Setting up a holiday game of Monopoly takes time and opens the door to endless possibilities, but knowing the rules for every trip around the board is just as important. Similarly, achieving compliance with the Global Investment Performance Standards (GIPS®) is a significant undertaking for most firms and asset owners, requiring careful planning and resources. While ongoing monitoring and maintenance should feel like the easy part, firms newly claiming compliance need to recognize that this commitment will influence workflows in ways the initial implementation didn’t. Just like Monopoly, understanding and consistently applying the rules is what keeps the game fair and your compliance strong.

GIPS Report Distribution

GIPS Report Distribution is one of the most common requirements freshly GIPS Compliant firms struggle with most often. GIPS Reports must be provided to prospective clients (and prospective investors in limited distribution pooled funds) when they first become a prospect, and once every 12 months for ongoing prospects. This includes all databases and consultants the firm provides performance to. The nuance to this requirement is that firms must be able to demonstrate how they have met this requirement.  This often is met by firms by maintaining a distribution list or log noting which reports were provided to which parties and at what time. This is one of the requirements we see freshly GIPS Compliant firms struggle with most often.

See our GIPS Report Distribution blog which answers some of the most common questions here.

New Composite / Fund Considerations

While a firm is getting into compliance, new composites might be created or redefined more than once to be more representative of the strategy, lower dispersion, or maybe remove a significant cash flow policy to make maintenance more streamlined.  After the firm claims compliance with the GIPS Standards, there are additional considerations that need to be made when the firm creates a new composite or fund. A few considerations include:

• Update the firm’s list of composite descriptions or list of funds in the Policy Manual

• Create a partial-year GIPS Composite or GIPS Pooled Fund Report to provide to prospective clients/investors.  If this is a new composite created in the present with historical performance, the firm will want to create the GIPS Report through the most recent year-end, at a minimum.

• Review and update any impacted firm fact sheets and presentations which include performance.

GIPS Advertising Guidelines

If your firm mentions GIPS Compliance within any marketing materials, these will become subject to the GIPS Advertising Guidelines. There are several  requirements based on whether  performance is shown. While these requirements are not complicated, this is an area that is often overlooked by freshly GIPS Compliant firms.

See specific requirements of the GIPS Advertising Guidelines.

Error Correction & Documentation

Error correction is another important procedural consideration for firms new   to GIPS Compliance. Your GIPS Policy Manual will have error materiality thresholds which may have been established during the getting into compliance phase; now the policy needs to be followed throughout the year. These policies are only required to be applied to errors within the GIPS Reports, and not to other marketing materials, but firms can elect to use them as a best practice across all marketing materials. Errors of any materiality in the firm’s GIPS Reports should be documented, and this error log will be requested by your verifier. If any questions arise regarding how to apply your error correction policy, most verification firms welcome a call to walk through your documented process with an actual error.

GIPS Compliance Notification Form

The GIPS Compliance notification form is an annual requirement, not just when a firm initially claims compliance.  Firms must notify CFA institute of your intention to continue claiming compliance with the GIPS standards between January 1 and June 30 each year. This is a very easy requirement and shouldn’t take more than 10 minutes annually. A link to the notification forms can be found here. Note that there is a separate form for newly GIPS Compliant firms and ongoing GIPS Compliant firms.

Monitor Regulatory Updates & GIPS Standards Changes

GIPS Compliant firms are required to have policies to monitor updates to any relevant requirements regarding the calculation and presentation of performance, both from regulators (the SEC in the U.S.) and the GIPS standards governing body, CFA Institute. One of the easiest ways to become aware of upcoming changes is to subscribe to CFA institute’s GIPS standards newsletter. The firm may also attend various industry events, subscribe to their verifier’s newsletter, and search the Q&A database periodically.

Verifier Independence

If your GIPS Compliant firm is verified, there is an additional consideration as to the independence of your firm’s verifier, whether prior to the initial verification of your new claim of compliance or during ongoing  annual assessments. Verifiers are required to conduct their work independent of their clients in an unbiased manner, because the verification opinion is relied on by potential investors and other market participants and stakeholders.  Verifiers cannot examine their own work, function in decision making roles, serve in an advocacy role or have mutual or conflicting roles with clients, and the GIPS Standards require verifiers to document their policies on independence at both the firm and employee level.  

This requirement is particularly important if your verification firm offers other services. All verification firms must maintain and provide their own independence policies for each verification, and all GIPS compliant  firms are required to understand  those policies and their verifier’s assessment of independence. Read our article on selecting a verifier.

Whether you are just starting the journey toward GIPS Compliance or maintaining an established process, our team brings hands-on experience, industry insight, and a commitment to making compliance feel purposeful and rewarding. We’d love to help you stay out of jail, collect $200, and enjoy the journey.  Contact us at connect@cascadecompliance.com.

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