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Flashcards in Ethical and Professional Standards Deck (96):

CFA Institute Professional Conduct Program: Disciplinary Review Committee

  1. Part of the Board of Governors
  2. Responsible for the Professional Conduct Program 
  3. Enforces the Codes and Standards


CFA Institute Professional Conduct Program: Designated Officer 

  1. Member of the Professional Conduct Staff
  2. Conducts Inquiries related to professional conduct
  3. May decide:
    • no disciplinary sanctions appropriate,
    • to issue cautionary letter, or
    • to discipline member or candidate.
  4. Sanctions like condemnation by member's peers or suspension of participation in CFA program


CFA Institute Professional Conduct Program: Inquiries 

Inquiries prompted by:

  1. Self-disclosure
  2. Written complaints
  3. Evidence of misconduct
  4. Reports from CFA exam proctor


Code of Ethics (6)

  1. Act with integrity, competence, diligence, respect, and in an ethical manner with public, clients, prospects, employers, employees, or colleagues.
  2. Integrity of investment profession and client interests above personal interests
  3. Exercise reasonable care, independent judgement when making recommendations, conducting analyses, taking investment actions, and in other professional activities. 
  4. Practice and encourage others to practice in a professional, ethical manner, which reflects credit on themselves and the profession.
  5. Promote integrity; uphold rules governing capital markets.
  6. Maintain, improve professional competence and strive to do the same for other investment professionals.


Standards of Professional Conduct (7)

  1. Professionalism
  2. Integrity of Capital Markets
  3. Duties to Clients
  4. Duties to Employers
  5. Investment Analysis, Recommendations, and Acts
  6. Conflicts of Interest
  7. Responsibilities as a CFA Inst Member or Candidate


I) Professionalism: Tenets (4)

  1. Knowledge of the Law
  2. Independence and Objectivity
  3. Misrepresentation
  4. Misconduct


I) Professionalism: (A) Knowledge of the Law: Standard (3)

  1. Understand and comply with all laws, rules, and regulations (including Codes and Standards of any gov't, regulatory agency, or association governing prof activities
  2. Comply with most strict, law, rules, or regulation.
  3. Can't knowingly assist in violation, without dissociation


I) Professionalism: (A) Knowledge of the Law: Guidance (6)

  1. Most strict
  2. First, notify supervisor or compliance
  3. May confront wrongdoer directly
  4. Dissociate if necessary
  5. Inaction may be construed as participation
  6. No requirement to report violations to government authorities, except in appropriate cases.


I) Professionalism: (A) Knowledge of the Law: Recommended Procedures (6)

  1. Keep informed, regularly reviewed written compliance procedures, maintain files
  2. Seek compliance/legal advice as needed
  3. Encourage firms to adopt code of ethics
  4. Distribute information internally on application laws and regulations.
  5. Have written procedure for reporting suspected violations
  6. Members strongly encouraged to report violations by other members


I) Professionalism: (B) Independence and Objectivity: Standard (2)

(1) Use reasonable care, judgment to achieve and maintain independence in professional activities.

(2) Do not offer, solicit, or accept compensation that could compromise independence or objectivity.


I) Professionalism: (B) Independence and Objectivity: Guidance (9)

  1. Modest Gifts okay
  2. Distinguish between gifts from clients and gift from entities trying to influence a member's behavior
  3. May accept gifts from clients, but disclose to employer; get permission if the gift is for future performance.
  4. Members responsible for hiring managers should not accept travel, gifts, or entertainment that could impair objectivity.
  5. Investment banking relationships- do not bow to pressure to issue favorable research
  6. For issuer-paid research, flat-rate fee preferred; disclose.
  7. Members working for credit rating firms should avoid influence by issuing firms
  8. Users of credit ratings should be aware of this potential conflict.
  9. Best practice for analysts to pay for their own commercial travel to firms being analyzed or firm events.


