Performance Perspectives Blog

René Descartes and client reporting

by | Feb 8, 2012

Leave it to my friend, Philip Lawton, PhD, CFA, CIPM, to find a way to link a philosopher with client reporting. In a recent blog post, he did just that, commenting on the initiative spearheaded by Stefan Illmer, to develop client performance reporting standards for the CFA Institute.

I want to preface my remarks by saying that I love Stefan;  he is truly a gift to our industry. He has served us all quite well, most notably in his work on the GIPS(R) (Global Investment Performance Standards) Executive Committee. He is a great leader, who is skilled at the art of compromise. Client reporting has been a passion of Stefan’s for some time (he was involved in the development of guidance for the European Investment Performance Committee, several years back). You should also know that Stefan and I agree on many more things than we disagree on (for example, we are both passionate champions of money weighting). Stefan is apparently being assisted by Dmitri Senik, along with others from the industry. I also hold Dmitri in high regard, as well as those members of the committee who have been identified to me. Volunteers should always be honored, for their contributions to our industry are great.

In his post, Philip appears to favor the introduction of standards; I do not.
My issues include:

  • What problem are these standards to solve? You might ask, why must there be a problem, and you’d have a valid point; and so, why do we need them, then?
  • Has there been any evidence that the industry wants them? To the contrary, I’ve found that the industry clearly does not.
  • Many firms have custom reporting, and have little interest in adopting standards.
  • What impact will the standards have on asset managers? Plenty! Not only additional time and effort to comply, but also the cost of getting verified (as I understand it, Stefan’s committee plans to include this as a recommendation). I often find myself having to remind folks that our firm, TSG, actually is a “for profit” company. This isn’t always so obvious, when I come out against GIPS performance examinations, and now reporting standards, which would surely bring additional revenue to our firm. But I do not want our verification clients to spend money they don’t need to. I am doing a GIPS examination this week, so am clearly supportive of clients who find benefits in having them done; and, we will no doubt be ready-and-willing to verify clients’ compliance with reporting standards. We just find the notion of such standards difficult to appreciate.

Let’s face it: the CFA Institute has a great presence in our industry. Their contributions are exceptional. We fully support the CIPM program, recognize the value of the CFA, and obviously support GIPS. However, moving forward with this initiative, without first validating the need and desire for standards, is a problem, I believe. Will the reporting standards be implemented and introduced, regardless of what the majority of firms feel? If yes, it is likely that they will become de facto standards, requiring compliance.

We’ve taken this topic up at the Performance Measurement, Attribution & Risk (PMAR) conferences, meetings of the Performance Measurement Forum, and in conversations with clients, and find an overwhelming opposition to such standards. There is, however, interest in “guidance.” Will Stefan and Dmitri’s committee be willing to adjust what they’re doing to introduce this softer item, or are they (and the CFA Institute) committed to standards? The CFA Institute has enough clout that the line from Field of Dreams will read “build it and they must come.” Hopefully flexibility will be present, but only time will tell.

p.s., The Battle Royale at this year’s PMAR conferences will deal with this topic. In London you’ll be able to witness Stefan battle my colleague, John D. Simpson, CIPM. To avoid bias, Patrick Fowler will, as he always does, serve as moderator.

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