Prepare the Investment Objectives section of Patel’s IPS.

Patel has been working with Zik for 10 years. At the beginning of the 10-year period,

Zik forecasted that the equities in Patel’s portfolio would outperform their benchmark and that the bonds would match their benchmark. Now, at the end of the 10-year period, equities have outperformed the benchmark, but with higher volatility than the benchmark. In addition, the bonds in the portfolio matched their benchmark performance, but with lower volatility than the benchmark. However, returns and volatility are within IPS specifications for both equities and bonds.

Patel stated his goals to Zik at the beginning of the 10-year period and has not changed them. Patel’s plan is to retire this year, and he wants to be able to support a specified annual spending level.

Zik’s original capital sufficiency analysis modeled a 6% rate of return, and Patel’s portfolio has earned slightly more than that over the 10-year period. Zik’s most recent capital sufficiency analysis shows that the portfolio and strategy are very likely to meet Patel’s needs as he transitions into retirement.

Zik has followed the guidelines stated in the original IPS in terms of rebalancing the portfolio, maintaining an ongoing dialog with Patel, and coordinating the strategy with Patel’s retirement and philanthropic goals. Although fees have remained unchanged at 1%, Zik has been able to reduce expenses for equities by 20 bps and for bonds by 12 bps.

Sharfepto Zik, a private wealth manager, is meeting with a client, Garbanzo Patel, in order to create an investment policy statement (IPS) for Patel’s upcoming retirement. Patel estimates that he will require €200,000 per year, with annual increases for inflation, during retirement.
Patel’s primary spending goals during retirement are to provide for his family’s needs and maintain his retirement lifestyle. His secondary goals are to fund his philanthropic activities and leave a significant inheritance to his children.
During his retirement, Patel will receive union pension payments of €50,000 per year with annual increases for inflation. In his spare time, Patel runs a small business that provides him with an annual income of €120,000 and is valued at €1 million. He will continue running his business during retirement.
Patel holds a portfolio of securities valued at approximately €4 million. The portfolio primarily contains dividend-paying stocks and interest-bearing bonds. Patel has reinvested all these distributions back into his portfolio but anticipates that after retirement he may need to use some of the distributions to fund his expenses.
Patel plans to buy a vacation home in three years. His budget for the vacation home is approximately €1.4 million. Patel has not decided yet how he will fund this purchase.