I) Professionalism: (B) Independence and Objectivity: Recommended Procedures (5)

  1. Protect integrity of opinions-reports should reflect unbiased opinions
  2. Create a restricted list
  3. Restrict special cost arrangements
  4. Limit gifts; clear value limits by firms
  5. Be careful with IPO share allocations


I) Professionalism: (C) Misrepresentation: Standard (2)

Do not make misrepresentations related to investment analyses, recommendations, actions, or other professional activities.


I) Professionalism: (C) Misrepresentation: Guidance (4)

  1. Standards covers oral, written, and electronic communications
  2.  Do not misrepresent qualifications, services of self or firm, or performance record, characteristics of an investment
  3. Do not guarantee a certain return
  4. No plagiarism- written, oral, or electronic communication.


I) Professionalism: (C) Misrepresentation: Recommended Procedures

  1. Firm can assist employees by providing a written list of firm's available services and a description of the firm's qualifications.
  2. Maintain records of materials used to prepare research reports, and quote sources, except for recognized "financial and statistical reporting services"
  3. Models and analysis of others at the firm may be used without attribution
  4. Should encourage firm to establish procedures for verifying marketing claims or third parties recommended to clients.


I) Professionalism: (D) Misconduct: Standard

  1. Do not engage in any professional conduct involving fraud, deceit, or dishonesty, or
  2. Commit any act that reflects adversely on professional reputation, integrity, or competence.


I) Professionalism: (D) Misconduct: Guidance

The Standard covers conduct that may not be illegal, but could adversely affect member's ability to perform duties.


I) Professionalism: (D) Misconduct: Recommended Procedures 

(1) Adopt a code of ethics to which every employee must adhere

(2) Disseminate a list of potential violations and associated disciplinary sanctions

(3) Conduct background checks on potential employees- look for good character and eligibility to work in investment industry.


II) Integrity of Capital Markets: Tenets

(A) Material Nonpublic Information: Members in possession of nonpublic information that could affect an investment's value must not act or cause someone else to act on the information

(B) Market Manipulation: Do not engage in practices that could distort prices, or artificially inflate tradings volumes with intent to mislead market participants


II) Integrity of Capital Markets: (A) Material Nonpublic Information: Guidance (8)

  1. Material: if disclosure of information would affect a security's price or if an investor would want to know before making an investment decision
  2. If price effect is ambiguous, information may not be considered material
  3. Extends to info like upcoming rating change, or upcoming influential analysis.
  4. Info is nonpublic until available to the marketplace 
  5. Information available to analysts considered nonpublic until it is made available to general investors. 
  6. "Acts" include related swaps and options, and mutual funds with the security.
  7. If you possess material non-public information, act as if you did not know.

(8) Mosaic theory: no violation when an analyst combines non-material non-public information with public information to reach conclusion.


II) Integrity of Capital Markets: (A) Material Nonpublic Information: Recommended Procedures (4)

  1. Information barrier or "firewall" is recommended to control interdepartmental communications
  2. Information barrier includes use of a restricted list 
  3. Review employee trades
  4. Review/ restrict proprietary trading while firm is in possession of material non-public information


II)Integrity of Capital Markets: (B) Market Manipulation: Guidance (2)

  1. Do not engage in transaction based manipulation- give false impression of activity/price movement; gain dominant position in an asset to manipulate price of the asset or related derivative.
  2. Do not distribute false, misleading information


III) Duties to Clients and Prospective Clients: Tenets

  • (a) Loyalty, Prudence, and Care
  • (b) Fair Dealing
  • (c) Suitability
  • (d) Performance Presentation
  • (e) Preservation of Confidentiality


III) Duties to Clients: (A) Loyalty, Prudence, and Care: Standard (3)

  1. Duty of loyalty to client- act with reasonable care and exercise prudent judgment
  2. Act for benefit of client and place their interest before employer's or own interests
  3. Determine and comply with any applicable fiduciary duty


III) Duties to Clients: (A) Loyalty, Prudence, and Care: Guidance (8)

  1. Take investment actions in client's best interest
  2. Exercise prudence, care, skill, and diligence that a person familiar with such matters would use
  3. Follow applicable fiduciary duty
  4. "Client" may be investing public
  5. Manage pools of clients assets according to terms of governing documents
  6. Make investment decisions in context of total portfolio
  7. Vote proxies responsibly and disclose proxy voting policies to clients
  8. "Soft dollars" must benefit clients


