How does one go about choosing their GIPS(R) (Global Investment Performance Standards) verifier? There is little guidance provided and it’s very easy to use criteria which is less than ideal. I’ve compiled this list and hope you find it of value (as always, your thoughts are welcome):
- Don’t choose a verifier just because you already have a relationship with them. Occasionally we hear something like “oh, we picked XYZ Accounting Services,” even though XYZ has never conducted a verification before. Yes, they’re good auditors, but GIPS is a whole different animal and it requires a very different skill and knowledge set. Chances are, you’ll be teaching the verifier all about the standards, meaning that you’ll be teaching them what you understand, which may not be totally correct.
- Ask the verifier how they keep up with the standards. Our firm, like several other verifiers, regularly attends and sponsors the CFA Institute’s annual GIPS conferences. This affords us the chance to not only hear from speakers but also interact with others. This helps improve our knowledge. In addition, we’re tuned in on what’s occurring and participate in the opportunities to respond to changes to the standards. Is the firm you’re considering truly engaged in this segment of the industry?
- How does the verifier train their staff? The CFA Institute provides periodic training courses on GIPS (we’ve been teaching these classes since their inception, some 10+ years ago). While we see that some firms send their new hires here, many don’t. Perhaps they offer their own training, which is fine, but you will want to know how they ensure that their staff is aware of the key aspects of the standards.
- What level of experience are the individuals who will conduct the verification? If you’re given new hires, chances are you’ll be training them (see #1 above). And, chances are they won’t be able to answer many of your questions. Ideally you want at least one senior, experienced individual who is engaged full time on the assignment, who will manage the project and be able to respond to your questions.
- Speaking of questions, will the verifier answer your questions? We respond quickly to client (and even non-client) inquiries. If we’re unsure about the answer, we’ll let them know our initial thoughts and tell them we will do additional checking before finalizing the answer.
- What kind of turnover can you expect in the verification staff? Ideally turnover should be kept to a minimum; hopefully you’ll experience zero turnover.
- Will the verification be done at your site or remotely? We favor being on site, as we don’t feel that we could do an adequate job from our offices. Most verifiers appear to feel the same.
- How frequently will the work be done? Most verifiers, like us, recommend annual verifications. Trust me, it’s not that we don’t like visiting our clients, but quarterly is, in our opinion, too disruptive for them (and our clients seem to agree). But, if a client wants us in more often, we’ll be happy to oblige.
- How does the verifier keep their clients apprised of what’s going on with the standards? Some firms, like us, provide periodic newsletters, host webinars, or provide letters detailing changes and other important information about the standards. While it’s ultimately the client’s responsibility to know what’s expected, it’s important to have a resource who will inform and provide counsel with the changes as well as other aspects of the standards.
- Is the verifier truly independent? The independence guidance statement places the responsibility to assure independence on the shoulders of both the verifier and the client.
- What do the verification firm’s clients say? It’s important that you conduct due diligence when selecting a verifier. Ideally, speak with clients who have experience and knowledge about other verification firms, so you get a broad perspective.
- Is the verifier easy or are they thorough in their analysis? While there might be some appeal to getting a “rubber stamped” verification, one that doesn’t require a lot of effort, you have to realize that this may put you at risk should the regulators come in. In addition, you might be exposed to reputational risk if your verifier is known for doing shoddy work. Yes, we all liked the professors who were easy graders, but we also realize we probably didn’t get much out of their classes or for that matter our money’s worth; the same holds true with verifications.
We have been on record opposing mandatory verification, and I fought strongly against it when I served on the GIPS Investment Performance Council. But, this doesn’t mean we don’t favor verification: we believe it’s critical that GIPS compliant firms have annual verifications done. However, in choosing a verifier it’s important that you select a competent one: don’t just pick one because they’re easy or inexpensive. You and your firm should be concerned with the risks of a poorly conducted verification and the reputational risk that you may face as a result.
Feel free to chime in with your thoughts and ideas on this list.