How To Become GIPS Compliant
GIPS Sections Overview
The Global Investment Performance Standards (GIPS®) for Firms are divided into eight sections, which are as follows:
As a first step in achieving GIPS compliance, therefore, it is critical that those who are championing compliance become knowledgeable about the GIPS standards. A good way to gain this knowledge is to read through the GIPS Standards for Firms and the related GIPS® Standards Handbook for Firms (hereafter, the GIPS Handbook). Each section of the GIPS standards contains provisions, which are either requirements or recommendations. GIPS Requirements must be followed. GIPS Recommendations do not need to be followed but represent best practices that firms should adopt.
GIPS Process
Depending on your firm’s size and complexity, any GIPS compliance project is a series of approximately 12 sequential steps that ‘breaks down’ the GIPS handbook into a logical, ‘building block’ type of format. Each step that has been created was refined over time, implementing new ideas/techniques/information based off each client experience.
Before a firm can begin to claim compliance with the GIPS Standards, the firm must have completed all of the necessary steps to ensure that the firm is meeting all of the GIPS requirements. 2 project streams happen simultaneously; one stream consists of creating the actual data, and the stream consists of creating all of the GIPS policies and procedures.
Becoming GIPS Compliant is a process that can be somewhat standardized in nature, but is realistically specific to each firm undergoing the compliance effort. I partner with the firm and take a hands on approach to each and every engagement.
Each of the primary steps follows the same processes, such that:
Present the information to the GIPS project members in written format that is easily digestible. Explanations of ‘why’ this rule/step exists and real world scenarios are provided, potential roadblocks are explained/provided/uncovered and supporting documentation is illustrated. GIPS Policy manual templates with sample verbiage, that applies specifically to your firm, are also provided.
Daily/Weekly/Bi-weekly meetings are set up to verbally discuss the information presented, answer questions and talk through the information provided.
After the meeting, GIPS project team members decide what works best for their firm and discusses internally.
A follow-up meeting is set up to either a) continue discussions or b) finalize that step for eventual firm-wide implementation into the GIPS Policy Manual.
Then, onto the next primary step, repeating the same 4 processes above, for each primary step.
The process starts with the GIPS team creation, and ends with the creation of the GIPS Report, and eventual voluntary GIPS Verification. GIPS compliance is not a stand-alone, one-time project. GIPS Compliance must be continually maintained on an ongoing basis. That is why GIPS project team members learn the ‘whys’ and ‘hows’ so that everyone learns the process, to ensure a smooth, and efficient hand-off.
Sample Step Illustrations
While it is not feasible to detail out the entire GIPS compliance process, below are a few sample steps which are needed to bring a firm into GIPS compliance.
gips firm definition
The first item that is necessary for compliance is to create the Definition of the Firm. This is how the Firm ‘holds itself out to the public’.
gips composite construction
The firm must build a set of GIPS composites that will accurately represent the firm's investment strategies.
gips portability rules
Specific guidelines must be followed in order for a Firm to utilize a historical track record from a previous firm.
gips report
The entire GIPS effort is encompassed within this GIPS report, and all of your Firm’s Efforts amounts to this primarily one page document.
gips prospective client definition
Creating the definition of a GIPS Prospective client can be challenging, but doesn't have to be.
gips advertising guidelines
Requirements must be met if a firm is going to mention its claim of GIPS compliance in GIPS advertising materials.
GIPS carve outs
Carve Outs of accounts can be included in GIPS Composites if certain requirements are met.
GIPS error correction
Error Correction policies should include procedures for documenting errors in GIPS compliant presentations.
Case Studies
Quarterly vs Annual GIPS Verifications
While these two words are similar, they have very different meanings and implications in GIPS Performance Measurement.
Quarterly vs Annual GIPS Verifications
Is your Firm being GIPS Verified on a Quarterly or Annual basis? Is there a difference?
Sample Client Engagements
A 30 year old global investment management firm wanted to become GIPS compliant. A 30 year track record was created for this firm, with the entirety of the firm becoming historically GIPS complaint for that entire historical time period. Dual bookkeeping accounting was achieved during this process (legacy and future state processes running simultaneously) until the firm was ultimately able to claim its GIPS compliance.
Size: Assets Under Management – $3b
Account Types: Wrap programs, mutual funds and small to large managed accounts
Investment Vehicles: US Equity & Fixed income investments, with ADRs for foreign exposure
Accounts Under Management: 20,000+
Major Hurdle: Creating a historical performance track record starting in 1979
A small wealth management firm desired to become GIPS complaint in order to enter into the institutional marketplace. This firm hired me to bring this them into a GIPS compliance state, while revamping their entire operational processes to maintain its claim of GIPS compliance on a go-forward basis.
Size: Assets Under Management – $1b
Account Types: Wealth adviser-based account structures
Investment Vehicles: US Equity & Fixed income investments, ETFs and mutual funds
Accounts Under Management: 250+
Major Hurdle: Re-papering accounts to coincide with GIPS composite inclusion rules
