Our Thoughts on The Exposure Draft

Rather than recreate our thoughts, the following is the content of our comment letter.6

Thank you for the opportunity to comment on the Exposure Draft of the 2020 Global Investment Performance Standards (GIPS®) for Verifiers. I apologize for being so tardy in responding.

My views in general:

  • I feel there’s a bit of an overkill on changes. The current section runs about four pages; the new roughly 20: i.e., five times as much verbiage. Is this explosion in size really necessary?
  • Much of the wording is prescriptive, which runs in conflict with past practice. I believe such detail is unnecessary.
  • Despite the statement that cost and effort needed to undergo verification was considered, there’s an expansion in the scope of verification which may, in some cases, result in higher fees and effort
  • While some wording strengthens the importance of verification, other wording diminishes it, perhaps to the point of questionable value.

Your questions

1) Do you agree with all the required verification and performance examination procedures?


  • The engagement letter items should be suggested, not required, and “f.” removed as it diminishes the value of verification, while not really adding anything. The limitations of verification are clearly stated in the client’s composite reports.
  • Often, the use of the word “must” should be replaced with “should.”
  • I disagree with the significant adoption of overly prescriptive language
  • I disagree with the expansion of the scope of verification:
  • into verifying the distribution of materials, both to new clients and for material errors
  • into testing marketing materials
  • into testing advertising materials

If these are “should do” or “recommended to,” that is fine, but to mandate this will increase the complexity of the process, which may result in higher fees.

2) Are there areas of testing that should be added? If so, please explain.


3) The wording for verification reports and performance examination reports has changed.
Considering these changes:

a) Is it sufficiently clear that verification does not provide assurance on the firm’s or asset owner’s claim of compliance in its entirety? If applicable, please provide suggested wording in your response.

The wording is too strong. Simply stating “The verification does not provide assurance of the firm’s (or asset owner’s) claim of compliance” is sufficient language. Including the wording from the composite presentation is fine, too, but what appears is unnecessary and diminishes the value of this work.

b) Do you agree with the change that the verifier’s report opines on both the design and
implementation of policies and procedures, for all period(s) being verified?


c) Do you believe that the verifier’s report, and potentially the related claim of compliance, should refer to the fact that verification and performance examination procedures are conducted on a sample basis?


4) Do you believe the approach taken for asset owners as described above is the right approach?


5) Do you agree with the effective date of the 2020 GIPS Standards for Verifiers?

As I mentioned with my letter in response to the first 2020 GIPS Exposure Draft, I find the date to be ambiguous. What is meant by “1 January 2020"? If we do a verification in January 2020, do we need to be using these rules, even though our clients do not have to follow the new rules until they report on the year ending December 2020? Clarity is needed.

Additional comments

Page 6

     I very much like the first paragraph, as it speaks well of the value and importance of verification.

     In the second paragraph, we read, as noted above, that “the cost and effort needed by firms to undergo verification has been considered.”While itmayhave been considered, the serious expansion of the requirements suggests that it was not considered quite enough, in my view. The scope of verification has grown considerably: costs may rise as a result

Page 7

     The verbiage about the “initial minimum period ... is one year” is not new, but remains troubling to me, so I may as well comment on it here.

     The statement is a bit ambiguous. We know of at least one verifier who conducts quarterly verifications: does this therefore mean that the first verification theyperform for a new client violates this rule?

Furthermore, why is this even needed? Why must the initial period be one year?

Terms of the Engagement

We now see stipulated what must appear in the engagement letter that we prepare for our client: and, it’s quite prescriptive. The reality is that we have much of this today in our letters. In my view, this should be a “should” or “recommended” set of items.

Furthermore, item “f.” is troubling, in that it seriously brings into question the value of having a verification even done.

“A statement that the VERIFICATION does not provide assurance on the operating
effectiveness of the FIRM’S controls or policies and procedures for complying with the
GIPS standards.”

Required Verification Procedures

     This section is overly prescriptive and should be generalized. Further, several of the “musts” should be made “shoulds.”

The first “must” that should become a “should” is at the bottom of page 7. And the second is the first that appears at the top of page 8, with the third appearing in the following paragraph. In fact, I’d say that all of the appearance of “must” on page 8 should be changed to “should.”

Under “Sample Selection” we find that “Verifiers MUST subject the entire FIRM when performing VERIFICATION procedures,” which is immediately followed by “Verifies may use a sampling method.”  Is this not a bit of a contradiction?

All data and information

     On page 9, under Testing Procedures, we learn that verifiers must determine whether “the firm has captured and maintained all data and information necessary to support all items included in GIPS reports and advertisements.” This is followed by two other data/information requirements. This will result in additional testing which might be quite extensive, especially since the scope has broadened to include advertisements. This is, in my view, a serious and unnecessary expansion of the verification procedures.

Move to advertisements

     I object to the broadening of the requirements to include advertisements. We will, on occasion, review our client’s advertisements, and always when requested. But now, it is to be part of the scope of verification. I find this unnecessary. A “should” or “recommended to” would be more appropriate, in my view.

More testing

     On page 12 we find that we are now required to confirm that our clients have provided the appropriate materials to their prospects. How? Are we to ask for a sample and contact these individuals or institutions? Surely not. But, that appears to be what is required. Today, we ask to see a list of who received materials: will that suffice? If not, we’re talking a very serious and troubling expansion of the requirements.

Marketing practices

     We also learn on page 12 that we are now to inquire about the firm’s marketing practices and must look at these materials. This expands the scope and makes the process more complex and perhaps more costly for our clients.

Error correction

     On page 13 we learn that “for material errors,” we are to determine that the firm has provided corrected materials to existing clients, etc. This is not unlike the requirement to confirm the distribution of materials to prospects. How are we to do this? Will their statement that this was done suffice? Apparently not, since we learned on page 8 that “Testing by inquiry ... is insufficient.” What is meant by “Testing by inquiry”? Would simply seeing a list that says “we sent the corrected materials with the disclosure to these 10 parties” suffice, or are we to contact some of these parties?

Examination procedures

     I recommend removing the language that appears in the verification section: the redundancy is unnecessary. Instead, this section should focus solely on the examination process.

     I found very little that I liked in this document. I do not understand why such expansion was felt to be necessary. I hope that the Executive Committee will reconsider much of this, and do some trimming

6 Our comments, as well as those of others, can be found here:

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