As firms update their annual GIPS Reports this year, unique questions in 2022 include whether to stick with the GIPS Standards requirements checklist or to incorporate new SEC Marketing Rule disclosures.

The SEC Marketing Rule specifically called out GIPS Reports as an example of a standardized presentation that, even if provided in a one-on-one meeting, would still meet the definition of an advertisement.  Why?  Because it is a presentation that is “[quote SEC marketing rule directly]”…typically created once a year and provided unchanged over and over again in many one-on-one presentations.  That said, new SEC statistics and disclosures do not have to be added to every page of a presentation, so firms need to consider the presentation in its entirety and ensure SEC disclosures are included in a fair and balanced manner.

That raises a lot more questions:

• Should we add supplemental model net returns?
• Should we continue to show only annual performance statistics, or update more frequently, to reflect any significant market changes since year-end?
• Should we add the required five (5) and ten (10) year annualized performance to the GIPS Report, in addition to elsewhere? Should we create a table for additional performance statistics, or add as a single line item disclosure?

If your firm uses the GIPS Report as a standalone document, each question above must be considered.  Since the new SEC Marketing Rule requires that net returns are reflective of what a prospective client/investor would receive, the GIPS Report needs to reflect this on its own as well as including the five and ten-year annualized composite and benchmark performance.  The Rule also states that firms need to consider more frequent updates to their marketing materials to account for significant market changes over time.  This could mean updating the GIPS Report as frequently as quarterly to reflect those changes.

Most firms, however, include GIPS Reports as part of a larger, colorful firm/strategy pitch book as a primary means of distributing them to prospective clients and investors.  It is rare that a pitchbook doesn’t have separate performance pages, in addition to the GIPS Report, and the performance section often includes the most recent quarter-end performance, annualized performance, charts, and graphs for the strategy(ies) and benchmarks being presented.

Some firms even include a GIPS Report on the back of strategy fact sheet(s), to ensure they are providing GIPS Reports with performance even before there is any expressed interest in the strategy.  Those firms likely won’t re-shape their GIPS Reports with data and disclosures already on page one of the fact sheet not needing to be repeated in the GIPS Report on page two of the fact sheet.

Many legal experts emphasize that it is the presentation as a whole that needs to include the new required statistics and disclosures, not any individual page.  Important considerations, though, include the prominence of any required regulatory statistics not in the GIPS Reports, and also if material discrepancies exist.  Using the most conservative fee schedule in your GIPS Reports, and tailoring lower fees and better returns to individual prospects, is not a problem; showing better returns in your GIPS Reports than a prospective client could expect to achieve is likely to be considered misleading, though, even if lower returns relevant for the prospective client are included elsewhere in the pitchbook.  It’s also important to consider where the GIPS Reports are stored. Larger firms, with many client-facing professionals, may not know if a professional is using a GIPS Report as a stand-alone presentation.  If the GIPS Reports are in a folder easily accessed by sales and marketing professionals, it might make the most sense for your firm to ensure your GIPS Reports meet all of the GIPS standards and SEC requirements, just in case.

Whatever you choose, keep it simple and consult with your own attorney or SEC compliance consultant, as well.  The easier your policy is to maintain, the more likely you and your team will be able to consistently follow it.  We suggest you avoid maintaining two versions, if possible—a stand-alone version, and a fact sheet only version that doesn’t include statistics (already provided on page one).  It sounds good in writing – but multiple versions used by multiple people increases the likelihood of inputting and distribution missteps.  A single version, with a straight-forward policy is what we recommend, whether you add the SEC disclosures or make it very clear that GIPS Reports are never to be used outside of pitchbooks and factsheets that meet the requirements.

If you do decide to add the required disclosures to your GIPS Reports, check out our worksheet.

Cascade Compliance has over 34 years of combined experience working with SEC Regulations, the GIPS standards, and performance.  Our employees have worked with hundreds of firms in the U.S. and abroad.  One of the best parts of working with clients is getting to share expertise and knowledge of best practices across the industry.  Whether you are a client of ours or not, we are here to help you get better at what you do and answer any questions you may have.  Contact us at team.cascade@cascadecompliance.com.