III) Duties to Clients: (A) Loyalty, Prudence, and Care: Recommended Procedures (9)

  1. Follow rules and laws
  2. Establish client investment objectives
  3. Diversity
  4. Deal fairly with clients- investment actions
  5. Disclose all possible conflicts
  6. Vote proxies in best interest of clients and ultimate beneficiaries.
  7. Keep client information confidential
  8. Seek best trading execution for clients
  9. Place client interests first


III) Duties to Clients: (B) Fair Dealing: Standard (4)

Deal fairly with clients when:

  1. Providing investment analysis
  2. Making investment recommendations
  3. Taking investment action
  4. Engaging in other professional activity


III) Duties to Clients: (B) Fair Dealing: Guidance (5)

  1. No discrimination against clients when disseminating investment recommendations or taking investment actions
  2. Fair does not mean equal
  3. Different levels of service are okay as long as disclosed and do not disadvantage any clients.
  4. Investment recommendations:
    • ---- All clients must have fair chance to act on every recommendation
    • ---- If client is unaware of recommendation change, advise before accepting trade order.
  5. Investment actions
    • ---- Treat all clients fairly- consider investment objectives and circumstances
    • ---- disclose written allocation procedures
    • ---- do not disadvantage any clients when distributing "hot" issues


III) Duties to Clients: (B) Fair Dealing: Recommended Procedures 

  1. Limit number of people aware of upcoming changes
  2. Shorten time frame between decision and dissemination
  3. Have pre-dissemination guidelines
  4. Simultaneous dissemination
  5. Maintain list of clients and their holdings
  6. Disclose trade allocation procedures
  7. Review accounts regularly to ensure fair client treatment
  8. If firm offers different levels of service, disclose this fact to clients
  9. Deviation from strict pro rata allocation of IPO is sometimes okay (e.g. minimum block sizes)


III) Duties to Clients: (C) Suitability: Standard (5)

When in advisory relationship with a client:

  1. Make reasonable inquiry into client's investment experience, risk/return objectives, and financial constraints prior to making any recommendation, or taking investment action
  2. Update information regularly
  3. Ensure investment is suitable to the client' situation and consistent with written objectives before recommending an investment or taking investment action
  4. Look at suitability in portfolio context
  5. When responsible for managing a portfolio to a specific mandate, strategy, or style, make investment recommendations or take investment actions that are consistent with the stated objectives and constraints of the portfolio.


III) Duties to Clients: (C) Suitability: Guidance 

  1. When in an advisory relationship, gather client information at the outset and prepare Investment Policy Statement (IPS)
  2. Update IPS at least annually
  3. Consider whether leverage (derivatives) is suitable for clients
  4. If managing a fund to an index or other mandate, invest according to the mandate


III) Duties to Clients: (C) Suitability: Recommended Procedures 

When formulating IPS for client, know the clients: 

  1. Return objectives,
  2. Risk tolerance
  3. Determine the clients constraints:
    • (a) liquidity needs
    • (b) expected cash flows, investable funds
    • (c) time horizon,
    • (d) tax considerations.
    • (e) regulatory/legal constraints
    • (f) unique circumstances/needs


III) Duties to Clients: (D) Performance Presentation: Standard

  1. When communicating investment performance information, make reasonable efforts to ensure that it is fair, accurate, and complete
  2. Can make brief presentation, note limited nature, and make detailed information available upon request.


