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Compliance Insights for 2024 Reporting

As year-end approaches, compliance with the GIPS standards and SEC Marketing Rule is top of mind for many firms. Our latest update highlights essential strategies for streamlining your tracking and reporting processes for marketing materials, ensuring your net-of-fees returns meet both the GIPS standards and SEC requirements, and conducting effective composite membership and data integrity reviews.

SEC Marketing Rule – Prescribed Time Periods

Beginning November 4, 2022, all performance presented in an SEC-registrant’s marketing materials must include the additional time period requirements. One-, five- and ten-year net performance must be included in marketing materials when presenting performance.

Ten Steps to GIPS® Compliance

Step 1 – Gain Management Support: Management must commit time and resources to bring the firm into compliance. Create a GIPS committee that includes leaders from different departments at the firm. Step 2 – Know the Standards: There is no way you’re going to get your whole firm to read the 400+ page GIPS Handbook or sit through a day-long work shop.

Understanding GIPS Standards Advisory Only Terminology

The roll-out of 2020 GIPS® is underway and currently open for comment. One of the more confusing provisions in the exposure draft is the proposed requirement to report Advisory Only Assets separate from GIPS Firm assets. This 2020 GIPS provision is not a big departure from prior guidance. It is important, however, to understand if you and your colleagues—and regulators—use the term “advisory only” assets differently than it is used in the 2020 GIPS Glossary. This article will define the terminology and help you assess the impact of the new terminology for your firm, if any. We’ll also line up the GIPS terminology with regulatory assets under management and provide clarifying examples.

2020 GIPS® Standards Q&As

This is a comprehensive list of Q&A’s released as part of the GIPS standards Newsletter, organized by subject matter. As CFA Institute continues to add Q&As through the GIPS Standards Newsletter, we will continue to update this page.

2020 GIPS® Standards – Bridging the Fund vs. Composite Divide

Key Concepts for Fund Managers Firms managing only commingled funds often question the relevance of creating GIPS-compliant composites for pooled funds that are essentially already of asset-weighted, strategy specific “composites.” The 2020 GIPS.

Hypothetical Performance Risk Alerts

These past few weeks, the SEC has charged 10 firms with violating the New Marketing Rule (NMR), and each of the firms charged share a common error: advertising hypothetical performance without establishing and implementing the required internal “policies and procedures reasonably designed to ensure that the performance is relevant to the likely financial situation and investment objectives of the intended audience.”

GIPS® Report Distribution Requirements

As firms consider their GIPS Report Distribution policies we have compiled pertinent questions from the GIPS Annual Conference to help compliant firms distribute GIPS Reports and ensure disclosures are properly included.

MWRs vs. TWRs – Are 2020 GIPS Standard Changes a Better Fit for Your Firm?

With the 2020 edition of the GIPS standards, firms claiming compliance with the GIPS standards now have a choice of whether to use time-weighted returns (TWRs) or money-weighted returns (MWRs).

SEC Portability Predecessor Performance

One of the more common questions we get asked by firms is whether they should use model or actual fees to calculate net-of-fee composite returns. With the soon-to-be-implemented SEC Marketing Rule requirements for net-of-fee composite performance calculations, many firms will need to reconsider their current calculation methodology to make the best decision going forward.

Navigating Actual vs. Model Net-of-Fee Performance

Money-Weighted Returns in Excel

Beyond “Don’t Use” – How (Not) to Calculate Money-Weighted Returns in Excel. If cost was of no matter, then asset managers would all own (fill in the blank with your favorite accounting system). For emerging asset management firms, cost does matter. When managing a start-up commingled fund, an investment firm only needs to calculate a single return stream to comply with best practices in the GIPS® standards. It’s hard to justify a six-figure expense when Microsoft Excel is free, never mind the pitfalls.

SEC Marketing Rule – Hypothetical & Extracted Performance

Hypothetical performance will be prohibited beginning November 4, 2022, unless the advisor takes specific steps to address its potentially misleading nature. The SEC’s goal with this portion of the rule is to ensure that advertisements containing hypothetical performance are only distributed to investors who have the financial expertise and resources to interpret the data and understand the risks and limitations of these types of presentations.

Selecting a Verifier

If you haven't yet evaluated your current verifier, the CFA Institute's verification questionnaire offers valuable questions for your consideration. In addition to the CFA Institute's questionnaire, this article provides supplementary insights that may prove beneficial as you evaluate your existing verification firm or search for a new one.

Cascade Compliance Blog