A Primer On GIPS Compliance And Verification For Financial Advisors | Nerd's Eye View by Michael Kitces


In the world of investment advisors, competition has long been driven at least in part by investment performance results. Yet the challenge is that performance reporting can also be prone to abuse, due to the lack of consistent standards - amongst individual financial advisors in particular - about how those results are measured and reported in the first place. In fact, in recent years a number of advisory firms are trying to improve their performance reporting process to meet the Global Investment Performance Standards (GIPS) requirements specifically as a means to differentiate themselves.

Accordingly, in this guest post, GIPS compliance consultant Amy Jones and marketing expert Thusith Mahanama share some of the details that advisors should be aware of in considering whether to pursue the path of GIPS-compliant performance reporting for their own advisory firm. And notably - as the authors point out - the decision about whether to pursue GIPS-compliant reporting is a firm-wide decision, as one of the first key requirements of GIPS reporting is that it must be done on a firm-wide basis, to eliminate the potential that advisors try to cherry-pick the best performing accounts to include in their composite results.

So if you're an advisory firm that manages portfolios on a model basis, and have already been considering whether to adopt GIPS as a means to differentiate yourself, hopefully this primer on the requirements for GIPS compliance will be helpful for you. Alternatively, if you're an advisory firm that's had strong results for clients but is currently struggling to differentiate yourself from the marketing of other advisory firms, you may find the idea of GIPS-compliant reporting appealing as a means to differentiate why your performance reporting results really should be viewed as more 'credible' than the competition!


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