by Nick Malone, CIPM and Jamie Stewart
Working in the Client Relations Group at Ashland Partners gives us insight into the minds of Registered Investment Advisors as they evaluate whether GIPS compliance and verification is the appropriate action for their firm. Despite the unique path that each conversation takes, we have developed a short list of the most common questions that firms want to know about the process of becoming GIPS compliant and verified:
1. Why become GIPS compliant and verified?
There are three primary reasons why firms should become compliant and verified:
- The desire to adhere to industry-best-practices will provide internal and external assurance that performance is being calculated, presented, and disclosed appropriately.
- The majority of institutional investors want their managers to be GIPS Compliant. If your firm is looking to market your investment products to institutional investors then claiming GIPS Compliance will be a vital element of your marketing strategy.
- A recent trend we are seeing is that some of the major investment databases have begun to require firms to be GIPS compliant and verified in order to market performance through their online platforms.
2. What is your pricing structure?
Ashland Partners engagements are typically priced on a flat fee basis to encourage our clients to maintain a consistent and thorough dialogue with our firm. In addition to the verification, the price you see will typically include unlimited consulting, travel, all necessary templates, and access to our Ashland Partners Learning Center (our client-only website that contains relevant and valuable proprietary information).
The primary factors that determine price are: number of accounts under management on a firm-wide basis, the number of different strategies at the firm, the nature of the underlying investments, the length of the historical verification, the accounting system used to calculate performance, and the general complexity of the overall engagement.
3. What are the common hurdles?
Typically, the following items are the most common issues that firms face when working towards GIPS compliance and verification:
- Lack of books and records to support performance and composite membership
- Survivorship bias in the composites: terminated accounts have been removed for historical periods
- Performance calculation issues
- Lack of historical records to support AUM
- Absence of key personal overseeing the project to its completion
4. How much time is involved?
From a calendar perspective, most firms can become compliant and verified within a 2 to 6 month timeframe. The key drivers of how long the process takes are the firm’s resources to dedicate to the project, the quality of the books and records, the accounting system used to calculate performance (i.e. Advent, Schwab, Excel), and of course the amount of data to review. From a man-hour perspective, that can vary tremendously based on the aforementioned variables. Anywhere from 20 hours for an emerging manager, to several hundred for firms with larger numbers of accounts and strategies.
5. What is the process of becoming compliant?
Ashland Partners begins with a gap analysis and critical issues assessment of the to-be-compliant firm to identify any hurdles to becoming compliant as well as any potential show stoppers. At this point the firm, using Ashland’s guidance, begins the process of creating a GIPS policies and procedures manual. These policies and procedures dictate how composites are constructed and maintained, and how performance is calculated by the firm. Once performance has been generated, Ashland Partners provides guidance to assist the firm in creating GIPS compliant presentations which are reviewed by Ashland Partners along with a sample of the firm’s marketing materials. Throughout this process, the firm will also need to provide books and records to support that their GIPS policies and procedures have been followed consistently.
If you are interested in talking to Ashland Partners about GIPS consulting and verification services, please feel free to contact us. We would be happy to answer any questions you have about the process.
Nick Malone, CIPM
Client Relations Manager
Client Relations Associate