The Principles for Investment Reporting

By Geoffrey Allan Hecht

Most investment advisers are familiar with the Global Investment Performance Standards (GIPS®), which are a set of ethical standards that address transparency issues regarding performance measurement and presentation to prospective clients. As beneficial as GIPS is with providing guidance on full disclosure and fair representation to prospective clients, it does not address reporting for existing clients.  The Principles for Investment Reporting (Principles) were created by CFA Institute and its Investment Reporting Working Group to bridge the gap between the information that preparers of investment reporting (investment advisers, custodians, etc.) intend to provide and the information that users of the investment reporting (investors, consultants, etc.) expect to receive.  These Principles are meant to create transparency for existing clients and ensure client reports either include sufficient information or indicate where this information can be obtained so that existing clients understand the contents of the report and the reasons behind the selection presented.  There is no intent to restrict or define what information should be included in client reports.  It is also important to note that the Principles are not part of the GIPS standards.

The Principles for Investment Reporting list five principles that must be followed:

  1. Communication occurs between the preparer and the user as to the purpose of and need for investment reporting: A specific discussion must be conducted with the user about the content of the investment report and the conclusion must be documented.
  2. Control processes, policies and procedures are documented and followed: Control processes, policies and procedures that support the report preparation and error correction exist, are documented and are available if requested by the user.
  3. Client preferences are reflected in the investment report documentation: The conclusion of the communication between the preparer and user about the user’s preferences must be documented and must be accessible to the report preparers for regular maintenance.
  4. Clear and transparent presentation of investment risks and results: The risk that is inherent in the investments must be made known to the investor and any changes to risks and the level of risk should be disclosed.
  5. Comprehensive fee disclosure: All fees charged to the user by the preparer, or under the control of the preparer or the financial organization on whose behalf the preparer is working, must be included in the report.

The purpose of the Principles is not to define the content, methodology, data, etc. that must be included in an investment report. Instead, the Principles strive to help foster a dialogue between preparers and users where specific information can be identified and reported that will allow the user to make more informed decisions.  In my next blog, I will address The Guidance to Effective Investment Reporting which is an extension of the Principles.  This guidance includes a series of recommendations that support each of the five Principles.

Click here to review CFA Institute’s “Principles for Investment Reporting”

GIPS® and CFA® are registered trademarks owned by CFA Institute.


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