III) Duties to Clients: (D) Performance Presentation: Guidance

  1. Do not misstate or mislead about investment performance
  2. Do not misrepresent past performance
  3. Provide fair and complete performance information
  4. Do not share or imply ability to achieve returns similar to those achieved in the past


III) Duties to Clients: (D) Performance Presentation: Recommended Procedures 

  1. Consider audience sophistication when presenting performance
  2. Use performance of weighted composite of similar portfolios
  3. Use terminated accounts as part of historical performance 
  4. Make all disclosures and maintain records


III) Duties to Clients: (E) Preservation of Confidentiality: Standard

  1. Keep current and prospect client information confidential, unless:
    •  Illegal activities are suspected
  2. Disclosure is required by law
  3. Client or prospect allows disclosure of the information


III) Duties to Clients: (E) Preservation of Confidentiality: Guidance 

  1. In some cases it may be required by law to report activities to relevant authorities
  2. The standard extends to former clients 
  3. Exception: May provide confidential information to the CFA institute for an investigation under Professional conduct program


III) Duties to Clients: (E) Preservation of Confidentiality: Recommended Procedures 

  1. Avoid discussing any information received by a client except to colleagues working on the same project
  2. Follow firm's electronic data storage procedures; recommend adoption of procedures if none exist


IV) Duties to Employers: Tenets (3)

  • (A) Loyalty
  • (B) Additional Compensation Arrangements
  • (C) Responsibilities of Supervisors


IV) Duties to Employers: (A) Loyalty: Standard

On matters related to employment: 

  1. act for the benefit of the employer and
  2. do not deprive employer of the advantage of skills/abilities,
  3. divulge confidential information, or
  4. otherwise harm to employer.


IV) Duties to Employers: (A) Loyalty: Tenets

  1. General
  2. Independent Practice
  3. Leaving an Employer 
  4. Whistleblowing


IV) Duties to Employers: (A) Loyalty-General: Guidance (3)

  1. Place client interests first but consider effects on firm sustainability and integrity
  2. Members encouraged to give employers a copy of the codes and standards
  3. No incentive or compensation structure that encourages unethical behavior


IV) Duties to Employers: (A) Loyalty-Independent Practice: Guidance 

  1. If planning to engage in independent practice, notify employers of services provided, expected duration, and compensation
  2. Do not proceed without consent of employer


IV) Duties to Employer: (A) Loyalty-Leaving an Employer: Guidance 

  1. Act in the best interest of employer until resignation is effective
  2. Employer records (cell phone, PDA, home computer, etc...) on any medium are property of the firm
  3. Simple knowledge of names of former clients is okay; do not solicit prior to leaving
  4. No prohibition on use of experience or knowledge gained at former employer


IV) Duties to Employer: (A) Loyalty-Whistleblowing: Guidance 

  1. Permitted only if it protects client or integrity of capital markets
  2. Not permitted for personal gain


IV) Duties to Employers: (B) Additional Compensation: Standard

Do not accept gift, benefit, consideration, or compensation that competes with, or creates a conflict of interest with, employer's interest unless written consent is obtained from all parties involved.


IV) Duties to Employers: Additional Compensation: Guidance 

  1. Compensation and benefits cover direct compensation by the client and other benefits received from third parties
  2. For written consent from "all parties involved" email is acceptable


IV) Duties to Employers: (B) Additional Compensation: Recommended Procedures 

  1. Written report to employers with details of proposed compensation in addition to normal compensation and benefits
  2. Details of incentives verified by offering party 
  3. Include nature of compensation, amount, and duration of agreement


IV) Duties to Employers: (C) Responsibility of Supervisors: Standard

Make reasonable efforts to detect and prevent violation of applicable laws, rules, regulations, and Codes and Standards by anyone subject to your supervision or authority.


IV) Duties to Employers: (C) Responsibility of Supervisors: Guidance (3)

  1. Supervisors must take steps to prevent employees from violating, laws, rules, regulations, or the Codes and Standards
  2. Supervisors must make reasonable efforts to detect violations 
  3. Should enforce non-investment rules as well (i.e. mandatory vacations)


IV) Duties to Employers: (C) Responsibility of Supervisors: Recommended Procedures 

  1. Adequate compliance procedures should: -
    • --Be clear and understandable -
    • --Designate a compliance officer
    • --Have checks/balances: Permitted conduct
    • ---Have procedures for reporting violations
  2. Supervisor and compliance officer should:
    • ---Distribute procedures; update periodically
    • ---Continually educate staff
    • ---Review employee actions
    • ---Promptly initiate procedures once a violation has occurred
  3. Once a violation has occurred, a supervisor should:
    • ---Respond promptly
    • ---Conduct a thorough investigation -
    • --Place appropriate limitations on the wrongdoer until investigation is complete


