New GIPS Guidance to Change Marketing Practices, Increase GIPS Requirements

What is Supplemental Information?

Most firms familiar with the GIPS® standards will also have familiarity with the term supplemental information. What you may not know is that there are proposed changes to supplemental information guidance that will impact every firm claiming compliance.

Historically, the general idea has been that certain performance-related information must be labeled as “supplemental information” and reference the compliant presentation (i.e. the GIPS Page that includes the required annual statistics and disclosures). Your pitch books likely have “supplemental information” footnotes on a variety of their pages. For a primer on supplemental information, find the current Guidance Statement on the GIPS website and also review the Q&A under the Supplemental Information category (specifically keyword search “booklet” for the reason your pitch books have this disclosure throughout).

What is changing?

A revised exposure draft of the Supplemental Information Guidance Statement was released for public comment on 1 December 2016, with the public comment extending through 28 February 2017. We can group the proposed changes into three categories:

NOTE: These are proposed changes; they have not yet been adopted. 

1. Narrowed Scope of Supplemental Information

The exposure draft makes a clear distinction that supplemental information pertains only to information included within the compliant presentation (remember, this is just the “GIPS Page”, not the full pitch book). If your pitch book includes performance attribution on page 5, but the compliant presentation is on page 40, the attribution is not supplemental information because it is not within the compliant presentation. Significant effort is expended within the exposure draft drawing a clear line between the compliant presentation and the rest of the information within your marketing documents.

Potential Impact on You: First, you are recommended to remove the “supplemental information” disclosure from the myriad of pages within your pitch books and fact sheets that aren’t the actual compliant presentations. Reduction in disclosure could be viewed as a positive by some firms or just busywork by others.

2. Expanded Scope of Required Disclosures (and of GIPS in general)

We can’t fault you for thinking the Guidance Statement on Supplemental Information was only about supplemental information… but it’s not. Within the exposure draft are new disclosure requirements that apply to all of a firm’s marketing documents — the entire pitch book, fact sheet, etc., not just the compliant presentation itself.

Specifically, the following applies to all performance and performance-related information in all marketing documents. Performance/performance-related information must be/include:

  • Clearly identified/labeled
  • Clearly described so that a prospective client understands its nature
  • A reference to the location of the compliant presentation, if included in the marketing document.

Potential Impact on You: What qualifies as a “clear description” you may be asking? That’s a good question, and one you should be asking your compliance and legal teams. Remember, firms must meet all requirements of the GIPS standards firm-wide. Will regulators be challenging the adequacy of your descriptions, and thus questioning your overall compliance with GIPS? Must a GIPS verifier review and agree with the adequacy of your descriptions? All great questions that are too early to answer. Again, the above requirements apply to all marketing documents so get your highlighter and red pen ready for action.

3. Additional Marketing-Related Requirements

If you were looking for GIPS guidance on showing theoretical performance (e.g. hypothetical performance) or representative account performance, where would you look? If you answered, The Guidance Statement on Supplemental Information, then you are correct! Two new sections have been included on these topics. Here are the high points:

Representative Account Information:

  • Must create policies & procedures for choosing rep accounts and presenting rep account performance
  • Must follow established policies & procedures for choosing rep accounts.

Theoretical Performance

  • Must label theoretical performance as supplemental information, if it is included within the compliant presentation.
  • Must not link theoretical performance to actual, either within or outside of the compliant presentation
  • Must not include theoretical performance in a compliant presentation if it has no relevance to the composite compliant presentation
  • Must include a new series of disclosures about theoretical performance whether it within or outside of the compliant presentation. Note: Disclosures are similar to the Clover-Capital No-Action Letter already relevant to firms subject to U.S. SEC oversight.
  • May present theoretical performance outside of a compliant presentation, such as for a new strategy that doesn’t have actual assets managed to it.

Potential Impact on You: Plan on creating policies & procedures for representative account information whether or not you currently use it. If theoretical performance is used, you will need to incorporate the new GIPS disclosure requirements and also ensure the theoretical performance is used in an allowable manner, per the Guidance Statement.

Are these changes good for the industry? What about for the investing public? Is this guidance statement still needed? All of these topics and more are contemplated within our comment letter, which you can find on our website www.ashlandpartners.com/commentletters. Email us with your thoughts on this topic.

Please consider submitting your own comment letter. You can request your comment letter not be made public, if that is a concern for you. Visit www.gipsstandards.org for info. Deadline for submission is 28 February 2017.

GIPS® is a registered trademark owned by CFA Institute.

 

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