Kathy Valentine
+1 (434) 951-5348
kathy.valentine@cfainstitute.org
GIPS
Executive Committee Issues Statement on Mandatory Verification
Verification still strongly
encouraged, but will not be made mandatory
CHARLOTTESVILLE, Va., November 8, 2007 – The nine-member GIPS Executive Committee (EC), the decision-making body for the Global Investment Performance Standards (GIPS), announced that it will not recommend mandatory verification for GIPS-compliant firms and issued the following statement:
“After reviewing the 806 responses and feedback from the GIPS Questionnaire on ‘Compliance, Verification and 2010 Review,’ and considerable deliberations of the Verification/Practitioner Subcommittee on the requirement for verification, the EC has decided to propose a change in the current GIPS compliance statement to include an explicit disclosure of whether or not the firm has been verified. This proposal will be included as part of the GIPS 2010 Exposure Draft. The EC continues to strongly encourage firms to be verified, but does not consider it appropriate to require verification. Therefore, any references to expected future mandatory verification will be removed.”
The GIPS standards, first conceptualized 20 years ago, are a set of standardized, industry-wide ethical principles that provide investment firms with guidance on how to calculate and report their investment results to prospective clients. The GIPS standards were based on and preceded in North America by the AIMR-PPS standards.
The EC conducted a research survey to collect input on a variety of topics to be considered as part of the 2010 review of the GIPS standards, including issues related to whether to mandate verification. Twenty GIPS country sponsors and 806 stakeholders provided input on some or all of the questions in the survey. This feedback will be instrumental in planning the GIPS 2010 review and the future of the GIPS standards.
“The majority of the survey responses from the GIPS country sponsors and stakeholders demonstrate their belief that while independent verification increases an investment manager’s credibility, it could also create barriers to new firms becoming compliant with the GIPS standards,” said Jonathan Boersma, CFA, executive director of the GIPS standards at CFA Institute, which developed and administers the GIPS standards. “We found that a low number of investors require firms to be verified when conducting manager searches.”
Boersma added that “the EC’s decision not to require mandatory verification reflects the view that verification should be a market-driven decision – if it is important to investors, they will demand that their investment managers be verified. The EC encourages verification and believes it represents best practice. We will also be reaching out to investors and consultants to inform them of the benefits of verification.”
In a move aimed to help raise awareness of verification, the GIPS EC is proposing to require investment managers that claim compliance with the GIPS standards to make an explicit disclosure as to whether or not the firm has been verified.
“This is a major step in the continuing development of the GIPS standards,” said Stefan Illmer, chair of the GIPS EC. “We want all investment managers, regulators, and clients to better understand the value of compliance with the Standards and how they ensure fair representation, full disclosure, and apples-to-apples comparisons of investment performance.”
GIPS Executive Committee:
The purpose of the nine-member Executive Committee (EC) is to promote the adoption and implementation of a single investment performance presentation standard – the Global Investment Performance Standards (GIPS) – throughout the world as the common method for calculating and presenting investment performance. The EC serves as the effective decision-making authority for the GIPS standards and replaces the former Investment Performance Council (IPC).
CFA Institute:
CFA Institute is the global, non-profit professional association that administers the Chartered Financial Analyst® (CFA®) curriculum and examination program worldwide, publishes research, conducts professional-development programs, and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry. With the CFA Institute Centre for Financial Market Integrity, CFA Institute is dedicated to promoting fair and open markets on behalf of its 96,000 members, investment professionals who practice in 133 countries. It acts as an advocate for investor protection and high professional standards. More information may be found at www.cfainstitute.org. (Bloomberg users can find CFA Institute at 497458Z).