Performance Perspectives Blog

And so, how many levels ARE THERE to GIPS verification?

by | May 29, 2014

Don't be confused about the levels of GIPS verificationThere appears to still be some confusion regarding “levels” of verification, when it comes to the Global Investment Performance Standards (GIPS(R)). None of us who lived through it, I’m sure, want to return to the days of the AIMR Performance Presentation Standards (AIMR-PPS(R)), where confusion reigned for several years, because of the ever changing definition of the levels of verification. Somehow, the problem has shown up in the world of GIPS.

There are some folks who apparently believe or suggest that verification is somehow the “minimum level” that a firm can undertake; that is far from the case. Why do I say that?

Because there is only one level to verification: ONE!

What about GIPS Examinations, you may ask? Examinations are NOT a level of verification! They should not be confused with verifications. In fact, in most of the world, they’re rarely performed!

The original draft of the GIPS standards only had firm verification; but apparently after pressure from some, what had been called “level 2 verifications” under the AIMR-PPS appeared, but as “examinations.” This step is NOT a level of verification; there is only ONE level and it’s called “verification” and is done at the firm level. End of story!

I have commented many times on my belief that examinations are, in general, a cost, not an investment, whereas compliance and verification are investments.

Our firm conducts verifications for more than 150 firms throughout the world but examinations for only a few. Yes, we do conduct examinations and are happy to, because that means more revenue for us (and we are, after all, a “for profit” company); we’re also happy to do whatever our clients want. However, we always discourage our clients from doing them.: we feel that if it’s not a good investment,¬†they shouldn’t spend the money. Rarely do new clients that we’ve won from other verifiers want to continue with examinations: they acknowledge that the money they’ve spent over the past several years has not benefitted them at all. We always guarantee our clients that if they discover they need examinations done, we will be there immediately, even if it means coming on over a weekend, to meet their requirements (to date, no one has made such a request).

When someone implies that verification is the “minimum level,” it makes folks think that of course we want to do more than the minimum! Or, are we at risk if we only do the minimum? If a verifier suggests that verification is “the minimum level,” in my view they’re misleading their prospects and clients; if others do this, then they’re simply confused. I remain prepared to debate the subject of the worthiness of examinations, but to date, no one has shown any interest. To me, they’re generally a waste of money. Yes, of course, there are times when they’re necessary and should be done, but in most cases they shouldn’t be.

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