The investment policy questions you need to be asking

An essential component of the services provided by an investment firm concerns the investment policy. Asking questions regarding the investment policy grants you important insight into an investment firm’s investment policy. This information will allow you to evaluate whether the policy meets your needs and expectations. No two investment policies are alike.

Which questions are indispensable when gaining a clear understanding of an investment firm’s investment policy? Be sure to ask the following 6 key questions when consulting with your account manager, investment advisor or asset manager.

1) Which investment principles are the basis for asset management of the investment firm?

Which principles form the foundation of the investment policy and the design of the organisation’s investment process? How does this investment policy discern itself from the others?

2) Which approach, investment strategy or investment style does the investment firm implement?

Does the investment firm use models, fundamental or technical analysis, quantitative analysis or market feeling? Where are active investment choices made within the service provision? Which investment choices are those? How does the investment firm safeguard consistent implementation of the investment strategy?

3) In which investment categories, sectors, regions and (types of) financial institutions does the firm invest?

Are there specific categories, products and/or (types of) instruments which are or are not traded/invested in? What is the starting point for these selections?

4) For advice or management of the complete portfolio:

How is the portfolio structured?

Are there restrictions to the portfolio constructions? How are these recorded and how are they measured? How does the investment firm achieve a certain balance between the investment categories in the long term (strategic asset allocation)? To which degree does the firm operate the policy in the short term (tactical asset allocation)? What is the policy regarding hedging of foreign currencies and the use of leverage funds?

5) For statements regarding forecasted returns and risks:

Upon which data has the investment firm based these expectations?

How does the investment firm balance returns, risks and costs? How do the projections influence the firm’s investment decisions? Which risk criteria are observed?

6) How can you assess the firm’s investment policy as a (potential) client?

Which standards should you use, as a client, to evaluate the investment policy and the investment results? Within which period (horizon) is an assessment of the policy and results relevant?