Financial advisors vary greatly in their approach and use of written investment policy statements with their clients, including some who don’t use these statements at all, according to Russell Investments’ latest quarterly survey of U.S. advisors.
According to the survey, only 39% of advisors say they create an investment policy statement (a written statement of risk and return objectives along with implementation guidance) for all of their clients. Thirty-three percent say they only create investment policy statements for their highest net worth clients, and 21% don’t even bother using these statements.
The survey also revealed that a majority of advisors (60%) said that in 2012, they were asked by clients to deviate from an agreed-upon investment policy to reduce their exposure to risk assets. Fifty-nine percent of advisors indicated that these requests were most often prompted by information clients received from sources such as the media, family and friends, and not the guidance of a financial professional.
“With the industry shift toward advisory-based relationships, it is surprising that so many advisors remain uncommitted to the best practice of utilizing investment policy statements with all clients,” stated Rod Greenshields, consulting director for Russell’s U.S. advisor-sold business.
“One of the best ways an advisor can fulfill their fiduciary duty and encourage a client to stick to a long-term, disciplined plan is to develop a statement of their objectives and related recommendations. These statements can serve as a type of ‘commitment device,’ reminding investors of their goals and helping them make productive decisions in times of uncertainty.”
The current iteration of the FPO survey includes responses from 479 financial advisors working in 115 national, regional and independent advisory firms nationwide. The survey was fielded Feb. 5 – 19, 2013.