New GIPS Standards Compliance Requirement: Make Your Voice Heard
The Global Investment Performance Standards (GIPS®) are a voluntary set of standards based on the fundamental principles of fair representation and full disclosure of performance results that were created to provide an ethical framework for the calculation and presentation of the investment performance history of an investment management firm. The exact reach and impact of the GIPS standards has been difficult to gauge since their adoption in 1999, despite the apparent widespread industry acceptance and popularity among investors. Since 1999, organizations in 37 markets have been formally endorsed as sponsors of the GIPS standards, but the number of firms claiming compliance with the standards within those markets is still unknown. Independent and third-party surveys as well as consultant databases indicate that approximately 80% of investment firms claim compliance, but that is based on sampling and targeted surveys. The lack of conclusive data on the subject has been a source of frustration for many firms and individuals across the industry and regulators, media, and various other stakeholders have expressed interest over the years.
After much consideration and deliberation, the GIPS Executive Committee, as the governing body for the GIPS standards, is seeking public comments on the proposed requirement that firms claiming compliance with the GIPS standards notify CFA Institute. Information on how many firms claim compliance will help GIPS standards stakeholders better understand where growth in the adoption of the GIPS standards is taking place, which markets need more resources, where more promotional efforts should be focused, etc.
The required notification form will collect information such as firm type, region/province, firm assets, asset classes managed, investment vehicles offered, and verification status. While firm-specific information will be kept confidential, the summary information or statistics from the database may be released publicly. The proposal also states that a list of firms claiming compliance with the GIPS standards will be posted on the GIPS standards website unless otherwise requested. This may also potentially motivate firms not currently claiming compliance to do so, resulting in broader adoption.
The proposed effective date for this requirement is 1 January 2015, and firms will be required to submit their notification form by 31 March 2015 (with data as of 31 December 2014). The proposal suggests that firms be required to update this information on an annual basis. The exposure draft has been released for a 90-day public comment period ending on 7 July 2014. Your thoughts and any concerns or questions are very important to the GIPS Executive Committee, and every comment letter will be carefully considered. Stay tuned, and please submit your comment letter. All industry feedback is greatly appreciated.
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Some concerns about the proposal:
* Increased Costs for firms (either from CFA to register or from Verifiers to cover their increased cost to register)
* Confidentiality of information- How will it be kept confidential?
* March 31st would be a challenging deadline to have verification completed. During the first quarter there are a numberous things that must be done: Accounts reconciled, year end items, client reporting, GIPS meeting, GIPS procedures, performance reports, sending information to verifier and waiting for them to ask for more information, tax filings, regulatory filings, etc. This date must to be extended.
* More work for what purpose? The GIPS handbook is already over 400 pages long and requires extensive work and meetings to follow the requirements. Missing one small item puts firms at risk for not following GIPS. This is just another item that could be missed.