Performance Perspectives Blog

Can Investment Consultants comply with the GIPS standards?

by | Nov 18, 2016

consultant

On the CIPM(R) group of LinkedIn I saw the following question posed: “Has anyone heard of GIPS being implemented for Investment Consulting firms? I.e., can investment consultants claim compliance with GIPS?

Someone offered the following response: “That’s a big ‘NO’. Only firms (or asset owners) that actually manage the assets can claim compliance with the standards. I’ll use a quote from a reading on the CIPM syllabus to explain: ‘Second, only investment management firms that actually manage assets can claim compliance with the Standards. Plan sponsors and consultants cannot make a claim of compliance unless they actually manage assets for which they are making a claim of compliance. They can claim to endorse the Standards and/or require that their investment managers comply with the Standards. Similarly, software (and the vendors who supply software) cannot be “compliant.” Software can assist firms in achieving compliance with the GIPS standards (e.g., by calculating performance in a manner consistent with the calculation requirements of the Standards) but only an investment management firm can claim compliance once the firm has satisfied all requirements of the Standards.”

This is technically the correct response. But …

Investment Consultants & GIPS compliance: why not?

I elected to respond, as well: ” I have not [heard of GIPS being implemented for Investment Consultants], but believe that the Standards SHOULD apply. I agree with Joe that they apply only to firms who manage assets, but we should look to extend them to consulting firms. Given that the GIPS Executive Committee is now working on ‘GIPS 2020,’ the Standards next edition, why not broaden them in such a way that investment consulting firms can apply, too? Recall that IMCA, in 1993, offered a competing standard to the AIMR-PPS (the predecessor to GIPS). Clearly, this segment of the market has supported such standards since the beginning. Compliance by firms like yours is a worthy goal.”

That said, I recall a similar comment appearing in Pensions & Investments several years ago, decrying the notion of a pension fund claiming compliance. I wrote a response, again technically agreeing with the writer, but asking “why not?” What would be the harm?

And now, today, we have an entire guidance statement devoted to asset owner compliance.

Further, overlay managers technically do not manage assets, and yet they can comply.

My belief is that the Standards could easily be transferred to investment consultants. Granted, rules would need some adjusting, but why not? Why wouldn’t we want to extend GIPS to this segment of our market? Surely, this could be a topic for those working on GIPS 2020.