On episode 64 of the CCO Buzz, Lead Sr. Compliance Consultant Tina Mitchell discusses the revised Global Investment Performance Standards effective as of January 1, 2020.
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CCO Buzz: Hello and welcome back to the CCO Buzz! Lead Sr. Compliance Consultant Tina Mitchell joins us for this episode to discuss the revised Global Investment Performance Standards, effective January 1, 2020. Let’s hear what Tina has to say on this important topic as we kick off the new year.
Tina Mitchell: For those of you claiming compliance with the Global Investment Performance Standards, also known as GIPS, you are probably aware that the revised standards become effective January 1, 2020.
The CFA Institute issued three standards for 2020, which cover asset owners, investment management firms, and GIPS verifiers. Prior GIPS Standards only focused on investment management firms. But for today’s CCO Buzz, I am going to focus only on the revised standards covering investment management firms for 2020.
As an aside, I want to mention that the SEC recently released a proposal, and this is to change the marketing and advertising regulations under the [Investment] Advisers Act of 1940. In the release, the SEC has proposed to generally prohibit firms from showing performance in marketing and advertising materials that’s based on a representative account and requiring firms to only use composite performance. We don’t know if that prohibition will be adopted in the final rule, but it’s important to be aware.
For investment management firms that publicly claim GIPS compliance in 2020, some of the main requirements include:
- Applying the requirements firm wide, not just on a composite basis.
- Having written policies and procedures that are used in establishing and following the GIPS standards, including the identification of changes and additions mandated in all the GIPS compliance statements, interpretations and Q&As that are issued by the CFA Institute.
- You have to comply with all applicable laws regarding the calculation and presentation of performance.
- You have to maintain a list of all firm composite descriptions and provide it upon request.
- You have to provide a complete GIPS composite report to all prospective clients and any updated version within 12 months if they are still a prospective client.
- GIPS composite reports must be updated annually with most recent annual period end information, and any material errors that occur during a year must be corrected promptly and redistributed.
- Composite benchmarks used must be in line with the composite strategy, the objectives and its mandate.
- You need to capture, maintain, and make available all data and information necessary to support all the items included in your GIPS composite reports and advertisements for all periods presented in such reports and advertisements.
- Firms cannot link actual performance to hypothetical performance.
- You have to follow specific requirements when linking performance from a past firm or affiliation.
- You must only present time weighted returns, unless certain criteria is met, then you can show money weighted returns.
- Firms claiming compliance with GIPS must annually notify the CFA Institute by filing a form.
- And you must maintain independence with any firm used for verifying the firm’s compliance.
So in addition to the above, firms also need to follow GIPS requirements for calculating and presenting composite performance, which are fully outlined in the GIPS Standards Handbook on the CFA Institute website.
GIPS compliance is not required. However, even if you’re not claiming compliance, the standards can serve as a great best practice tool for firms that currently show or want to begin showing composite performance.
If you need assistance with GIPS compliance or have any questions, feel free to contact us at 619-278-0020 or email us at info@corecls.com. Thank you.
CCO Buzz: Well that’s it for this week’s episode. If you’d like additional information, please check out our website at www.corecls.com. You can also follow us on Facebook, LinkedIn, or Twitter @CoreCls. Thank you, and we hope you tune-in to next week’s episode of the CCO Buzz.
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