Using GIPS® Standards to Compare Portfolio Managers
Many advisors understand the benefits of outsourcing portfolio management – benefits such as tapping into the expertise of professional portfolio managers and increasing the time spent meeting with clients and prospects. One dilemma advisors face in choosing a portfolio manager is how to evaluate their past performance. Acting in your clients’ best interest means performing due diligence on portfolio management firms to make a prudent choice, but is there a way to consistently evaluate your options?
Yes, there is a way! The Global Investment Performance Standards (GIPS®) provide a transparent way to compare firms claiming compliance with the standards – and to weed out firms that do not claim compliance with GIPS®.
What are the Global Investment Performance Standards (GIPS®)?
GIPS® standards are developed and maintained by the CFA Institute, GIPS® Standards Sponsors, and the GIPS® Standards Committee. The CFA Institute describes the standards this way:
The GIPS® standards are ethical standards for calculating and presenting investment performance based on the principles of fair representation and full disclosure. They are voluntary industry standards that provide transparency and global comparability in a world where regulations and market practices differ significantly from jurisdiction to jurisdiction.[1]
These standards are used worldwide and recognized for their credibility, integrity, scope, and uniformity. To claim compliance with the standards, an investment firm must demonstrate adherence to comprehensive and rigorous rules governing data input, calculation methodology, composite construction, disclosures, presentation, and reporting.
Benefits of Working with a GIPS® Compliant Firm
For advisors selecting portfolio managers, GIPS® provides a way to evaluate performance across firms using fair and transparent comparisons. This is a huge benefit to advisors who know that firms claiming compliance with GIPS® are committed to clear, ethical reporting.
Here are a few benefits:
- Standardized GIPS® reports from portfolio managers provide complete and comparable performance information, allowing for easier comparison and better due diligence.
- Confidence that portfolio managers claiming GIPS® compliance have implemented policies and procedures to honestly and transparently present past performance.
- Firms claiming compliance have voluntarily committed to follow ethical standards based on robust policies and procedures.
- An advisor’s fiduciary process is bolstered by using GIPS® compliant portfolio managers.
For advisors seeking a comprehensive standard for comparing portfolio management firms, The Global Investment Performance Standards are the way to go.
LightPoint™ Portfolio Solutions Claims GIPS® Compliance
We take honesty, transparency, and ethical performance reporting very seriously. LightPoint™ Portfolio Solutions first claimed compliance with the GIPS® verification standards in 2018, and the firm has been independently verified by The Spaulding Group going back to 2017. On a monthly basis, we internally review performance data for over 500 accounts, and each year, we hire an independent third-party to conduct a GIPS® standards verification. If this sounds like a significant time and resource commitment, it is. We spend countless hours ensuring that we adhere to the standards because we want to show our clients and partners how committed we are to our fiduciary responsibilities.
To obtain GIPS® standards compliant performance information for LightPoint™ strategies, please contact Hillary Sunderland at hillary@beaconwealth.com.
Verification provides no assurance about the performance of any specific composite. For more information, please visit www.gipsstandards.org.
LightPoint Portfolio Solutions™ claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.
[1] https://www.gipsstandards.org/wp-content/uploads/2021/03/gips-product-info-package-brochure.pdf