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Question: Case Study: John & Susan Smith - You are a portfolio manager in the Trust Department of BigBanc; You have been asked to review the investment portfolios of prospective clients, John and Susan Smith, who are retiring at the end of this month.

30 Oct 2023,1:30 PM


PFPL570–Portfolio Management for Personal Financial Planners, Week 1 Assignment

Create an Investment Policy Statement for John and Susan Smith

This week, you will be preparing the necessary components to create an Investment Policy Statement for the Smiths.   The schedule shows you how this assignment fits into later weekly assignments:

Week 1:  Elements of an IPS for the Smiths

Week 2:  Identification of benchmarks, historical returns, variability, and correlations of asset classes

Week 3:  Determine Future expected returns, variability and correlations of asset classes

Week 4:  Recommended Asset Allocation for the Smiths

Week 5:  Recommended equity investments for the Smiths

Week 6:  Recommended fixed income investments for the Smiths

Week 7:  Recommended alternative asset investments for the Smiths

Week 8:  Communication of a final IPS, asset allocation and investment recommendations to the Smiths including the consideration of recent international market turmoil.

As you are working through the assignment this week, please keep the following in mind:

  • You are not graded by the quantity of your work, but by the quality. If you want to use bullet points to be concise, that’s fine, but make sure they are complete thoughts.
  • Use the information you have available to complete the template IPS.
  • Do not leave anything blank, even if you think there isn’t enough information to address the issue completely.
  • If you do make an assumption about the case, mention it, but you do not have to invent details and please do not assume away information in the case (e.g., that all income is subject to some other tax rate or assuming a certain amount of deductions and attempting a more precise tax calculation).
  • You must calculate a required rate of return in the Investment Portfolio Return Objective, and show your work. This is usually best accomplished by dividing the income needed by the portfolio size, and then adding inflation and any buffer.
  • Regarding risk tolerance, a client’s ability to take risk is generally based on tangible facts, such as the size of the client’s portfolio and the length of their time horizon, while their willingness to take risk is generally based more on how the client “feels” about risk. Combine these thoughts into one, comprehensive statement for the Smiths’ Risk Tolerance Objective.
  • Finally, list your References on the last page.


  1. Investment Policy Statement Essay

Citing (and including in the reference page) at least two scholarly outside sources and the textbook, if used, write a one- to two-page essay about the importance and use of an Investment Policy Statement (IPS), including which aspects are important and which may not be.


  1. Fill in the following information for John & Susan Smiths’ IPS
  1. Investor Circumstances


  1. Investment Objectives
  • General


  • Investment Portfolio Return Objective (show calculation)


  • Rationale and Justification


  1. Risk Tolerance
  • Ability to Take Risk: Base your answer on tangible, quantitative facts, such as the size of the client’s portfolio and the length of their time horizon, providing a specific risk factor (such as high/aggressive, medium/moderate, low/conservative).


  • Willingness to Take Risk: Using qualitative assessment, your answer here should be how the client “feels” about risk. Include qualitative or quantitative information in the case study to back up your answer, and include a specific risk factor (such as high/aggressive, medium/moderate, low/conservative).


  • Risk Tolerance Objective: Provide a summary of the client’s ability and willingness, combined into one overall statement of risk tolerance (such as high/aggressive, medium/moderate, low/conservative). You may include any discrepancies between the client’s risk level and the investment objectives, but you do not need to provide a solution to any problems at this point.


  1. Liquidity Needs: Short- and Long-term


  1. Time Horizons
  • Pre-Retirement Stage: How many years until they retire?


  • Post-Retirement Stage:


  • Time Horizon Objective:


  • Rationale and Justification: For full credit, provide a reliable source to support your estimate then cite it.


  1. Income Tax Constraints


  1. Legal and Regulatory: Legal and regulatory factors are external factors imposed by government, regulatory, or oversight authorities to constrain investment decision-making.


  1. Risk Management through Other Financial Planning Subjects

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