Why a GIPS Audit Matters

A firm that is GIPS compliant must abide by high ethical standards.

What are GIPS, and why should investors seek firms that comply with them? To put it simply, when an investment management company commits to undergoing a GIPS audit, it affirms its commitment to upholding ethical standards agreed upon by investment firms worldwide.

GIPS stands for Global Investment Performance Standards. These criteria were introduced in 1999 by the Chartered Financial Analyst Institute.1

Investment firms that abide by GIPS demonstrate that they are highly principled. When institutional and individual investors look for investment companies to manage their assets, they appreciate transparency and a straightforward measurement of investment results. GIPS directs investment firms on how to calculate and present those results to current and potential clients.

When a firm chooses to comply with GIPS, it also opens itself to third-party audits. It must hire an independent verifier to evaluate its degree of compliance with GIPS, and that verifier must follow standards set forth in the GIPS.2

You should ask for a GIPS-audited report from any firm you want to do business with. Accept nothing less, for when an investment management company agrees to upholding the GIPS, you know that the firm commits itself to fully disclosing investment results as well as fairly representing them. GIPS require a firm to present at least five years of GIPS-compliant investing history, rising to a minimum of ten years as the firm matures. If the firm has not yet been in existence for five years, it must show the entirety of its track record in investment management.3

Investment management firms that aim to serve institutional investors absolutely need to comply with GIPS. Non-compliance not only raises questions about transparency and performance results, but also questions about competence.

Whether you are investing on behalf of your household or on behalf of a university, trust, corporation, or pension fund, you want to select a firm that calculates investment results by global standards, discloses how fees impact investment performance, and tells you clearly how well or poorly portfolios grouped under a single investment objective are returning. Demand nothing less and look for a firm that voluntarily undergoes periodic GIPS audits.3


1 – investopedia.com/terms/g/gips.asp [2/13/18]
2 – gipsstandards.org/compliance/pages/verification.aspx [2/13/18]
3 – investopedia.com/articles/07/gips.asp [2/13/18]

This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by MarketingLibrary.Net Inc., for Mark Lund, Mark is known as a Wealth Advisor, The 401k Advisor, Investor Coach, The Financial Advisor, The Financial Planner and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. a fiduciary, independent, fee-only, Registered Investment Advisor firm providing investment and retirement planning for individuals and 401k consulting for small businesses. Cities served include but not limited to are: Park City, Salt Lake City, Murray City, West Jordan City, Sandy City, Draper City, South Jordan City, Provo City, Orem City, Lehi City, Highland City, Alpine City, and American Fork City in Utah.