Why RIAs And IA Reps Should Employ A CIPM Certificant On Staff Or As A Consultant

Friday, January 10, 2014 19:08
Why RIAs And IA Reps Should Employ A CIPM Certificant On Staff Or As A Consultant

Ninety-seven candidates passed CFA Institute’s October 2013 exam for the Certificate in Investment Performance Measurement (CIPM®) program. That brings the total number of CIPMs worldwide to 1,093, including 647 in the U.S.

For RIAs, adding a CIPM certificant to your firm’s professional staff would significantly boost its trustworthiness, transparency, and professionalism.
For Investment Advisor Representatives (IARs) the CIPM certificate could be a valuable professional designation to boost your career.  

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“The CIPM program offers practice-based training in investment portfolio performance evaluation and risk measurement that helps industry professionals ethically evaluate and communicate investment performance to optimize results for firms and investors.” says CFA Institute’s website. “Approximately 70% of the curriculum and readings cover advanced performance and risk analysis (measurement, attribution, appraisal, manager selection). The remaining 30% covers ethical and professional standards, including how to use the Global Investment Performance Standards (GIPS®). Successful CIPM candidates include financial advisors, investment consultants, portfolio managers, investment performance analysts, client relationship managers, marketing managers, compliance officers, and risk managers, among others.”
For IARs and RIAs serving the private wealth market, engaging a CIPM designee as a consultant or hiring a CIPM as an employee should open significant new business opportunities and boost your firm’s value.  
“As confirmed by a recent global Investor Trust study co-produced by CFA Institute, trust is the most important consideration when an investor hires an investment manager,” according to Rahul Keshap, head, Program Management at CFAI. “These new CIPM certificants have demonstrated that they are deeply knowledgeable investment performance professionals committed to their clients’ best interests and their own professional excellence. By mastering and promoting high ethical and professional standards, they are already making a difference in restoring trust in the industry, and we congratulate them on their achievement.”
Trust indeed is the foundation of all client relationships and the most important reason for RIAs to work with a CIPM. While trustworthiness is an intangible, its foundation is more concrete.  
Hiring a CIPM as a consultant or encouraging a member of your professional staff to earn a CIPM designation would enable you to differentiate your RIA meaningfully from other. You gain a significant marketing advantage because you boost your trustworthiness in a demonstrable fashion.
CIPM certificants know how to make an RIA’s performance reports comply with CFA Institute’s Global Investment Performance Standards (GIPS). Reporting on a Form ADV that your firm’s performance reports are GIPS compliant and created by a CIPM is objective evidence of professionalism. It builds trust.
Even more important, GIPS compliance enables an RIA to advertise investment performance. This is not to be done cavalierly, of course, but it is not so difficult once you are GIPS compliant, and the marketing benefit of being able to report investment results publicly is huge. GIPS compliance is an act of transparency that inspires trust, which is marketing gold.
This is not to suggest RIAs market based on a performance track record. Performance is usually too fleeting for an RIA to build its brand on. Delivering alpha is probably not the best main focus of an RIA’s branding, advertising and brochure.
However, being able to send a brochure showing your investment results over the last five years without worrying about of violating advertising rules will differentiate you, especially if you explain the expense your firm went through to be able to report performance in compliance with the worldwide GIPS standards and why it is important to clients. It shows a commitment to building your firm based on transparency and trust.
Stephen Horan, Managing Director and Co-Lead, Education at CFA Institute, answered questions about CFAI’s CIPM program in an email exchange and interview with me over the past few weeks.
Horan says the CIPM program started in 2006 but only recently was it promoted by CFAI. It has evolved from a program focused in verifying GIPS compliance to one in which CIPMs help portfolio managers understand their performance. “The knowledge that the program developed is relevant not just to performance analysts and GIPS verifiers but is exactly what a consultant, private wealth manager, and portfolio manager need to know to make informed investment decisions,’ Horan says.
David Spaulding, CIPM, founder of a leading GIPS verification firm and a pioneer in the field, says wealth managers serving retail clients are starting to become more interested in GIPS compliance. Spaulding, who publishes The Journal of Performance Measurement, says the demand is very different from the institutional arena. “Anyone managing money in the institutional market virtually has to comply with GIPS and there is no marketing advantage to complying because everyone wh9o wants to manage money for institutions and endowments complies,” says Spaulding. In the private wealth market, it is not being driven by clients because clients don’t know about GIPS. “But if I am an advisor and I am sitting across from you and your wife, and I say we comply with GIPS and that its been adopted by 35 countries and it is recognized as a best practice and insures I am providing full disclosure and the other RIAs you and your wife are considering have complied with GIPS,  I have an advantage because this is best practice.” He adds, “Bernie Madoff was not GIPS compliant.”

Amy Jones, CIPM, says she founded Guardian Performance Solutions in Sacramento, California,   in 2013 to help RIAs create the infrastructure, written policies and procedures to comply with GIPS. Her firm does not verify GIPS compliance because it would be a conflict of interest to both verify GIPS compliance for an RIA that she helped set up to comply.

GIPS compliance, for RIAs who read A4A — fiduciaries serving private investors with $50 million to $5 billion AUM — is in its infancy. But there appears to be two kinds of firms: GIPS verifiers that earn annual fees for attesting that they have verified that an RIA is in compliance with GIPS, and firms that only on a project-basis help you establish a GIPS compliance program at your firm. Spaulding, a guru of the CIPM profession, is best known as a GIPS verifier, while Jones is a GIPS setter-upper.  (Sorry for the technical jargon.)
Jones, who will be a speaker at an upcoming A4A webinar, says an advisory firm that has been downloading and scrubbing client account data daily for many years to provide performance reports will probably not face too difficult a time in becoming GIPS compliant. “If they have the data in their performance software, it’s just a matter of assigning a composite to each account,” says Jones. “In the last year I’ve had quite a few wealth managers reach out to me who fit that bill.”
Jones says that performance software does not ensure compliance and properly calculating returns is only one aspect of the prerequisites in complying with GIPS. She says RIAs are becoming more willing to take on the cost and risk of claiming GIPS compliance because they are finding ways to benefit from that effort.




Comments (2)

Nice article on the overall trend toward more advisor transparency and accountability in the realm of performance measuring and reporting. While the AIF credential touches on some of the measuring/reporting best practices, the CIPM is definitely more quantitatively rigorous, guiding your practice toward GIPS compliance.
jimkoch , January 27, 2014
CFP-, CPA-, and CIMA-practitioners working at RIAs need to look beyond CFP Board, FPA, and NAPFA programs for professional and business development ideas.

While these venerable organizations promote the CFP designation, other branches of the investment advice profession offer certification programs and resources that professionals at RIAs would be wise to consider.

CFA Institute, while not covered much in the financial planner trade press, is a good example. The CFAI's CIPM designation is a big deal for investment advisors and planners.

BTW, I'm covering RIA practice management here on A4A from that broad perspective that includes ideas beyond the CFP-world.

I talk almost every day CPAs, CIMAs, and ChFCs as well as CFPs and I am increasingly sure that the different branches of this burgeoning profession all have good ideas to contribute.

agluck , January 28, 2014

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