GIPS compliance brings more than opportunities

Since its introduction nearly 20 years ago, the Global Investment Performance Standards (GIPS®) has brought with it much more than greater marketing opportunities, piece of mind, and improved operations. Just its mere mention can invoke fear, angst, nervousness, trepidation, and similar unpleasant responses. I suspect that this is not necessarily the result of past implementations, but rather has more to do with ignorance.

The reality is that despite GIPS’ near two decades of existence, and the “Standards” in general of more than three decades existence, ignorance looms. The reason probably is because of the absence of any actual implementation history. That is, unless an individual has participated in a GIPS compliance exercise, they will often carry with them fears, misbeliefs, and misunderstandings about what GIPS is and what’s involved to comply.

GIPS compliance for asset owners brings even more issues

When engaging with asset owners on the subject of compliance, we frequently are greeted with expressions and responses that don’t exhibit much in terms of enthusiasm for the idea. A typical response is “why should we bother?” There are several responses to this:

• the Standards are generally considered to be “best practice” (I’ve yet to meet anyone who says “second best works for me!”),
• they are a set of ethical principles that surely everyone would want to adhere to,
• they help establish a degree of conformity in terms of presentations, which can be beneficial when comparing performance with others, and
• they will result in improved operations and procedures.

Many asset owners are concerned about the perceived costs to comply, but we believe that it won’t be nearly as great as they expect, and that they will realize that, in reality, it’s an investment worth making.

The California Public Employees Retirement System (CalPERS) recently announced that they took the step to comply. While we could be wrong, we believe their enthusiastic adoption of the Standards will help motivate others to do the same.

Don’t all asset managers comply?

One might think so, but in reality, no. Of the top 100 managers by assets, roughly 15% still don’t. We suspect that in many cases this is because they are chiefly mutual fund managers, who don’t see the benefit in moving to GIPS compliance. However, with the planned changes to the Standards vis-a-vis mutual funds, we suspect more to take the step.

As for institutional managers, most do, though there remain a few that haven’t taken this step. But we are seeing more and more realize that compliance is a virtual necessity for them to grow their business.

As for retail managers, those that want to serve the institutional space are definitely appreciating the benefits of compliance. And for those who only serve the retail market, we do find many who see the Standards as not only “best practice,” but also a way to differentiate themselves from their competition.

But, there still remain concerns, fears, misunderstandings about GIPS compliance …

GIPS Planning Session (GPS™) to the rescue

One of the things that sets TSG apart from its competition is the initial engagement we conduct with our clients. Our proprietary GIPS Planning Session, or GPS, serves to:

• educate our clients on the Standards,
• uncover and resolve misunderstandings and fears that clients have about GIPS compliance and the Standards,
• identify the firm’s or institution’s status vis-a-vis what will be needed (i.e., a gap analysis),
• and design a roadmap that will help lead them to successful compliance.

Our GPS, like the one in your car, helps point you in the right direction and get you to your destination, in as timely and efficient a manner as possible. In addition, we serve as advisers to our clients, at no additional cost (provided they’ve agreed that we will be their verifier), as they move down the road to compliance as well as after they’ve achieved compliance.

Frequently, during these sessions we field questions that help identify some of these fears and misunderstandings, and give us the opportunity to put our clients at ease.

I recently conducted a GPS session for a new client who had several concerns. They anticipated  having to spend tens of thousands of dollars to resolve them. In each case, I was able to put their minds at ease and, as a result, save them bundles of money.

On occasion I’ve encountered folks who believed that GIPS compliance was not achievable, because of issues that they may have had. Granted, in some cases these beliefs are to some extent real, and must be overcome, but in many cases they are not.

Thinking of GIPS compliance? Please, don’t be afraid … it’s really not that scary!