Performance Perspectives Blog

And the reason you get an examination done is ???

by | Aug 28, 2009

Our GIPS(R) verification business has done extremely well this year: it’s become the fastest growing segment of our firm’s offerings. And when we replace a verifier we often find that the firm had previously had, in addition to a firm-wide verification, examinations performed. And invariably we ask, “and why do you have these done?” And the responses can vary from “our verifier recommended them” to “well, we have always had them done.” And while we don’t like to turn business away, we always discourage their use. And why do we do this?

Well, first of all, let’s briefly consider the history of verifications. Under the AIMR-PPS(R) you may recall that there were two “levels” of verification: Level I, which is equivalent to a GIPS verification, and Level II, which is akin to an examination. I won’t bore you with all of the gritty details of the evolution of verification during the first 3-5 years of the AIMR-PPS. Suffice it to say, it was confusing and controversial.

During the “old days,” the “big four” (or should I say, “final four”) generally refused to do a Level I; so most of their clients had Level II’s done. Along comes GIPS with some changes to what a verification constitutes, and the “big four” decided to offer GIPS verifications (as well as examinations). So, firms that had previously had Level IIs done naturally continued with examinations: makes some sense.

BUT, why do them? As Chuck Tschampion (former co-chair of the AIMR-PPS Implementation Committee) stated in a Journal of Performance Measurement interview several years ago, the Level IIs (read “examinations”) have virtually nothing to do with the issue of compliance: they deal with a check of the numbers (i.e., is the firm “cooking their books”). Now, to say that it has “nothing” to do with compliance may be a slight bit of exaggeration, but not much.

It’s my general belief that the firm will know whether or no they’re “cooking their books.” And so they don’t need someone to come in and say “it looks clean” or “no, you’ve got problems.” So the motivation to have them done should be based on a market need for such an investment.

It’s interesting to note that our most recent survey of the standards confirms that most U.S. firms get examinations done, but elsewhere they’re a rarity. E&Y’s Martin Schliemann further confirmed in the most recent issue of The Journal that the European market sees little need for examinations.

We are currently bidding to replace a U.S. money manager’s verifier who currently examines half of their composites; we suggested that unless they are being asked for examinations by prospects or clients, why continue to do them? The firm was apparently persuaded by our logic, and asked that we only bid on a verification.

Look, we don’t want to turn away revenue, especially in this market. BUT, we also don’t want to have you spend your money unless there’s a good reason for it. So, if you want examinations done, we’ll be happy to comply, but we’re also comfortable just doing the verification. Such a posture makes verifications more economical and should encourage even more firms to have them done.

Monday, Monday

Monday marks the end of August, which many in the northern hemisphere find a bit upsetting. Oh, well. But more importantly it marks the end of our offer to save an additional $100 on the registration fee for our upcoming Trends in Attribution symposium (TIA). As noted before, we’ve drastically reduced the rate overall in order to make the event more affordable this year; but this additional savings is even more of a reason to sign up now! And so, if you haven’t done so yet, we encourage you to sign up by this coming Monday. Please contact Patrick Fowler ( or Chris Spaulding ( for more details.

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