Once a firm has achieved compliance with the Global Investment Performance Standards (GIPS®), they are faced with the challenge of maintaining GIPS compliance. What do we mean by that?
Well, such things as:
- Keeping up with the Standards (being aware of changes, the issuance of new guidance statements and the distribution of new Q&As)
- Handling new accounts (deciding whether they’re discretionary or not, and what composite(s) they should go into)
- Making decisions about new composites
- Making decisions about terminated composites
- Dealing with issues surrounding mergers, acquisitions, and the hiring of management teams from other firms
- Making decisions regarding benchmark changes
- Making decisions about changes to strategy, and the impact on composites and membership
- Deciding on changes to firm policies
- Handling errors
- Selecting the firm’s verifier
- Preparing for the firm’s annual verification
- Making decisions about composite examinations
- Making changes to the firm’s definition
- and much more.
And so, how is this to be done? In general, there are two approaches:
- Form a “GIPS committee”
- Assign responsibilities to specific individuals within the firm.
Maintaining GIPS Compliance with a committee
It’s likely that the firm had a committee when it went down the path to compliance. And so, it wouldn’t be inappropriate to keep that same committee going forward. However, not every firm uses a committee to achieve compliance, but might find having one after they’ve achieved compliance to be appropriate.
Committees often have regular monthly meetings, to review changes that may have occurred during the month. Since GIPS now prohibits the adding or removing of accounts within a month, the entry and exiting has to be done monthly, so such a frequency for meetings probably makes sense.
There may, of course, be the need for ad hoc meetings, to respond to issues that may arise. This may occur if the firm is thinking of bringing on a management team or acquiring another firm, and there’s a need to discuss the implications of such actions relative to the GIPS standards and the firm’s compliance.
A committee can add a degree of formality, structure, and discipline to the process of maintaining GIPS compliance. However, some might feel that committees don’t work well in getting things done; for example, think about the following quote you may be familiar with:
Note: my source for this clipart is here.
By the way, the original quote, attributed to Sir Alexander Arnold Constantine Issigonis, reads “A camel is a horse designed by a committee.”
Some may feel that committees slow the process down, and that an alternative approach would be better.
Maintaining GIPS compliance without a committee
An alternative to a committee would be to assign responsibilities to certain individuals, and indicating what additional approvals might be required, and by whom. With such an approach, meetings are generally avoided, and individuals carry out their tasks at various times during the month, as the need arises.
Documenting how you’re maintaining GIPS compliance
Regardless of whether your firm goes the committee route or not, you need to document how you maintain compliance in your firm’s P&P (Policies & Procedures). This should address many, if not most, of the points identified above.
Maintaining GIPS Compliance: committee or not?
I think it nicely contrasts some of the challenges with committees.
Some organizations like committees, and see value in having multiple folks involved; others prefer to delegate responsibilities to select individuals, and to provide oversight and an approval process, when necessary.
What do YOU think about this topic?
What do YOU think works best?
We’d love to hear from you.
To learn more about our support for the Standards as well as our verification services, please go here, or contact Chris Spaulding at 732-873-5700, or by email at CSpaulding@SpauldingGrp.com.