Erring on the side of transparency

In a recent Wall Street Journal editorial (“A Scarlet Title IX Letter,” May 8, 2018), the writer spoke of the potential requirement that universities reveal the names of students, past and present, who have “been found responsible [for] rape, sexual assault, or any related or lesser included sexual misconduct.” It mentioned that “North Carolina’s Public Records Act errs on the side of transparency.” The writer felt that perhaps the university was being required to reveal way too much, for very sound reasons.

This caused me to think about …

GIPS® and transparency

One of the things the Global Investment Performance Standards (GIPS) promotes is transparency. But can you go too far with your goal of making your materials transparent? That is, might you be revealing more than you should or need to?

When I conduct GIPS verifications, I review the client’s composite presentations, to ensure that everything that is required is, in fact, present.

I will frequently opine on the presence of more information than what is needed. While I recognize the firm wishes to abide by the goal of transparency, some things just don’t need to be said. For example:

• why reveal the formula you used to calculate your portfolio returns? Do you think the prospect really cares? And if they do, they’ll ask.
• if you don’t have a minimum, you don’t have to say “there is no minimum.” We call these “negative disclosures.” While it’s required to disclose the minimum, it isn’t necessary to say “we don’t have a minimum.”
• explaining reasons why  a portfolio will be excluded from the composite is TMI (too much information): who cares?

The mutual fund prospectus approach to transparency

Perhaps some firms want their composite presentations to resemble mutual fund prospectuses; that is, to have loads of information. And why might they want to do this? Well, who ever reads a prospectus? The more you have, the less they’ll read.

Okay, so I doubt that this is often done, but at times the amount of information that is provided is just, well, too much.

Different strokes, for …

It’s probably not surprising to learn that not all verifiers feel this way. Occasionally, when we take over a client from another verifier, we see loads of superfluous disclosures. And when we suggest they be removed, we’re told that the prior verifier insisted that they have these items (they’re often a collection of negative disclosures: we don’t employ leverage, we don’t have a significant cash flow policy, we don’t have any wrap accounts, this composite doesn’t have any non-fee paying accounts, and on, and on, and on). Well, we usually convince our new client that these really aren’t necessary.

I’m all in favor of transparency, but one can go too far. Remember: prospects can always ask for more information if they feel they need it.

By removing some of these additional details, you’ll have more space, which can result in your font size getting bigger. Often, compliant firms want to fit everything on a single page. And while I understand this, it causes the font size to be

really, really small.

I’d much rather see the surplus tossed out, and the font enlarged, to make the important and required details more readable. Make sense?