NEW YORK - The Investment Management Consultants Association is developing performance measurement and reporting standards for wrap fee accounts.
The standards, which may go into effect as soon as January, seek to set guidelines for the way money managers' performance is presented by managers and consultants to prospective wrap fee clients before hiring, and how the subsequent performance is reported after money managers are hired.
The draft standards call for wrap fee account performance to be based on a composite separate from other accounts handled by a manager. All performance figures should be presented gross of all fees and expenses.
However, consultants should also show what a client's actual experience would have been with a particular manager given fees and expenses appropriate for the account.
According to Fred Weiss, director of the consulting and research unit at Prudential Securities Inc., New York, and chairman of an IMCA subcommittee developing the standards, reporting gross of fees was chosen because client fees and expenses vary widely. "For an apples-to-apples comparison it has to be gross of fees," Mr. Weiss said. "But then you have to show what the client's actual experience would have been" by looking at what fees and costs the account would have faced.
Mr. Weiss said IMCA representatives were meeting with members of the Association for Investment Management Research, Charlottesville, Va., which also is developing wrap fee standards, in an effort to make sure consultants and managers didn't have to work with two different standards.
"As wrap fee accounts have continued to evolve, the opportunity for performance reporting abuses have increased. The investment management consulting profession has found it necessary to expand its performance reporting standards to cover this popular investment vehicle," said Frank Minard, chief executive officer of Mitchell Hutchins Asset Management and chairman of the IMCA performance standards committee.