That document is the Investment Policy Statement. And in our practice, we treat it less like a policy and more like a constitution.
Not a Template. A Conversation.
The first thing I tell younger advisors is this: an IPS is not something you fill out. It is something you earn through a hard conversation.
A lot of advisory organisations follow templates. A standard set of questions, standard answers, and a document ready in an hour. That, in my experience, is the worst way to approach this. When you ask a client what return they are expecting, they will almost always say something ambitious. Twenty percent. Twenty-five percent. Sometimes more. That is just human nature. But as an advisor, it is your job to go deeper.
We first work through a financial plan. That plan tells us what the minimum rate of return needs to be for the family to meet all their objectives, maintain financial freedom through their lifetime, and still leave a legacy for the next generation. That number becomes the anchor. If the financial plan says the portfolio needs to grow at ten percent, then ten percent is the floor in the IPS. Not the ceiling, but the floor. Everything else is built around that.
This process typically takes three to four hours. There is a lot of back and forth. Questions get revisited. Assumptions get challenged. But once it is done, everything clicks into place. The client is no longer guessing about what their advisor is doing and why. They know, because they helped design it.
What the IPS Actually Covers
Think of the IPS as the answer to every question an advisor might face in the next ten years. Can I invest in crypto? What is the most I can put into a single fund manager? Is the family open to unlisted equity? What happens if gold starts outperforming equities? Am I allowed to take a sectoral bet?
These are not hypotheticals. These are real decisions that come up constantly. And if you do not have a framework that addresses them in advance, you end up either missing opportunities or taking risks the client never actually sanctioned.
A well-structured IPS defines the target rate of return, the risk the portfolio can take to achieve it, and then goes into specifics. What is the maximum exposure to a single fund manager or institution? What percentage can go into thematic or sectoral funds? And if that is permitted, what is the limit on any single sector? In our practice, we have seen IPS documents that allow up to thirty percent in thematic funds but cap any individual sector at five percent. That means even if the advisor/platform is deeply bullish on healthcare, the position is capped. The upside is protected, but so is the downside.
The document also addresses what asset classes are in and what are out. Commodities like gold and silver, private markets, unlisted equity, secondary transactions, international exposure. Each of these either has a mandate or it does not. And if it does, the limits are clearly defined.
The Unlisted and Private Market Question
Beyond a certain scale, wealthy families start looking beyond the listed markets. While within the listed space, Nifty 50 is expected to offer an earning growth in the range of 9-11%, there are certain unlisted equity companies that are often under the radar of most market analysts, that have been compounding at 15-20%. When the underlying businesses are growing that fast, investors in those businesses tend to get remunerated accordingly over time.
Not all families want this exposure. Some are explicitly averse to the unlisted space. And that is fine. What matters is that the IPS captures that preference clearly. For families who are open to it, the IPS defines the extent of that exposure and the conditions under which it can be deployed.
Taxation and Cross-Border Considerations
One area that does not get enough attention in most advisory conversations is taxation, especially for families with cross-border financial lives. Take the case of a client who files taxes in the United States. For such a person, a standard Indian equity mutual fund is classified under what is called a Passive Foreign Investment Company structure. The tax treatment under PFIC is punitive, even if the fund itself is performing well. So recommending that product without accounting for the client's tax profile is not just unhelpful, it is potentially harmful.
The IPS needs to account for this. Certain instruments in India are structured differently and come with what are called K-1 or comparable certificates that result in a far more favourable tax treatment for US taxpayers. The advisor needs to know this and the IPS needs to reflect it. Which instruments are permissible given the client's tax domicile, and which ones are to be avoided entirely.
Similarly, the IPS is also the right place to document succession and estate planning preferences. How are investments to be held? Singly or jointly? What is the mode of operation if there are multiple holders? These are not afterthoughts. They are part of how governance works in practice.
The Investment Committee: Governance for Large Families
When a family has fifteen or twenty stakeholders, you cannot run the portfolio by committee in the literal sense. It is not practical for twenty people to show up for every quarterly review and vote on every allocation decision.
What works instead is the Investment Committee model. A select group within the family, typically three to five people, who work actively with the advisor. They are the ones who receive recommendations, review proposals, and approve decisions. They then communicate outcomes to the broader family.
The IPS defines who sits on this committee and how decisions are made. For instance, if the IPS specifies that three out of four Investment Committee members need to approve a new allocation, then the advisor cannot move forward with just one or two sign-offs. If we want to add a gold position and the IPS requires three approvals, we wait until we have three approvals. It is that simple and that structured.
This kind of structure creates accountability without creating paralysis. The advisor knows the rules. The family knows the rules. And when markets get volatile, no one is making decisions in a panic because the process was already defined in a calmer moment.
The IPS as Shock Absorber
We are living through a period of genuine geopolitical turbulence. Trade tensions, currency volatility, commodity price swings, rate cycles. In this kind of environment, the IPS is not just a governance document. It functions as a shock absorber.
Here is how. An IPS that granted the mandate to diversify across geographies meant that while Indian equities were under pressure, the same portfolio could have been benefiting from exposure to markets in the US, China, South Korea or Taiwan, all of which have delivered meaningfully better returns in recent periods. Similarly, an IPS that permitted commodity exposure meant that positions in gold, silver or copper, which have performed exceptionally well in 2025, were already part of the portfolio rather than something the advisor had to chase in hindsight.
The framework also helps with opportunity identification during crises. When crude oil prices rise, some businesses are directly hit but others, like hospitals for instance, are not meaningfully correlated to oil prices. People still need healthcare regardless of what crude is doing. An advisor with the mandate to take sectoral calls can rotate toward less correlated sectors. One without that mandate cannot, even if the opportunity is obvious.
And this is the other side of the coin. The IPS protects the advisor too. If a client later asks why a position in gold was not taken during a bull run, the advisor can point to the IPS and show that the mandate did not permit it. There are no surprises, no blame, no confusion. Everything was agreed upon in advance.
Common Mistakes to Avoid
After nearly two decades of building these documents, a few patterns stand out as failure modes.
The biggest one is rushing. An IPS that takes forty-five minutes to produce is almost certainly not doing its job. The real insights come from the second and third layers of a question, not the first answer. When a client says they want a twenty percent return, that is not the end of the conversation. That is the beginning. What does the financial plan say they actually need? What is realistic given current market conditions and asset class expectations? The advisor's job is to bridge those two realities and document them honestly.
The second mistake is building an IPS in isolation from the client's full life picture. Taxation, succession, family dynamics, liquidity needs, upcoming major expenditures. All of this belongs in the conversation. An IPS that treats the portfolio as a standalone object, disconnected from the rest of the family's financial life, will eventually create friction.
The third is failing to revisit it. Markets change. Tax laws change. Family circumstances change. An IPS is a living document. It should be reviewed, debated, and updated as the world changes around it.
The Bigger Picture
At the end of the day, the IPS is about removing surprise from the client relationship. When clients understand why they own what they own, what risks were consciously accepted and why, and what the process looks like when things get difficult, the relationship becomes genuinely different. It is not just about returns anymore. It is about trust built on transparency.
A doctor who simply prescribes medication for immediate symptoms is different from one who runs a full diagnostic, understands the underlying condition, and lays out a long-term plan. The second doctor is harder to find and takes more time. But that is the kind of advisor a family with serious wealth deserves. The IPS is how you prove you are that advisor.