Today’s post will discuss disclosing compliance.

Disclosing compliance

The claim of compliance statement has been changed (see ¶ I.4.A.1); it now reads: [Firm name] claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards.”

Additional wording is also required, and it varies on whether you’ve been verified or not, and if verified, whether or not the composite has been examined, so it can get a bit complicated.

If the firm has been verified but not examined you’ll also have:

“[Firm name] has been independently verified for the period [insert dates]. The verification report(s) is/are available upon request.

“Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPs standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.”

If the firm has been verified and the composite examined you’ll also have:

“[Firm name] has been independently verified for the period [insert dates].

“Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPs standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The [composite name] composite has been examined for the periods [insert dates]. The verification and performance examination reports are available upon request.”

And if the firm hasn’t been verified you need only have:

“[Firm name] has not been independently verified.”

Policies & Procedures

It is evident that Bernie Madoff’s illicit activities have had an impact on GIPS. You’re now required to have a policy to ensure the existence and ownership of client assets (see ¶ I.0.A.5). While on the surface this may seem onerous, it can be handled by simply ensuring that you regularly reconcile positions with your custodian.

Some legal additions

The standards now state that “firms must comply with all applicable laws and regulations regarding the calculation and presentation of performance” (see ¶ I.0A.2) and that they “must not present performance or performance-related information that is false or misleading” (see ¶ I.0A.3).

Read next week for revisions to return and risk calculations.

David Spaulding

David Spaulding

Founder & CEO, Spaulding Group