributions (removed from asset base if near term).
Liquidity • Ongoing liquidity distributions are not considered a constraint (included in required return).
• Comment about illiquid assets and cash reserves if stated in the question.

• Normal duties if nothing different stated in the question.

Legal and regulatory
• Indicate potential aspects that may need legal counsel and expertise in the future.

• Identify the tax treatment applied to the investor. Point out any potential issue that could trigger a
Tax
significant tax liability.

• Concentrated positions (geographical and by security).

Unique circumstances • Auto-imposed investments constraints (e.g. social responsible investing).
• Home ownership.
Global Tax Regimes
Detailed review

Tax Regime Ordinary income Interest income Dividend income Capital gains

Common progressive (1st most observed) Progressive Favourable Favourable Favourable

Heavy dividend tax Progressive Favourable Ordinary Favourable

Heavy capital gain tax Progressive Favourable Favourable Ordinary

Heavy interest tax Progressive Ordinary Favourable Favourable

Light capital gain tax (2nd most observed) Progressive Ordinary Ordinary Favourable

Flat and light tax Flat Favourable Favourable Favourable

Flat and heavy Flat Favourable Flat Flat

(*) Ordinary can be translated as progressive