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Investment Policy Statement (IPS) Process

Brick Financial believes a clear and well-formulated Investment Policy Statement (IPS) is crucial to financial success. Working closely with our clients, we develop a clearly written Investment Policy that includes a statement of objectives and investment guidelines.

Our IPS Process

Every client relationship, no matter what the services provided, starts with the development of an IPS. The IPS considers the client's return objectives, time horizon, current income and terminal value goals, need for liquidity, tolerance for risk, legal and regulatory requirements, and other client-specific parameters.

This is the opportunity to discuss the need to define each of the client’s objectives with time and specificity and to rank them in order of priority.  Restraints can include any restrictions on the investment process that the client may desire.

Brick Financial follows a structured process in gathering client data.  The process consists of a multi-page questionnaire geared to uncover the client's

  • present financial position
  • tolerances for certain types of investment risk
  • goals and the time frame for each

To begin the process we will provide two documents – the Data Gathering List and the Client Education Booklet. The client will need both documents to complete the questionnaire. We will also need to have copies of some of the items on the Data Gathering List.  The client can send or fax in originals and we’ll copy them and return the originals. 

As a part of the questionnaire, we will ask the client to fill out a Risk Tolerance Profile (RTP).  The RTP dual goals are to help the client learn about the various risk factors all investors face and to help us understand the client's comfort level with these market risks.  The client should fill out this portion of the questionnaire only after he/she has read through the Client Education Booklet.

Once we have all the client's information and create our estimates, we feed them into our optimization software.  Using the results and our own judgment and we arrive at a portfolio allocation that we believe will best suit the client’s needs.  With this analysis, we create the Investment Policy.  The client’s Investment Policy provides an objective standard against which investment goals can be agreed upon, the strategy for reading those goals can be charted and communicated, and obstacles or necessary revisions can be identified and addressed.

Asset Allocation / Value Allocation

Brick Financial believes that the asset allocation decision is an important - though not the ultimate - factor in achieving successful investment results. Most financial advisors follow the principles of Modern Portfolio Theory (MPT) and efficient markets (EMH) thus are strong supporters of extreme diversification - allocating investments across all asset classes. We, as value investors, believe that the financial markets are inefficient.  We believe too much diversification is a detriment to long term investment results.  Consequently, Brick Financial does not approach the asset allocation process as do most financial advisors.

Our intent here is to take advantage of portions of the market that are undervalued. We believe that over periods of time, we will outperform the markets through our stock selections of individual undervalued securities (our Core Portfolios).  In order not to be hogtied to a certain allocation, the Investment Policy statements we create for our clients will give a range for an asset type (i.e., 50% to 70% equity) rather than a fixed percentage that would leave very little opportunity for taking advantage of an undervalued market.

When the client is ready to begin the implementation process, we will discuss what we propose and what services we think will be best suited.  We will provide the documents required to open the appropriate accounts.

Investment Process: Investment Selection >>

 

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