An investment policy agreed upon with your wealth manager should be more than the wealth management contract and MIFID questionnaire you are presented with when you start up a relationship private banker. In most cases the contract serves primarily to protect the manager and to limit his liabilities if anything goes wrong. While MIFID is a laudable initiative to protect the investor, it boils mostly down to a check the box exercise. Very general questions about your knowledge of financial products, or the lack of it, lead to an investor profile.
How can the question whether you have heard about options provide validation of your appetite for risky investments.
An investment policy should clearly describe what is important to you, and in terms that you are familiar with, avoiding the ubiquitous jargon bankers like to use.
Aside from the obvious components: Who is the investor? Who is the beneficiary? How is the governance organized? Are important in-and outflows planned? How do you react to a sudden drop in value of your portfolio? It is equally crucial to precisely describe what is acceptable in the portfolio and what not.
Let us assume you are not willing to take any currency risk. Is it then sufficient to indicate that you will not invest in foreign currency? How about the companies that are based outside the EURO zone but happen to also be listed on Euronext and as such appear in Euro in your portfolio. Or how about the corporates that are Euro, based but very vulnerable to currency variations in their export or investment markets.
To us it is abundantly clear that an investment policy statement has to be abundantly clear and that there is no room for confusion. It should also be written in terms that are understandable to you and not only to the professional asset manager.
