Tag Archives: CFA Institute

2017 GIPS Compliance Form Now Available

This feature contains important information about the GIPS® firm notification requirement. Specifically, we will cover:

  1. Important information on what is required and not required with respect to completing the form;
  2. New information concerning some of the form’s optional information;
  3. New information regarding firms that have previously submitted a claim of compliance;
  4. A change in procedure regarding submitting corrections to CFA Institute; and
  5. A look at what is anticipated in the future regarding this requirement.

Continue reading 2017 GIPS Compliance Form Now Available

2016 GIPS® Compliance Form Now Available

The enhanced, user-friendly GIPS compliance form is now available for submission. The new form features an improved confirmation screen listing all information submitted as well as an email confirmation to facilitate firms’ recordkeeping. The deadline for firms to notify CFA Institute of their claim of compliance is 30 June 2016 with information as of 31 December 2015.

For questions related to this requirement, please contact: gipscompliance@cfainstitute.org.

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. Continue reading The Principles for Investment Reporting

The Cyber Team Needs a Quarterback

By Alan Jackson, CISSP

According to the Securities and Exchange Commission (2008), a firm must, “designate in writing an employee or employees to coordinate your information security program,” that has “sufficient authority and access to the institution’s managers, officers and directors to effectively implement the program and modify it as necessary” (p. 13696). This is the first, and most basic component of a cyber security program. At first glance, this seems like a very simple requirement. However, the program administrator should be carefully chosen, because the Chief Compliance Officer (CCO) cannot delegate away personal liability for a cyber security program. Therefore, if the CCO is going to delegate the responsibility for the cyber security program, the CCO must feel comfortable with what the administrator is doing. Continue reading The Cyber Team Needs a Quarterback

Top 5 Issues in Annual Disclosure Presentations

By Alexander Cook, CIPM

During the course of a verification, we as verifiers review the firm’s GIPS® compliant disclosure presentations. For new and experienced firms alike there are usually a few things that are brought up and discussed. The following are examples of the most common areas firms question or have problems with during a verification.

#1 Claim of Compliance

One of the most common issues we see amongst advisors who are new to GIPS is the claim of compliance. For firms that have been verified, GIPS requires one of two claims of compliance be used in every GIPS compliant disclosure presentation. Which claim of compliance is appropriate to the given disclosure presentation depends on whether or not the composite receives a performance exam.Oftentimes advisors who are new to GIPS will add content to the language of the claim of compliance. For example, an advisor might think that “XYZ Investments is a registered investment advisor that claims compliance with the Global Investment Performance Standards” fulfills the requirement to disclose the firm’s definition as well as the requirement for the claim of compliance. However, the claim of compliance must contain the exact wording of the claim of compliance set forth in the GIPS standards. In this scenario, we as verifiers would need to receive a revised disclosure presentation with the correct claim of compliance prior to issuing an opinion.

#2 Model Returns

Many advisors who are new to GIPS have questions about model returns. While GIPS does permit model performance to be shown as information that is supplemental to the compliant presentation, linking model returns to actual returns is not allowed.The underlying principles of the GIPS standards are fair representation and full disclosure. With that being said, linking model returns to actual returns is not allowed as it is considered misleading and unrepresentative of the composite’s performance.

#3 Fee Schedule

GIPS requires that the fee schedule be disclosed for the compliant presentation. Oftentimes fees can vary between individual accounts within the composite. It is important to remember that the fee schedule must reflect the firm’s investment management fees that are applicable to prospective clients for the particular composite. For example, if the fee schedule is 1% on the first $1 million, 0.75% on the next $4 million, and 0.50% on everything over $5 million, a disclosure which reads “the fee schedule for ABC composite varies from 0.50% to 1%” is not acceptable. It is important to note that referencing another document that includes the fee schedule does not satisfy this requirement.

#4 Inception Date vs. Creation Date

GIPS requires the composite’s creation date be disclosed.  The composite’s creation date is the date that the firm decided to group the accounts together into a composite. This is not the same as the composite’s inception date – which is the initial date of the composite’s performance record. It is possible for the composite’s inception date and creation date to be the same, but in general they are different.

It is common for advisors who are new to GIPS to confuse creation date for inception date and incorrectly disclose the composite’s inception date. There is nothing wrong with disclosing the inception date, but for GIPS purposes it’s important to remember that it is mandatory to disclose the creation date.

#5 Changes to the Benchmark

During the history of a composite it may become necessary for the firm to change the benchmark that the composite is being measured against. Whatever the reason for the change, it is important to remember that the benchmark should never be changed primarily to make historical performance look better by lowering the benchmark return. The firm must disclose the date of, description of, and the reason for the benchmark change. In addition, firms are encouraged to continue to present the old benchmark.

Continue reading Top 5 Issues in Annual Disclosure Presentations

FAQ: GIPS® Compliance & Verification

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:

  1. The desire to adhere to industry-best-practices will provide internal and external assurance that performance is being calculated, presented, and disclosed appropriately.
  2. 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.
  3. 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
541.842.2702 Direct
Jamie Stewart
Client Relations Associate
541.842.8422 Direct