The Global Investment Performance Standards (GIPS(R)) are, to a large extent, quite flexible. For this post, I’ll address one particular aspect:
compliance.
It’s voluntary.
You don’t have to “pass a test” to claim compliance: just about anyone can do it. And once you choose to claim compliance, you’re under no obligation to get verified, as verification, like compliance, is voluntary.
And so, what if you claim compliance but haven’t been verified … any problem with that?
Well, in my view,
YES!
And why do I say this?
Well, because in all likelihood,
you’re not compliant!
And why do I say THIS?
Because the Standards are fairly complex. And, it’s ever so easy to not be in compliance.
Compliance with GIPS is essentially a “black-and-white” issue; that is, you either are or you are not; there is no middle ground; no “in all material respects” condition assigned to compliance.
What are the risks of claiming GIPS compliance but not being verified?
I would suggest there are multiple risks including:
- Regulatory Risk: regulators don’t like it when someone claims compliance but isn’t; their response typically isn’t gentle; isn’t pretty; and may even not be very nice.
- Client Risk: clients won’t like it if you claimed compliance but really weren’t.
- Reputational Risk: no one wants to be known as someone who mislead others by falsely claiming compliance.
Granted, there’s a lot of industry pressure to claim compliance. But, to invest your time and money into becoming compliant, but failing to invest your time and money into verification can lead to very bad situations.
An example of a not-so-good event if you’re not GIPS verified
Let’s say, for example, that you’ve been claiming compliance, but haven’t taken the time to get verified. And then, one day, you have the opportunity to land a large client who requires verification: no problem … get verified! How hard can this be?
And so, you bring the verifier in, only to learn that:
- You are NOT compliant
- It will take you several weeks, if not months, to get into shape, so that you pass.
That can’t be good.
Our firsthand experience in this area
While I can’t speak for all verifiers, I can speak for our firm and state that whenever we’ve conducted a verification for someone who hadn’t previously been verified, we’ve found issues. And, to correct deficiencies is rarely easy.
What’s the message:
If you’re going to claim compliance, do yourself a HUGE favor:
get verified!
You’re just staying this because you want our money!
Yes, TSG does verifications, GIPS and non-GIPS. And so, of course, we’d love to be your verifier. But this is definitely not the motivation behind this post.
Name another verifier who tells their clients and the industry “DON’T GET EXAMINATIONS DONE!” I don’t know of any. But we are on record, many times, arguing against them, because we don’t believe they are, in most cases, good investments. Granted, there are times when they are; in fact, we do them for a several clients, but definitely not at the level other verifiers do.
I think we’d have to do a lot more than just post this to get your business. And if you’re interested in learning more about our verification services, please contact Chris Spaulding (CSpaulding@tsgperformance.com) or Steve Sobhi (SSobhi@tsgperformance.com). Or, visit our website.