Trust, yes. But verify? Well, not necessarily.
Verification of compliance with the Global Investment Performance Standards wont be mandatory under a proposal by the GIPS executive committee.
The committee rejected requiring verification of money managers compliance by an independent firm. Instead, it adopted a proposal on Nov. 8 to require that the GIPS compliance statement include an explicit disclosure of whether the firm has been verified.
The committee will include the disclosure proposal in the GIPS exposure draft, which will incorporate all other proposed changes to GIPS and be presented for public discussion early in 2009, said Jonathan Boersma, GIPS executive director and a member of the committee. Based on the responses to the draft, the committee will issue the updated GIPS, effective Jan. 1, 2011.
GIPS, owned and maintained by the CFA Institute, Charlottesville, Va., replaced the AIMR performance presentation standards for U.S. managers at the beginning of 2006.
Mandatory verification of compliance has not been part of GIPS or the predecessor AIMR-PPS, Mr. Boersma said. The executive committee had considered making it mandatory before ultimately deciding to propose leaving verification voluntary but adding the disclosure statement, Mr. Boersma said.
He said the committee rejected mandatory verification for reasons including the lack of verification firms in terms of quality and quantity, particularly in developing markets and the suitability of a standards-setting group such as GIPS requiring verification when other standards-setting organizations dont. Mr. Boersma noted, especially, that the Financial Accounting Standards Board doesnt require auditing of corporate financial statements such auditing requirements are typically set by regulators such as Securities and Exchange Commission or stock exchanges.
Also, Id rather the market decide the move to verification, Mr. Boersma said.
However, the committee encourages verification, in which an independent firm samples a money managers policies and practices in performance reporting to verify they are, as they represent, compliant with GIPS.
In the U.S., he estimates 70% to 80% of money management firms comply with GIPS, although thats weighted heavily to institutional managers, Mr. Boersma said.