Verification

Verification involves an independent third party reviewing a firm’s GIPS^® procedures and confirming compliance. It doesn’t verify underlying calculations but checks if the firm follows GIPS^® guidelines.

Independent verification enhances a firm’s reputation for honesty and ethical standards.

Selecting a Verification Firm

Choosing a verification firm should match your asset management firm’s unique needs. Large global firms require firms with the right scale and resources for accurate verification.

To ensure a proper match, get quotes from different verification firms, clearly communicate your verification needs, and use an internal request for proposal (RFP) template to standardize the process. This prevents important details from being overlooked when contacting multiple verifiers.

Scope of Verification

Firms can’t claim partial compliance; it’s all or nothing, applying firm-wide.

While it’s okay to have a detailed performance examination for a single composite or account, this must be in addition to the full firm-wide verification. The firm can only state that a specific composite or portfolio has been examined separately if there’s a performance examination report for that part of the firm’s operations.

Verification Process

Verifiers follow their own GIPS Standards, detailing how to conduct a thorough verification.

The verifier must gain a deep understanding of the entire firm, from its structure to its operations. They check if the firm has written GIPS-related policies and procedures and study them closely.

Every aspect of the GIPS Standards is examined during independent third-party verification. While not every single portfolio is checked, verifiers can use spot checks or sampling to ensure compliance, selecting composites or portfolios randomly for review.

Preparing for Verification

Before the verification process begins, gather the following information to share with prospective verifiers. This helps them estimate fees and plan the verification:

• Firm details, including its structure and the types of investment products it manages.
• Sample GIPS Reports and marketing materials.
• All policies and procedures used for GIPS compliance, such as discretion definition, asset valuation methods, return calculation methodology, external cash flow handling, error correction, etc.
• Composite and limited distribution pooled fund descriptions, and a list of broad distribution pooled funds (descriptions not required for these).
• Composite definitions, benchmarks, and inclusion criteria.
• A list of all managed portfolios with their values.
• A record of portfolios within each composite during the verification period, including dates and supporting documentation for changes.
• A list of portfolios excluded from all composites.
• Investment management agreements and policy statements.

Question

When a firm requests a detailed performance examination?

1. The firm may state that the composite or portfolio has been examined in such a way, only if a performance examination report is released for those accounts. The firm must also still claim firmwide compliance.
2. The firm may state that the composite or portfolio has been examined in such a way, only if a performance examination report is released for those accounts.
3. The firm may state that the composite or portfolio has been examined in such a way, for those accounts.

Solution:

The correct answer is A.

Both answer choices B and C are correct. However, answer A provides a more complete and accurate response by including two crucial points:

• Firms must claim compliance on a firm-wide basis, regardless of the presence or absence of a detailed performance examination.
• A performance report for those accounts must be generated.

Reading 33: Global Investment Performance Standards

Los 33 (j) Discuss the purpose, scope, and process of verification