Individual Ips

### Section: Individual Investment Policy Statement (IPS) Estimated study time: 45 minutes Content: Exam weight (2026 curriculum): Portfolio Construction — 15–20% of the CFA Level III common core; IPS construction is additionally a core topic of the Private Wealth Pathway (30–35% of total exam weight for candidates who select that pathway). Source: CFA Institute Level III Exam page, fetched 2026-06-29. The individual IPS is one of the most frequently tested topics in the essay (constructed-response) session, which requires written justifications for every IPS element cited. The Investment Policy Statement (IPS) for individual investors is the cornerstone of wealth management at CFA Level 3. The individual IPS documents the client's financial situation and investment mandate in a way that guides all portfolio construction decisions. Constructed-response questions on the CFA L3 exam frequently ask candidates to identify, justify, or critique elements of an individual IPS — often presenting a client scenario and asking for a specific IPS component. The IPS for individual clients addresses six components, often called the RRTTLLU framework: Return requirement, Risk tolerance, Time horizon, Taxes, Liquidity, Legal/regulatory constraints, and Unique circumstances. Return requirement is determined by the client's financial goals — living expenses, portfolio growth needed to maintain purchasing power after inflation, and any specific goals (education, bequest, purchase). Return must be expressed in terms the portfolio can realistically achieve: pre-tax or after-tax, nominal or real, before or after advisory fees. Risk tolerance has two components: risk capacity (ability to bear risk, based on financial situation — income stability, asset base, time horizon, liquidity needs) and risk willingness (psychological…