An investment firm, 'Global Wealth Management,' claims compliance with GIPS. The firm has a composite for its 'US Large-Cap Equity' strategy. In its GIPS-compliant performance presentation, the firm includes a disclaimer stating, 'GIPS compliance has been verified by an independent third party; however, the verifier does not guarantee the accuracy of specific composite returns.' The firm also states that 'all fee-paying discretionary portfolios are included in at least one composite.' Which of the following statements about Global Wealth Management's GIPS compliance is most accurate?
- AThe firm's claim of GIPS compliance is acceptable if it meets all other GIPS requirements.
- BThe firm's disclosure regarding the verifier's guarantee of specific returns is non-compliant with GIPS.
- CThe firm is required to include non-discretionary portfolios in composites if they are fee-paying.
- DThe firm's inclusion of 'all fee-paying discretionary portfolios' in composites is non-compliant with GIPS.
Show answer & explanationAnswer & explanation
Correct answer: A. The firm's claim of GIPS compliance is acceptable if it meets all other GIPS requirements.
GIPS allows firms to claim compliance if they meet all GIPS requirements. The statements provided in the question are actually compliant with GIPS. GIPS requires that all fee-paying discretionary portfolios are included in at least one composite. Also, a GIPS verification report must state that verification does not assure the accuracy of any specific composite. Therefore, these practices are consistent with GIPS.
Why the other options are wrong
- B. This statement is compliant. GIPS requires that the verification report state that verification does not assure the accuracy of any specific composite.
- C. GIPS explicitly states that only discretionary portfolios must be included in composites. Non-discretionary portfolios are excluded.
- D. This statement is compliant. GIPS explicitly requires that all fee-paying discretionary portfolios are included in at least one composite.
GIPS Compliance Requirements
The Global Investment Performance Standards (GIPS) are a set of ethical standards for investment performance presentation, ensuring fair representation and full disclosure of investment performance.
- All fee-paying discretionary portfolios must be included in a composite.
- Firms must define 'firm' and adhere to specific calculation and presentation standards.
- Verification is optional but must be performed by an independent third party for the entire firm.
Memory trick: GIPS: Ethical, Transparent, Comparable Performance.