A client recently asked what the qualifications were for a verifier; the answer: none. Granted, we would expect that they understood the Global Investment Performance Standards (GIPS(R)), performance measurement, portfolio accounting, the requirements and expectations for conducting a verification, etc., but there is no way to validate this. There is no certification either at the firm or individual level. But should there be? Well, consider this.
We recently conducted a verification for a new client who had previously been verified for several years by the another firm. Now, one might argue about “gray areas,” but disclosures? Our client’s presentations didn’t have composite descriptions! Come on, didn’t our competition even have a checklist? And when I mentioned this infraction they informed me that they used to have them but their prior (not to be named) verifier told them this was no longer a requirement! Really, and where exactly is this written?
This verifier did this firm the favor (or more correctly, disservice) of providing them with a formula to handle carve-outs: take their equity returns and add 5% for the T-bill rate to represent cash. Interesting. And where exactly did they dream this up? Isn’t this what one might call “hypothetical returns”? When I told them this was invalid our client at first said “let’s get XYZ on the phone,” to which I responded, “great, lets!” But, our client quickly decided this was fruitless. Unfortunately, this isn’t the first time I have found that this particular verifier uses creative but non-compliant methods for carve-outs.
Verifiers who perform poor verifications do nothing to enhance the image of this important review process. In addition, they put their clients at risk. CFA Institute and/or GIPS Executive Committee: are you listening? Let’s offer a certification for verifiers! PLEASE! I’ve been asking for this since 1992 … surely it’s time!