GIPS® Report Distribution Requirements

2020 performance updates are being added to presentations and pitchbooks this month.  As firms consider their GIPS Report Distribution policies we have compiled pertinent questions from the GIPS Annual Conference to help compliant firms distribute GIPS Reports and ensure disclosures are properly included.  Plus: Bonus Question – when to use the name GIPS Composite Report, GIPS Pooled Fund Report, or GIPS Reports.

Databases

Compliant firms must provide a GIPS Report to all prospective clients and investors, including databases. If the database does not have a clear way to upload a GIPS Report, the next best thing would be to provide it via email to your contact at the database and document this in your CRM or marketing log. If you do not have an email contact, the last option would be to send it to a general email address at the database.

I thought we always had to track the distribution of GIPS reports per the Error Correction Guidance Statement. Don’t firms have to track who receives what GIPS Report, regardless of the new requirement to be able to demonstrate that all prospects received the GIPS report?

That is correct, firms were always required to keep track of who received a GIPS Report for error correction purposes. However, the new requirement is that a firm must be able to demonstrate how it has distributed a GIPS Report to all prospective clients/investors. The best way to meet this requirement is to maintain a list of prospects, which report was provided, when and by whom.

If a prospect expresses interest in the strategy today, how long does a firm have to provide the GIPS report?

A firm is required to provide a GIPS Report to a prospect when they initially become prospect clients.  However, the definition of a prospective client includes expressing interest and qualifying for a specific strategy, so many potential wealth management clients may meet with a firm—might even hire the firm—before the firm determines that they are a prospective client for a specific strategy.  The GIPS Report can be included in the strategy’s marketing material or performance reports that are given to prospective clients when they express interest in a particular strategy.  The GIPS standards do say that firms must be able to provide a GIPS Report within a reasonable amount of time but the GIPS standards do not define “reasonable amount of time”, so this is up to the firm’s discretion. 

We have a relationship with a bank that sponsors a program in which our strategy is offered. Since the bank is no longer a prospect from the third party prospective, are we required to distribute a GIPS report in accordance with 1.A.12?

Yes.  Since the bank is offering the Firm’s product, the bank would be considered an investment consultant or other third party representing prospective clients, and your firm is required to provide a GIPS Report to the bank every 12 months.  Be sure to document the delivery in your marketing log, so you can also fulfill the new requirement to demonstrate distribution.

Is it ok for a firm to apply an existing procedure of setting a very high internal threshold of ranking prospects that will omit the need to provide a GIPS Report until the prospect is in the finals stage of an active search?

The GIPS standards define a prospective client as “Any person or entity that has expressed interest in one of the Firm’s composite strategies and qualifies to invest in the composite.”  If the ranking is based solely on the likelihood of actually being hired, such a procedure is not within the spirit of the GIPS standards nor does it meet requirement 1.A.13 “The firm must not choose to which prospective clients it presents a GIPS composite report.”  That said, it can take time to know which composite a prospective client may best be invested in. For some wealth managers, not all advisory clients are offered an internally managed strategy, so there can be a delay in providing GIPS reports based on a ranking due to lack of information. Once the firm has concluded that the person or entity is interested and qualifies in a composite strategy, the firm must provide a GIPS Report to the prospective client. 

Does a firm have to deliver a GIPS report to an “intermediary” of a BDPF or is a BDPF completely exempt from providing a report?

No.  Firms are not required to create or provide a GIPS Report to intermediaries of a BDPF. 

BONUS QUESTION:  Do we need to refer to our firm’s GIPS Composite Reports or is it okay to simply shorten to GIPS Reports?

In the GIPS Standards for Firms Glossary, a “GIPS Report” is defined as either a GIPS Composite Report or a GIPS Pooled Fund Report.  Technically then, it is permissible to reference the short form GIPS Report.  In context, “GIPS Reports” is a very useful term when documenting requirements that apply to both types of GIPS Reports, i.e. a GIPS Report distribution log.  Since GIPS Composite Reports and GIPS Pooled Fund Reports have different presentation and disclosure requirements, though, we recommend specifying which type of report is being presented in the title, especially if your firm offers both types of GIPS Reports.  Going forward, the more specific reference could be explicitly required, even though it is longer, to ensure clarity as the marketplace adjusts to having more than one type of GIPS Report.