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News November 14, 2005 Issue

CFA Institute Issues GIPS Transition Guidance

Planning to transition to GIPS on January 1?

Last week, the CFA Centre for Financial Market Integrity issued a press release and guidance highlighting several key changes that will take effect on that date.

The most obvious change: firms will need to claim GIPS compliance, rather than AIMR-PPS compliance, in presentations that include performance results for periods after December 31, 2005. Even if your firm wasn’t GIPS compliant prior to that date, it should still claim retroactive GIPS compliance (assuming it was previously AIMR-PPS compliant).

However, the opposite is not true: when presenting performance for periods after December 31, 2005, firms cannot claim AIMR-PPS compliance.

The release noted that firms that are newly GIPS-compliant firms may need to add certain new disclosures. It also noted that AIMR-PPS compliant firms that were previously defined solely on their regulatory registration status will need to pick a new way to define themselves, since under GIPS, firms may not be defined solely on their regulatory registration. Under GIPs, the firm must be defined as a firm, subsidiary, or division held out to clients or potential clients as a distinct business entity.

Lastly, even though GIPS standards require firms to initially present only five years of annual performance history (in contrast to the AIMR-PPS standards, which require a minimum of 10 years of history), Firms transitioning to GIPS should not plan on jettisoning five years’ worth of performance. "While it may be tempting for firms to drop some of their earlier performance history," said the statement, "AIMR-PPS compliant firms are not permitted to eliminate their previously reported AIMR-PPS compliant performance."