Guidance to Effective Investment Reporting

by Geoffrey Allan Hecht, CIPM

In my last blog article, I wrote about The Principles for Investment Reporting (“Principles”), created by CFA Institute and the Investment Reporting Working Group, to create transparency for existing clients and ensure that client reports either include sufficient information or indicate where this information can be readily obtained.  These Principles make mention of a later publication that would include a series of recommendations.  The Guidance to Effective Investment Reporting (“EIR”) was published as an extension to the Principles that presents these recommendations.  The EIR presents each of the five Principles along with a series of recommendations that advise a preparer to take some type of action.  Below are some examples of the recommendations associated with each Principle:

  1. Communication occurs between the preparer and the user as to the purpose of and need for investment reporting.
    • Provide the user with a copy of, or access to, the Guidance to Effective Investment Reporting (EIR).
    • Discuss with the user the purpose of the investment report.
    • Support a process that ensures changes in the investment strategy or style are reflected in the investment report.
  1. Control processes, policies and procedures are documented and followed.
    • Support a process that produces timely and accurate investment reports.
    • Comply with the laws and regulations that apply to the preparer regarding preparation of investment reports.
    • Define the data used and its source or origin, as well as the level of data quality required in terms of accuracy, timeliness, and compliance.
    • Discuss with the user the appropriateness of the methodologies used regarding the intended purpose of the investment report.
    • Demonstrate that defined processes have been implemented and are consistently applied.
    • Define an error-correction policy.
    • Define a policy, which is included as part of the EIR document, for handling potential conflicts of interest that supports sufficient segregation of duties between the various stakeholders.
    • Review the production and control processes at least annually.
  1. Client preferences are reflected in the in
    vestment report documentation.

    • Agree with the user on the design and content of the investment report.
    • Agree with the user on the content and design of the investment report, including the language to be used.
  1. Clear and transparent presentation of investment risks and results.
    • Not change the content and design of the investment report without prior discussion and agreement with the user.
    • Disclose any user-required alternatives to preparer-provided data in the investment report.
    • Agree with the user on the content and design of the investment report for the fair representation of assets held and investment strategies being followed.
    • Discuss with the user how any change to comparative data is reflected in the investment report.
    • Agree with the user on the representation of risk in the investment report.
    • Discuss the impact of taxes on the investments made, risks taken, and results achieved.
  1. Comprehensive fee disclosure.
    • Support a process that recognizes and discloses those fees that are relevant to the user.
    • Discuss with the user the fees for which the preparer does not have information.
    • Agree with the user on how to reflect the fees in the investment report.

The EIR recommends that firms adopt the Principles and implement as many EIR recommendations as possible when providing investment reports to clients.  If a firm decides to implement all EIR recommendations, the following Effective Investment Reporting Statements should be used:

Effective Investment Reporting Ability Statement (once all recommendations have been implemented): “[Preparer’s company name] is able to prepare and deliver investment reporting in accordance with the recommendations of the Guidance to Effective Investment Reporting (EIR) to XYZ client base.

Effective Investment Reporting Report Statement (ability to support the EIR Ability Statement and prepare reports in accordance with EIR): “This report has been prepared in accordance with the Guidance to Effective Investment Reporting (EIR).”

Firms are not allowed to declare partial adherence to EIR.

The Guidance to EIR recommends that a firm claiming adherence to EIR engage an independent third party to provide assurance on their ability.  The scope of the work can be determined by the firm and provider, but it should result in determining that the processes followed by the firm are sufficient to support the use of the statements and the production of reports in accordance with EIR.

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