CFA Institute, In A Step Toward Becoming The Key Professional-Licensing Body In Financial Advice Industry, Proposes Requiring Public Disclosure Of GIPS Compliance Hot

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CFA Institute has posted for public comment an April 7 exposure draft that will require investment advisors to publicly assert their compliance with GIPS. So whenever an RIA tells an investor it is GIPS-compliant, an investor can verify the claim at, a public website sponsored by CFA Institute.

If a financial advisor were to falsely advertise compliance with GIPS, it could be charged with fraud. With civil or criminal charges deterring fraudulent claims, CFA Institute is making GIPS compliance totally trustworthy. It’s also gaining influence among advisors to the mass affluent and UHNWIs.
While the CFP Board is promoting financial planning in a long-running TV campaign that doubled the annual fee its licensees pay for the past two years, CFA Institute is taking substantive steps toward cornering the market on trust by promoting rules governing public disclosure of investment performance, the paramount metric of a financial advisor’s worth.
I’m not saying this to knock CFP Board or be controversial. However, A4A members are mostly CFPs, CPAs, CIMAs and ChFCs and you need to know that, in the years ahead, the designation body and network you work within are likely to be influenced by what CFA Institute is doing.
GIPS is a way of calculating investment performance that was developed by the CFA Institute. In using the standards, RIAs and other money managers create a composite of investments they manage. For RIAs that comply with GIPS, it is much easier to market based on an investment track record. If an investment advisor is GIPS compliant, it makes it much easier to comply with onerous SEC disclosure rules involved in using performance data in your marketing materials. While distributing your firm’s track record with your marketing materials still requires a lot of work by an RIA maintaining GIPS compliance, inserting your firm’s performance record becomes routine without when you’re GIPS compliant.
The standards have been relied on by institutional investors for many years. However, with more CFA charterholders moving into managing money for the mass affluent and UHNWI’s, and with transparency growing in importance because of the Madoff scandal and rash of high-profile frauds, GIPS is starting to spread beyond the institutional market. Over the next few years, you’ll see a growing number of UHNWIs insist on investing only with RIAs who have a GIPS compliant track record.
The GIPS Executive Committee, which was created by CFA Institute as the governing body for the standards, has proposed that all firms who claim to be GIPS compliant re-assert that claim publicly annually in a listing that will be published on January 1, 2015. 
“The firm-specific information gathered through the notification process will be kept confidential,” according to the proposal. “However, summary information or statistics from the database may be released publically. A list of the names and website addresses (if provided) of all firms that claim compliance with the GIPS standards will be posted on the GIPS standards website, unless a firm requests not to be listed.”
Jonathan Boersma, CFA Institute’s Executive Director for Global Investment Performance Standards, says, if the proposal is adopted, it is expected several thousand firms worldwide will assert their claim to GIPS compliance publicly. Boersma says the listing will link back to the firm’s investment advisor’s website, where it might voluntarily publish its track record.
The CFAI Institute’s public listing could the profile of firms on the GIPS-compliant list. Internet search engine algorithms are likely to weight GIPS-listed firms higher than those that are not. The same way that your social network profiles on Linked In or Facebook show up at the top of the results when you search your name, firms listed as GIPS compliant are likely to get favorable treatment from Google and other search engines. Since the CFA Institute website is credible and the listing is an important litmus test of an investment advisor’s trustworthiness, you can bet the search engines will accord firms listed on higher rankings.
The Web forces transparency in everything. You can find answers to anything in an instant. People will expect the truth about an investment advisor’s performance to be available in a few clicks. In three or five years, RIAs who have demonstrated a commitment to transparency by adhering to GIPS will begin to see the marketing benefits, and it will quickly become the new standard advisors must live by.
To help equip you for the fun times ahead, A4A is covering GIPS compliance carefully.
Stephen Horan, managing director and co-lead of education at CFA Institute, who holds a PhD, CFA, CIPM but somehow retains able to talk to us mere mortals, spoke at an A4A webinar in March 2014 about the Certified Investment Performance Measurement designation program at CFA Institute and I blogged about why RIAs with a CFP background might want to consider grooming a staffer to become a CIPM and start connecting with CFA Institute.
Amy Jones, CIPM, and Arin Stancil, CFA, CIPM, recently spoke at an A4A webinar about how to make your RIA GIPS compliant. Jones and Stancil are principals at Guardian Performance Solutions, which helps investment advisors establish a GIPS compliance investment program.


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