Are you fulfilling your fiduciary duty?

Establish an Investment Policy Statement

Well-written Investment Policy Statement (IPS) should act as the roadmap for how you are going to select and monitor the investments within the plan. An IPS forms the basis for demonstrating the very high standard of prudence needed to make investment decisions. Your plan’s investment program is judged by the process followed, not by rates of return. If you can show that the fiduciaries’ actions were the result of following a prudent, established, documented process, outlined in an IPS, your plan will be much better positioned in the event of an audit or legal action.

While the drafting of an IPS may be best left to an investment advisor, it is still important for each of your plan’s fiduciaries to have a working knowledge of the importance of an IPS and the elements of a properly constructed IPS. This knowledge helps you as a fiduciary evaluate the plan and decide whether to make any changes to an existing IPS.

Process properly

Your plan has an up-to-date investment policy statement (IPS) that describes your process for evaluating the plan’s investment menu. Are you fulfilling your fiduciary duty? Trick question! Just because you have the IPS, does not mean you are in the clear. Once you have an IPS in place, it’s imperative to follow the document. In fact, having a written IPS and not following it might be more dangerous than not having an IPS at all.

Elements of a Properly Crafted IPS

Well-written Investment Policy Statement is a key building block of a prudent process. Be- low are some of the most important areas to cover for developing an effective document.

Define the investment and plan objectives

• Be realistic. Achieving the highest possible investment return or beating the market shouldn’t be listed as an objective. Include items that are within the committee’s control, such as providing a reasonable range of investments.

Define the roles of responsible parties

• Each fiduciary should have a clear understanding of their role. Once roles are defined in writing, review them periodically so responsibilities aren’t ignored or forgotten.

Describe the criteria for selecting investments

• Be specific. This helps provide clarity. For example, don’t just list that funds should be low cost. You need to explain what low cost means. Instead, state something like funds should have an expense ratio of less than 1%.

• Here’s the catch: don’t be too specific. If you are too specific, you may need to update the IPS frequently.
• For example, if you list the funds available to participants, consider listing the asset class instead of the exact fund. This prevents the IPS from having to be updated after every fund change.
• Establish measurement standards and monitoring procedures• Identify who is doing what and how often.

• Remember that longer term performance is more meaningful.

Identify how to address investments that fail to satisfy the established criteria

• Don’t address an underperforming fund by just adding another one for participants to choose from. However, when dealing with annuities you would be required to add an- other fund.

• Remember it’s your responsibility to do what’s in the best interest of participants. While you don’t want to chase performance at the expense of participants, you also can’t ignore poor performance.


All investment advisory services and fiduciary services are provided through Conrad Siegel Investment Advisors, Inc. (“CSIA”), a fee-for-service investment adviser registered with the U.S. Securities and Exchange Commission which operates in a fiduciary capacity for its clients. Investing in securities involves the potential for gains and the risk of loss and past performance may not be indicative of future results. Any testimonials do not refer, directly or indirectly, to CSIA or its investment advice, analysis or other advisory services.