We learned that one cannot necessarily be an early adopter of the new edition of GIPS. If you want to add items (e.g., the soon-to-be-requirement to have a 3-year annualized standard deviation or the statement about your status vis-à-vis verification), that’s fine. But, to drop something (e.g., to no longer adhere to the after-tax rules, which are going “bye bye” in 11 months), without adopting everything else, can’t be done because you would be caught between the ’05 and ’10 versions. Catholics might suggest you’d be in a state of limbo: somewhere between heaven and hell (in the case of GIPS, between ’05 and ’10; not to suggest that either is heaven or hellish).

Let’s say you want to adopt the new required wording for compliance? Recall that today you would write: “[Firm name] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS(R)).” As of 1 January 2011, you will write: “[Firm name] claims compliance with the Global Investment Performance Standards (GIPS(R)) and has prepared and presented this report in compliance with the GIPS standards.” [Appended with your status vis-a-vis verification] Can you do change the wording without adopting everything else? To me, this is akin to both adding and removing something; therefore, I’d suggest you cannot do it unless you go all the way and adopt 100% of the new provisions.

Likewise, if your presentation includes performance for periods prior to 1 January 2000 that isn’t compliant, the 2005 edition requires you to both state that the period isn’t compliant and provide the reason; GIPS 2010 says you can drop the reason. You can’t drop the reason, as this is the removal of something, until you’re fully compliant with GIPS 2010.

Please understand that there has been nothing provided by the GIPS Executive Committee on this, other than comments that were made during the last EC meeting (January 29), in response to my inquiry. Although not much was stated, enough was that I believe my interpretation and explanation are consistent with the EC’s desires.