V) Investment Analysis, Recommendations, and Actions (Investment ARAs): Tenets (3)

  • (A) Diligence and Reasonable Basis
  • (B) Communication with clients and prospective clients
  • (C) Record Retention


V) Investment ARAs: (A) Diligence and Reasonable Basis: Standard (2)

  1. Exercise diligence, independence, thoroughness in analyzing investments, making investment recommendations, and taking investment actions
  2. Have a reasonable and adequate basis supported by research, for analysis, recommendation, or action


V) Investment ARAs: (A) Diligence and a Reasonable Basis: Guidance 

  1. Make reasonable effort to cover all relevant issues when arriving at an investment recommendation
  2. Level of diligence will depend on product or service offered
  3. For 2nd/3rd party research, determine soundness of the research-review assumptions, rigor, timeliness, and independence of analysis
  4. Encourage firms to adopt policy of periodic review of 3rd party research regarding assumptions, rigor, timeliness, objectivity, and independence.


V) Investment ARAs: (A) Diligence and Reasonable Basis: Recommended Procedures 

  1. Establish due diligence procedures for judging if recommendation has met reasonable and adequate basis criteria
  2. Develop measurable criteria for assessing quality of research
  3. Consider scenarios outside recent experience to assess downside risk of quantitative models 
  4. Make sure firm has procedures to evaluate external advisors they use or promote, include how often to review
  5. Written procedures of acceptable scenario testing, range of scenarios, cash flow sensitivity to assumptions and inputs
  6. Procedures for evaluating outside information providers including how often
  7. No need to dissociate from group research the member disagrees with


V) Investment ARAs: (B) Communications with Prospective/Clients: Standard 

  1. Disclose basic format/general principles of investment processes used to analyze investments, select securities, and construct portfolios
  2. Promptly disclose and changes that may affect those processes materially
  3. Use reasonable judgment to identify which factors are important to investment analyses, recommendations, or actions
  4. Include those factors in communications with prospective/ clients
  5. Distinguish between fact and opinion in presentation of investment analysis and recommendations
  6. Clearly communicate potential gains and losses on an investment


V) Investment ARAs: (B) Communication with Prospective/ Clients: Guidance 

  1. Include basic characteristics of the security  
  2. Inform clients of any change in investment processes
  3. Suitability of investment-portfolio context
  4. All communication covered, not just reports


V) Investment ARAs: (C) Record Retention: Standard

Develop and maintain appropriate records to support investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients


V) Investment ARAs: ​(C) Record Retention: Guidance 

  1. Maintain records to support research, and the rationale for conclusions and actions  
  2. Records are the firm's property and cannot be taken without the firm's consent 
  3. If no regulatory requirement, CFAI recommends retention for 7 years


V) Investment ARAs: ​(C) Record Retention: Recommended Procedures 

  1. When member changes firms, must recreate records from public sources and new firm's information (can't rely on memory of material's from old firm
  2. Responsibility to maintain records generally falls with the firm
  3. However, individuals must retain documents that support investment-related communications


VI) Conflicts of Interest: Tenets (3)

  • (A) Disclosure of Conflicts
  • (B) Priority of Transactions
  • (C) Referral Fees


VI) Conflicts of Interest: ​(A) Disclosure of Conflicts: Standard 

  1. Make full, fair disclosure of all matters that could reasonably impair independence/objectivity, or interfere with duties to clients, prospects, or employer
  2. Ensure disclosures are prominent, delivered in plain language


VI) Conflicts of Interest: ​(A) Disclosure of Conflicts: Guidance

  1. Disclose to Clients
    • ---All matters that could impair objectivity-allow clients to judges motives, biases
    • ---For example, between member or firm and issuer, investment banking relations, broker/dealer market-making activities, significant stock ownership, board service
  2. Disclose to Employers
    • ---Conflicts of Interest-ownership of stock analyzed/recommended, board participation, financial and other pressures that may influence decisions
    • ---Also cover conflicts that could be damaging to employer's business


