Establish an Investment Policy Statement

Physician's Money Digest, November 2006, Volume 13, Issue 11

It is well known that some physicians have a reputationfor being poor investors—buying as themarket peaks, selling as the market bottoms, andeasily trusting brokers, agents, or other commission-drivensalespeople. A portfolio strategy or reasonedwealth building discipline often seems absent. Whilethose physicians are heading in the right direction bycreating a portfolio, it is important for them to alsodevelop a strategy for that portfolio to ensure it stayson track with their investment goals.

One tool that physicians can use to seal this riftbetween planning and investing is the MedicallyFocused-Investment Policy Statement (MF-IPS). Thisdocument is drafted between a financial advisor andmedical professional, and it outlines the goals, objectives,rules, and strategies of an investment portfolio,with specific information on asset allocation; prohibitedand restricted investments; limitations and risktolerance; trading, execution, benchmarking, administrationand reporting guidelines; liquidity requirements;and all costs and fees. It is the sine qua non forhealth institutions and endowment fund fiduciarymanagers, because it is added assurance that theirassets will be sensibly managed, keeping with theirestablished goals and objectives. Few physicians areaware that this type of contract exists when it comesto guiding a personal portfolio. It can be as simple asa few pages for a solo doctor or as lengthy as a hundredpages for a medical foundation.

For example, the goal of one physician's personalMF-IPS might be: I expect that the portfolio willmeet or exceed the rate of return of a balanced marketindex comprised of the S&P 500 stock index,Lehman Brothers Government/Corporate BondIndex, and US treasury bills in similar proportion toour asset allocation policy.

Of course, market fluctuations can, and do occur,so caveats of choice over a 5-year moving time framemay be included. For example, the following stipulationsmay be established:

•Annual returns will exceed the increase in theConsumer Price Index by 7.0 percentage points, withactual returns exceeding the expected returns abouthalf the time.

  • Total annual returns expected to exceed theaverage Consumer Price Index for the year by anabsolute of 3.0 percentage points.
  • Average total expected return from the stockmarket will exceed 10% annually.

Keep in mind that performance benchmarking isalso a vital aspect to the MF-IPS, so meters most representativeof your investment objective should alsobe included as a reference point as you monitor yourportfolio's performance.

Always remember that successful advisor-drivenor solo-portfolio management is often a matter ofmistake avoidance, rather than complex investingschemes. A good rule of thumb is to pursue fundamentalsover fads, know your costs, remunerateinformed fiduciary advisors when required, and constructand follow an MF-IPS.

Dr. David Edward Marcinko, MBA, CFP®, CMPR, is a health economistand managing principal for www.MedicalBusinessAdvisors.com, as well as the academic provost for www.CertifiedMedicalPlanner.com. He welcomes questions or comments at 770-448-0769 or MarcinkoAdvisors@msn.com.

Hope Rachel Hetico, RN, MHA, CMP®, is a distinguished visiting instructor inhealth care administration for the University of Phoenix, Graduate School ofBusiness Management (Atlanta campus), as well as coeditor of www.HealthDictionarySeries.com and www.HealthcareFinancials.com.The term Medically Focused-Investment Policy Statement and its acronym MFIPSare copyrighted and owned by the Institute of Medical Business Advisors, Inc.