Reading 3 - GIPS

#6

A good way to describe the Global Investment Performance Standards (GIPS) is a: A) screening mechanism for determining appropriate international investments. B) legal doctrine with criminal penalties. C) common yardstick for means of comparison. Just like the Presentation Performance Standards (PPS), the GIPS serve as a yardstick so the performance of one individual or firm can be properly compared to that of another. C

#8

Advisors, Inc., is in the process of adopting the Global Investment Performance Standards (GIPS). The managers of the firm are combining the results of fee-paying discretionary portfolios into composites for reporting purposes. For purpose of comparison, each fee-paying discretionary portfolio must be included in at least: A) three composites. B) one composite. C) two composites. A composite is a group of portfolios with similar investment strategies and objectives. The grouping is done so a comparison can be done between the portfolios in each composite. A portfolio must be included in at least one composite for compliance with the GIPS. B

#9

Compliance with the CFA Institute Performance Presentation Standards (PPS) or the Global Investment Performance Standards (GIPS) is: A) required by the Code of Conduct. B) the best way to comply with Standard V(B), Performance Presentation. C) the only way to comply with Standard V(B), Performance Presentation. According to the Standards of Practice Handbook, complying with the PPS and GIPS is the best way to comply with Standard V(B). However, a firm is not required to be in compliance with either PPS or GIPS in order to claim compliance with Standard V(B). Compliance with the PPS or GIPS is neither required by the Code and Standards nor the SEC. B

#1

Jones, Inc., is attempting to qualify for Global Investment Performance Standards (GIPS) compliance. Regarding mandatory disclosures, which of the following disclosures will be insufficient and thus prevent Jones, Inc., from claiming compliance? A) Jones' definition of the firm is that they are a brokerage/portfolio management firm registered with the Securities and Exchange Commission (SEC). B) Jones discloses all firm assets under active management each period. C) Jones discloses all non-fee paying portfolios that are included in composites and notes the percentage of composite assets that are non-fee paying portfolios. Jones must disclose total firm assets each period, not assets under active management. The definition of the firm, the disclosure of the firm's composites, and the disclosure regarding non-fee paying portfolios are all appropriate. B

#5

The Investment Performance Council (IPC) is composed of 36 members from 15 countries and serves as the global committee responsible for the Global Investment Performance Standards (GIPS). The principal goal of the IPC is to have: A) all firms in the IPC-represented countries adopt the GIPS standards as the standard for investment firms presenting historical performance. B) all countries worldwide adopt the GIPS standards as the standard for investment firms presenting historical performance. C) all countries with developed financial markets adopt the GIPS standards as the standard for investment firms presenting historical performance and become members of the IPC. The IPC envisions the GIPS compliance as a "passport" that allows firms to enter the investment arena, which will level the playing field on a global basis. B

#3

The purpose of composites in a GIPS-compliant performance presentation is to: A) clearly distinguish the entity that is presented to the public as a GIPS-compliant firm. B) provide information about a firm's performance in various asset classes. C) present overall firm performance in a single statistic that is comparable across firms. The purpose of composites is to give clients and prospects information about a firm's past performance managing investments in various asset classes. B

#7

Viroqua DeSoto, CFA, is reading a discussion in an online forum about the construction and purpose of composites in performance reporting. She finds these statements from participants: Statement 1: The purpose of composites is to let investors know how well a firm has performed managing different types of securities or investment strategies. Statement 2: A managed portfolio should have a performance history of at least one year before the firm assigns it to a composite. With respect to both statements: A) both are incorrect. B) both are correct. C) only one is correct. DeSoto should agree with Statement 1 but disagree with Statement 2. Reporting on the performance of composites gives clients and prospects information about the firm's success in managing various types of securities or investment styles. The firm should identify which composite each managed portfolio will be included in before the portfolio's performance is known, to prevent the firm from including portfolios selectively and artificially creating composites with superior returns. C

#4

Which of the following best describes the underlying principles upon which the Global Investment Performance Standards (GIPS) are based? A) Uniformity and consistent application of standards for the global regulation of the securities industry. B) Fair and consistent application of a global set of regulatory requirements. C) Full disclosure and fair representation of performance results. The GIPS standards are a set of voluntary standards based on the fundamental principles of full disclosure and fair representation of performance results. C

#2

Which of the following statements about a GIPS-compliant firm's verification of GIPS compliance is most accurate? Verification is: A) required, and must be performed by an independent third party. B) required, and may be performed by the firm's internal auditors. C) optional, but if chosen it must be performed by an independent third party. Verification of GIPS compliance is recommended but not required. If a firm chooses to obtain GIPS verification, it is required to be performed by an independent third party. C

#10

Which of the following statements regarding CFA Institute Global Investment Performance Standards (GIPS) is CORRECT? A firm that employs members of CFA Institute: A) is not required to conform to the GIPS. B) must comply with the GIPS only within the United States. C) must choose to comply with either the Performance Presentation Standards (PPS) or GIPS. No firm is required to comply with either PPS or GIPS. These are CFA Institute guidelines, and a firm can choose to conform to one or both. A