VI) Conflicts of Interest: ​(A) Disclosure of Conflicts: Recommended Procedures 

  1. Disclose compensation arrangements with employer that conflict with client's interests  
  2. If firm does not permit disclosure, consider dissociating from the activity
  3. Firms are encouraged to include compensation information for promotional materials


VI) Conflicts of Interest: ​(B) Priority of Transactions: Standard 

  1. Investment transaction for clients and employers must have priority over transactions in which a member of candidate is the beneficial owner
  2. Do not use knowledge of pending trades for personal gain


VI) Conflicts of Interest: (B) Priority of Transactions: Guidance 

  1. "Beneficial owner"- has direct/indirect personal interest in the security
  2. Client, employer transactions taken priority over personal transactions (including beneficial ownership
  3. Family member accounts that are client accounts must be treated as other client accounts


VI) Conflicts of Interest: (B) Priority of Transactions: Recommended Procedures

  1. Establish blackout/restricted periods
  2. Establish reporting procedures and prior clearance requirements
  3. Disclose policies on personal investment to clients, upon request firm's compliance procedures should:
    • Limit participation in equity IPOs
    • Restrict purchase of securities through private placements.


VI) Conflicts of Interest: (C) Referral Fees: Standard

Disclose to employers, prospective/clients, as appropriate, any compensations, considerations, or benefit received from, or paid to, others for the recommendations of products or services


VI) Conflicts of Interest: (C) Referral Fees: Guidance 

  1. Disclosure allows clients and employers to evaluate full cost of service and any potential biases
  2. Disclosure is made prior to any formal agreement for services
  3. Disclose the nature of the consideration
  4. Encourage firms to have clear policy regarding referral compensation
  5. Firms that do not prohibit should have clear approval process
  6. Members should update referral compensation disclosure to employer at least quarterly


VII) CFA Responsibilities: Tenets

  • (A) Conduct as members/candidates in the CFA program
  • (B) Reference to CFAI, the CFA Designation or program


VII) CFA Responsibilities: (A) Conduct: Standard

Do not engage in any conduct or activity that compromises the reputation or integrity of the CFA Institute or designation, or the securities of the exams


VII) CFA Responsibilities: ​(A) Conduct: Guidance

Conduct Includes:

  1. Cheating on an exam
  2. Disregarding rules or policies or security measures related to exam administration
  3. Giving confidential information to other members or the public
  4. Improper use of the CFA designation to further personal and professional objectives
  5. Misrepresenting the CFAI Professional Development Program or the Professional Conduct Statement.
  6. Don't Disclose:
    • Formulas tested or not tested on the exam
    • Specific question information
    • Topic emphasis on the exam or topics tested.


VII) CFA Responsibilities: ​(B) Reference: Standard

When referring to the CFAI, membership, candidacy, or designation, do not misrepresent or exaggerate the meaning or implications of membership in the CFAI, holding the designation, or candidacy in the program.


VII) CFA Responsibilities:  ​(B) Reference: Guidance

  1. CFA Institute membership:
    • ---Complete PCS annually
    • ---Pay membership dues annually
  2. Failure to comply with the above results in an inactive member status 
  3. Using the CFA designation:
    • ---Use the marks "Chartered Financial Analyst" or "CFA" in a manner that does not misrepresent or exaggerate the meaning or implications of holding the CFA designation.
  4. Reference to the CFA Program:
    • ---Candidates may reference participation in the CFA program, but do not imply achievement of partial designation 
    • ---Okay to say "passed all levels on first attempt" but do not imply superior ability.
  5. Improper use of CFA marks:
    • ---"Chartered Financial Analyst" and "CFA" marks must be used after the charterholder's name, or as an adjectives, not as a noun.


VII: CFA Responsibilities:  ​(B) Reference: Recommended Procedures

Make sure that your employer is aware of the proper references to the CFA designation or CFA candidacy.


GIPS: Purpose

  1. The Global Investment Performance Standards were created to make performance measurements among firms comparable, with standardized calculation and reporting practices.
  2. GIPS aims to avoid misrepresentation of performance by investment firms and to give clients relevant information to evaluate past performance.


