The title of this blog is a quote from the 1985 film Back to the Future.  Marty McFly and Doc are in a car on the street, and Marty doubts there is enough room to get up to speed fast enough to time jump.  Doc responds with the quote above, and the car’s wheels transform into fans that allow the car to operate as a plane.  As you look to the future of compliance, it can feel as though there is not enough road, but the real question is: who is your Doc to help you navigate the things you cannot yet see?

As we have been working through GIPS verification and SEC Marketing Rule transformations, we are noticing that there are still some misconceptions about what is needed for grouping accounts.  If your firm is claiming compliance with the GIPS Standards, the common term for this grouping is “composite,” however for those that are working under the NMR only, you may be more familiar with the term “related performance.”  Whichever term you prefer, the basic principles are similar.  Composite or Related performance refers to the grouping of “portfolios with substantially similar investment policies, objectives, and strategies as those of the services being offered in the advertisement.”

Most firms have some sort of guidelines or investment policy statements for each account, which they then use to separate their accounts into different groupings.  Lately we have been asked, “How do we even start to group our accounts in similar strategies if we don’t have guidelines or an IPS?  What framework do we use to ensure that we are not cherry-picking?”

For firms that do not have a standardized process of documenting a client’s guidelines or investment policy statement, it’s not too late to implement this!  We have seen firms do this in a variety of ways.  Some firms use a very long detailed document showing the client’s investment objectives and guidelines where others list their offerings on a single page and the client checks a box indicating what strategies they would like the manager to invest in on their behalf.  This process is well and good for new clients, but what about current clients?

We have seen more and more situations where the current client base of the firm may not have the best documentation.  This is generally due to the increased regulation over the years and the firm not being quite caught up.  In these scenarios, we highly recommend going back to the client and having them sign a set of guidelines or an IPS.  At the very minimum, sending the client some written communication stating the strategy their account is invested in, and if there are any issues to let the firm know.

Having client documentation consistent and complete may seem like a no-brainer, however we have seen many firms struggle with this.  So, as we look to the future, whether we will need roads for our cars is still up in the air, however, a firm’s documentation of guidelines should not be.  Hiring a professional firm like Cascade Compliance to be your Doc as you navigate the uncertainty of compliance could be just the thing your firm needs.

Cascade Compliance has over 45 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 connect@cascadecompliance.com.