As a firm, you have decided to become GIPS verified. What happens next? This article will walk you through the process, starting with understanding the GIPS Standards and concluding with the benefits of a GIPS verification.
Step 1: Understand the GIPS Standards
Before a verifier like Kreischer Miller can verify your firm, it is helpful to understand the GIPS Standards. In addition, your firm needs to claim compliance with the CFA Institute. Understanding the standards is the foundation to achieving and maintaining compliance. Once this takes place, we can start the verification process.
Kreischer Miller is available to help guide your firm in understanding the GIPS Standards. The CFA Institute’s website is also a great resource.
Step 2: Conduct the Planning Meeting
Kreischer Miller will schedule a pre-verification meeting with your firm. This meeting is essential to the verification process, as it will address the various steps of the engagement, ensure expectations are aligned, help identify if there will be any potential issues, and establish communication channels.
The pre-verification meeting will pave the way for a successful process between your firm and Kreischer Miller. During this meeting, it will be important to discuss the timing of the engagement and communicate any internal or external reporting deadlines. Agreeing on a mutually beneficial timeline at the beginning of the engagement will assist the verifier in making sure that the proper resources are available to meet the needs of your firm. Anticipated changes to the timeline should be communicated as soon as possible so that any necessary adjustments can be made.
Step 3: Ensure Your Verifier Understands Your Policies and Procedures
Before getting into any testing, it will be important for the verifier to understand your firm’s policies, procedures, systems, and controls as it relates to the GIPS Standards. Typically, much of this information will only need to be communicated in the initial verification year, with updates for any changes made in subsequent years.
We will discuss with your team the relevant policies and procedures related to performance measurement. Please note that the CFA Institute has policy and procedure resources in its Guide for Creating a GIPS Standards Policies and Procedures Manual for Firms. We are also available to answer any questions you have surrounding policies and procedures.
We will ask about your firm’s portfolio accounting system, composite maintenance system, and any related controls. After the meeting, we will perform walkthroughs of your firm’s systems to gain a thorough understanding.
We will also inquire about your firm’s performance calculations. Be prepared to give an overview of the calculations and let us know of any complexities or nuances.
We will ask how often your GIPS reports are prepared, and the process for how they are distributed. If you have your GIPS reports already available, or if you have prior period reports, it will be helpful to provide them to us.
We will then walk you through the testing approach and explain the type of information we will request. We will also explain through which channels we will be requesting information and how you are able to upload documents.
Step 4: Prepare for the Information Request
After the pre-verification meeting, we will request information to aid in the verification of whether your firm meets the requirements of GIPS. Below is a high-level overview of the information we normally request. This list is not all-inclusive but will give you a good idea of what to expect. Some of the information below will only be requested on a sample basis.
- Copies of the latest GIPS reports
- If your firm has been verified in the past, provide prior verification reports and GIPS reports
- The most recent Policies & Procedures document, as well as compliance manuals
- Composite and pooled fund listing, including any composites that have closed within the last five years
- A complete list of all fee paying, non-fee paying, discretionary, and nondiscretionary accounts that make up total firm assets. This listing should include any new and terminated accounts during the verification period
- Gross-of-fee, net-of-fee, and benchmark monthly returns
- Internally prepared three year annualized Ex-Post standard deviation calculations
- Internally prepared standard deviation calculations
- A list of monthly total firm assets
- Copies of the most recent regulatory correspondence
- A copy of the latest pitch book or advertising materials
- Listing of sub-advisors (if applicable) and agreements
- Custody or third-party statements
- Investment Management Agreements
- Termination support for accounts that have terminated
Step 5: The Verification Process
Once all the requested information has been received, we will perform a series of tests, and additional information may be requested. Some of the procedures include testing the accuracy and consistency of performance-based calculations, timely inclusion and exclusion of accounts, whether the benchmarks used are appropriate, ensuring the firm’s disclosures are complete and in compliance with the GIPS Standards, and internal controls testing related to performance measurement.
The testing process is critical, as it provides us with independent assurance that your firm’s performance reporting standards are GIPS compliant.
Step 6: Conduct the Wrap-Up Meeting
At the end of the verification, we will schedule a wrap-up meeting to discuss any recommendations or ways to incorporate best practices that may have been discovered during the engagement.
Learn More About the GIPS Verification Process and the Benefits to Your Firm
GIPS verification will enable your firm to establish credibility and trust and enhance your competitiveness within the market. It will also help your firm adhere to regulatory standards, while conforming to global performance standards.
If you have any questions about this information or would like to discuss next steps for your firm’s GIPS verification process, please contact a member of our Investment Industry Group.