The Importance of an Investment Policy Statement in Managing MDAs
As more advice practices embrace MDAs as a core part of their portfolio-management offering, the need for strong governance, clear documentation, and demonstrable oversight has never been greater. At MDA Guru, we continue to observe a growing number of practices establishing MDA services without fully considering the governance structures required to operate them effectively and defensibly.
While legal support often ensures that disclosures and warnings are appropriately integrated into the MDA contract, the real challenge emerges at the Investment Program stage—where advisers must articulate their investment philosophy, mandate boundaries, and the reasoning that links portfolio construction to client needs and best-interest obligations.
Recognising the specialist expertise required to bridge this gap, Ben McMahon of Ikigai Investments has recently joined the MDA Guru team. We invited Ben to share his perspective on how an Investment Policy Statement can provide the structure, clarity, and discipline advisory practices often lack. Below is his contribution.
Advisers and investment committees often reach a point where they start asking themselves difficult but necessary questions:
Are our portfolio decisions adding measurable value over time?
Are we taking more or less risk than we intend?
Do we have a consistent framework for how investment ideas become portfolio actions?
Can we demonstrate to clients (and regulators) that our process is repeatable and defensible?
These questions sit at the heart of professional portfolio management. Yet, in many advisory practices, the answers can feel subjective or scattered across spreadsheets, meetings, and model portfolios.
A well-constructed Investment Policy Statement (IPS) provides the structure to turn those questions into measurable processes. It defines what success looks like, how it will be measured, and under what boundaries discretion will be applied all while keeping client objectives and compliance front of mind.
Note: Within ASIC’s MDA framework, the formal client-level document is called an Investment Program. In this article, “Investment Policy Statement (IPS)” refers to the higher-level governance document used by committees and advisers to guide discretionary management and define the Strategic Asset Allocation and mandate boundaries that the Investment Program ultimately reflects.
What Is an IPS?
An Investment Policy Statement is the governing document that defines how investment discretion will be exercised. It translates investment philosophy into process by setting:
Objectives and risk tolerance
Strategic Asset Allocation (SAA) targets and ranges
Benchmarking and rebalancing rules
Governance and review processes
In short, the IPS is a portfolio’s rulebook — ensuring every decision can be traced back to an agreed purpose and process.
What are the benefits?
1. Establishing Purpose and Alignment
An IPS translates a client’s objectives, risk tolerance, and constraints into an actionable framework that guides discretionary decisions within an MDA program. It ensures that every portfolio decision can be traced back to a clearly articulated purpose and aligns with regulatory expectations under ASIC RG 179.
This clarity provides the foundation for accountability — both to the client and to the committee itself.
2. Enabling Sophisticated Attribution and Insight
A key value of a defined IPS is that it enables meaningful attribution reporting. Once benchmarks and SAA targets are clearly articulated, performance can be decomposed to reveal where and how value is being added. Unfortunately, this level of analysis is not something that even the most modern platforms provide.
You can see whether outperformance stems from investment selection, dynamic asset allocation, or both. For example, attribution might show that the committee consistently adds value through domestic equity selection, but international equity decisions have detracted.
The below example shows that the portfolios outperformance is derived from manager selection over allocation. It also shows that while both asset selection and allocation detracted in the February rally, positioning added significant alpha through the drawdown in March and April, presumably due to defensive posturing. This would be impossible to discover without a detailed IPS defining the underlying asset allocation comparison benchmarks.
Empowering the committee with this information is the first step toward leveraging its strengths and addressing its weaknesses. This transforms the IPS from a compliance document into a performance management tool.
3. Defining and Communicating Investment Philosophy
A structured IPS also forces a deeper exploration of investment philosophy — a step often overlooked in advisory businesses. Is the portfolio designed to significantly outperform the benchmark, accepting higher tracking error and episodic volatility?
Or is the goal to deliver smoother benchmark-like returns with a focus on downside protection and capital preservation?
Clarifying this intent not only shapes portfolio construction and governance but also strengthens client communication and marketing. Advisers who can clearly articulate why their portfolio behaves as it does (and what kind of investor it is designed for) project greater confidence and consistency across their brand.
4. Defining Mandate Boundaries
By formalising Strategic Asset Allocation (SAA) targets, asset class ranges, benchmarks, and rebalancing parameters, the IPS defines how discretion can be applied. These guardrails prevent style drift, improve discipline, and create a shared understanding of the “rules of engagement” across the adviser team or committee.
5. Strengthening Governance and Oversight
For advisers, Responsible Managers, and committees, the IPS becomes the reference point for suitability and accountability. It provides a measurable basis for review, supports consistent annual MDA renewals, and demonstrates that investment management remains aligned with client objectives and best-interest obligations.
6. Beyond MDAs — A Benchmark for Best Practice
Even for firms not operating under an MDA, developing an IPS remains best practice. It brings structure to committee decision-making, clarifies performance expectations, and enhances accountability, lifting the professionalism of the investment process across the board.
7. Simplifying the Creation and Maintenance of ASIC-Compliant Investment Programs
A clearly articulated IPS provides the structural foundation from which individual client Investment Programs can be efficiently produced.
Under ASIC’s MDA rules, each Investment Program must include client-specific strategies, risks, limits, and warnings. When an IPS has already defined the core philosophy, SAA ranges, benchmarks, mandate boundaries, and governance processes, much of the Investment Program’s content becomes a direct and consistent extension of that framework.
This reduces duplication, improves consistency across all client programs, and ensures the Investment Program remains aligned with the committee’s overarching standards. It also materially lowers compliance risk by ensuring the adviser is not reinventing the strategy on a client-by-client basis but instead drawing from a well-governed, pre-determined framework.
The Practical Challenge
While the benefits are clear, maintaining a live IPS and linking it to actionable data can be challenging without the right systems. Benchmark alignment, attribution analysis, and documentation updates require integrated tools and processes which just are not offered by major investment platforms.
A high-quality IPS is more than a technical document—it is the foundation on which effective oversight, reliable decision-making, and regulatory defensibility are built. At MDA Guru, our work with advisory practices consistently shows that those who invest in strong governance frameworks are better placed to demonstrate competence, manage risk, and maintain client trust.
Through the expertise of MDA Guru and the specialist support offered by Ben McMahon, advisers now have access to the tools and guidance needed to build a truly robust investment-governance environment. Whether you are establishing an MDA service or seeking to strengthen your existing processes, the right IPS can transform your committee’s structure, insights, and confidence.
For practices ready to take that next step, Ben is available to assist with the development, refinement, and analysis of IPS frameworks that align with regulatory expectations and best-practice investment management. Ben can be reached at MDA Guru or directly at: Ben.mcmahon@ikigaiinvestment.com.au Mobile: 0448 740 227