GIPS: Parties Affected

  • Firms
  • Prospective and current clients


GIPS: Composites

  1. Composite: a grouping of individual discretionary & non-disretionary portfolios with same investment strategy, objective, or mandate.
  2. A composite must include all portfolios (present and past) that the firm has managed in accordance with this particular strategy.
  3. Groupings must be pre-identified


GIPS: Verification: Purpose 

  • Voluntarily a firm may hire an independent third party to verify its claims of GIPS compliance
  • Primary purpose of verification is to provide assurance that compliance with GIPS is on a firm-wide basis


GIPS: Verification: Requirements 

  1. Must be performed by a third-party on a firm-wide basis
  2. Verifier must attest that firm has complied with GIPS requirements for composite construction, and firm's processes/procedures are established to present performance in accordance to proper calculation methods, data, and format.


GIPS: Objectives 

  1. Obtain global acceptance of calculation and presentation standards-fair, comparable format with full disclosure
  2. Ensure consistent, accurate performance data- reporting marketing, presentation
  3. Promote Fair competition
  4. Promote global industry "self-regulation"


GIPS: Key Characteristics

  1. Define firm as "distinct business entity" 
  2. Fair-representation
  3. Include all fee-paying portfolios in composites for 5-year minimum, or since inception (add performance for each year-10 years
  4. Certain calculations/presentations standards are required, along with disclosures
  5. Input data must be accurate
  6. GIPS required and recommended provisions
  7. No partial compliance allowed
  8. If GIPS conflicts with local law, follow local law, but disclose conflict


GIPS: Claim of Compliance

Once GIPS requirements are met: 

  1. [Firm name] has prepared and presented this report in compliance with the Global Investment Performance Standards
  2. No statement referring to calculation methodologies used in a composite presentation being "in accordance with GIPS"


GIPS: Firm's Fundamental Responsibilities


  1. Provide compliant presentation to all prospects
  2. Provide composite list/description to all prospects who make a request
  3. On client request, provide compliant presentation and composite description
  4. Joint marketing, separate noncompliant firm


GIPS: Firm Definition and Historical Record 

  1. To claim compliance, firm defined as the "distinct business entity" held out to clients
  2. Include all actual fee-paying, portfolios in composites for a minimum of 5-years (or since firm or composite inception
  3. Must add 1 year of compliant performance history each year until a 10-year record is presented


GIPS: Countries with Existing Standards 

  • Firms in compliance with country-specific GIPS may continue to claim compliance prior to 1-1-06
  • When country-specific regulations differ from GIPS, follow country-specific, but disclose conflict.


GIPS: 9 Major Sections

  • (0) Fundamentals of Compliance
  • (1) Input Data
  • (2) Calculation Methodology
  • (3) Composite Construction
  • (4) Disclosure
  • (5) Presentation and Reporting
  • 6) Real Estate
  • (7) Private Equity
  • (8) Wrap Fee/Separately Managed Account (SMA) Portfolio


0) GIPS: Fundamentals of Compliance

Issues for firms to consider when claiming GIPS compliance, including definition of firm


1) GIPS: Input Data

Must be consistent, for full, fair, comparable performance presentations


2) GIPS: Calculation methodology

Certain methodologies are required; be uniform in methods


3) GIPS: Composite Construction

Create meaningful, asset-weighted composites


4) GIPS: Disclosures

Certain info must be disclosed about presentation/policies


5) GIPS: Presentation and Reporting

Present Investment performance according to GIPS requirements


6) GIPS: Real Estate

Provisions also apply to real estate investments, regardless of level of control the firm has over management of the investment


7) GIPS: Private equity

Value according to GIPS Private Equity Valuation principles, unless open-end or evergreen fund (then follow regular GIPS)


8) Wrap Fee/ Separately Managed Account (SMA) Portfolio

A supplement to sections 0-5 with specific reference to those provision with don't apply to Wrap Fee/SMA portfolios and some provision here supersede those in sections 0-5