GIPS Recordkeeping Requirements
It is important to determine if your firm has kept the information that will support your returns before starting any GIPS compliance project. A GIPS compliant firm must maintain records to support its claim of compliance on a firm-wide basis. Please read through the summary of the GIPS recordkeeping requirements below. Don't stress, I'm here to help!
GIPS Requirement 1.a.25 - gips dATA rEQUIREMENTS
All data and information necessary to support all items included in GIPS Composite Reports, GIPS Pooled Fund Reports, and GIPS advertisements must be captured, maintained, and available within a reasonable time frame, for all periods presented in these reports and advertisements.
GIPS Requirement 1.a.25 - GIPS CLAIM OF cOMPLIANCE
The firm is responsible for its claim of compliance with the GIPS standards and must ensure that the records and information provided by any third party on which the firm relies meet the requirements of the GIPS standards.
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The GIPS Recordkeeping Requirements require that firms must maintain all policies and procedures (both current and previous versions) that support the GIPS claim of compliance.
If you have an individual account return, all of the information needed to derive that return must be kept. If you have a GIPS composite return, then all of the individual account returns that support the composite return must be available.
Possible portfolio level return information documentation includes:
>Monthly custodial statements & Reconciliation reports, if any
>Transaction reports that include:
Cash flows
Purchases/Sales
Receipts/Disbursements
Receives/Delivers
Interest/Dividends
Management fees (paid in or out of the account)
Commissions
Trade ticket reports
Corporate action information
>Monthly holdings reports that include:
Accrual information at the total account level & Shares/Prices/Values of each security
>Billing information on each account
>Information on the return calculation methodology used
>Monthly Gross of fees return streams on each account
>Account inception dates
Possible composite level return information documentation includes:
>All accounts in the composite (including closed accounts)
Closed account records can be obtained using the following: Official termination letter from the client, Letter of authorization instructing you to liquidate the account. If you do not have access to any type of official termination information, you can use Trading Activity records that prove Trading activity in the account. Meaning, this will prove that you 'lost' the account and you LOST discretion on the account (discretion is key).
>Account returns & market values for weighting purposes
>Number of portfolios in the composite and composite assets presented at least as of each annual end
>Support for the composite dispersion calculation
>Fee information for the Net of Fees returns that were calculated using model fees (if that method was used)
A Firm must maintain records to support WHY a portfolio was assigned to a specific composite OR why it was EXCLUDED from all composites. Composite assignment information includes:
>Composite definitions (inclusion criteria used)
>Support for why portfolios were excluded from composites
>Investment management agreements Emails or other correspondence with clients regarding documented changes to a portfolio's investment mandate
>Client reports & correspondence
>Reports provided to clients, including attribution information, if utilized to help determine composite assignment
For Composites that contain Limited Partnership accounts and/or Limited Partnership Composites:
>Balance sheets of the individual partners, along with the General Partner. Typically, the GP doesn't pay management fees, therefore, as long as that is the oldest participant, that can be used to generate the Gross performance, and then apply a Model fee to generate the net returns
>Trial Balance/Capital Account files, along with the Fee and participation percentage should be obtained.
>The investments that the LP are invested in
>Fee rates
>Participant letter that shows the percentage of ownership within the LP
>Audited financial statements from the accounting firm, with letters
Third party service provider information:
>Documentation from these sources that state that the records maintained by them meet the requirements of the standards
>When firms utilize 3rd party service providers, firms are encouraged to ensure that they have adequate service level agreements to provide the historical records necessary, both currently and at a date in the future. For Wrap accounts, some firms do not maintain or have access to the data to support the returns via the Wrap channel. In these instances, firms may:
Place reliance on the performance calculated and reported by the wrap fee/SMA sponsor. This can be done at the Aggregate level (viewing all accounts as one portfolio) or individual portfolio level. However, the Firm must be satisfied that the information supplied by the sponsor firm CAN be supported based on the GIPS standards.
Utilize Shadow Accounting to track the wrap fee/SMA portfolios on their own portfolio accounting system.
Exclude the wrap fee/SMA division from the Definition of the Firm.
Keep all of your account statements, regardless of any government specific-year requirement. The data doesn't have to be in electronic format, paper statements are fine, they just need to be accessible.
If you are converting to a new system, get your data from the old system BEFORE you begin your conversion project.
Catastrophic events (earthquakes, floods) can also make the case as to why this information may not be available to support the historical documentation. You basically don't lose your compliance, but you just need to disclose why you no longer have the records (system conversions do not apply here). This disclosure MUST include the reason why the records are unavailable and state that the firm is unable to duplicate the records.
GIPS AND THE SEC
A significant departure from regulatory requirements in the US is that the GIPS standards require that all records deemed necessary by the firm must be maintained for each year they are presented in a GIPS Report. Therefore, if a firm is presenting a rolling ten years of annual returns, when a year drops off of the GIPS Report and the most recent year is added, the firm is no longer required to maintain the supporting records for the year that was removed.
According to SEC requirements, investment advisers must retain all documentation that substantiates all performance that is currently being advertised or has been advertised for the past five (5) years. This includes all accounts, books, internal working papers, and any other records or documents that form the basis for or demonstrate the calculation of the performance or rate of return of any or all performance included in any advertising or marketing materials. Most importantly, however, unlike the requirements of the GIPS standards, the SEC requires that documentation be retained for at least five (5) years after an adviser stops advertising the relevant performance, as opposed to the GIPS standard of no longer being required to maintain the documentation once the time period is no longer included in the GIPS Report.
*Information is created from a variety/multiple sources of CFA Institute materials.
