Requirements to "Publish" investment results

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Feb 5, 2010 10:46 am

Does anyone know what is requried to publish portfolio results for your firm (i.e. an indy firm)?  From what I understand, you need to have your own portfolios (versus just client portfolios) with real money in them (versus just hypos), and they need to be auditied by an outside firm.  Is this correct?  Is anyone doing this?

Feb 5, 2010 10:51 am

That is correct, and I am doing it.

Feb 5, 2010 11:07 am

Theta Investment Research will track your results. Your custodian will send them a duplicate statement of one of your accounts (I use my personal account). They track it monthly and publish the results. It's 100 bucks a year.

Feb 5, 2010 1:23 pm

You will need to report on a composite of actual discretionary accounts, not just a separate account or disclose that the returns do not reflect actual client returns.

Most of the time, you should have them audited by an accounting or dedicated performance reporting firm, but this doesn't need to be done immediately - you just need to separate out the accounts with some kind of clear delination before the reporting period begins, so you don't simply "cherry pick" the accounts to classify as "discretionary" or "Moderate Aggressive Portfolio" or whatever and be consistent with the labeling. An auditor can audit the returns after they've been generated. Just retain the custodians' transaction and position records. 
The CFA institute has a set of guidelines on performance reporting that are pretty much the industry standard and which most institutions require to base their decision to use or remain with a particular IA.
Feb 5, 2010 1:25 pm

Besure to make your inclusion criteria as simple as possible (and as general as possible) so that you won't have to TOTALLY rework your composite when you eventually go (if ever) GIPS.

Feb 5, 2010 1:30 pm
Wet_Blanket:

Besure to make your inclusion criteria as simple as possible (and as general as possible) so that you won't have to TOTALLY rework your composite when you eventually go (if ever) GIPS.

 
Inclusion critieria?  I support hiring of gays and lesbians.  Does that count?
Feb 5, 2010 1:31 pm
B24:
Wet_Blanket:

Besure to make your inclusion criteria as simple as possible (and as general as possible) so that you won't have to TOTALLY rework your composite when you eventually go (if ever) GIPS.

 
Inclusion critieria?  I support hiring of gays and lesbians.  Does that count?
 
Hah.  Is this just a joke, or do you want an explanation?
Feb 5, 2010 1:33 pm

Both actually 

Feb 5, 2010 1:34 pm
san fran broker:

You will need to report on a composite of actual discretionary accounts, not just a separate account or disclose that the returns do not reflect actual client returns.



Good Point. Theta is not GIPS since they follow one account .

Feb 5, 2010 1:51 pm

need more info.



is the indy a RIA or are you a RR of a indy BD?

do you mean for one current client or prospective clients? brokerage account performance or of a discretionary investment advisory account or composite of accounts? If an RIA with discretionary advisory accounts, look up the Investment Advisors Act of 1940 and the subsequent NO Action letters (some are on the SEC website).

Feb 5, 2010 2:04 pm
B24:

Both actually 

 
You'll need to create rules governing what accounts will be in your composite, and what will be left out - and you'll want to make sure the rules aren't too stringent or else accounts will be jumping in and out of the composite constantly, or you may even go through a time period where the number of accounts in the composite drops significantly - which all can lead to serious dispersion within the composite itself.
 
One of the trickiest issues we've dealt with is to whether to exclude all accounts with a client imposed restriction on it by considering it "non-discretionar."  But then you get into the above issues.  If you decide to consider the matter on an account by account basis, then you'll really drive yourself nuts ie. "Sure this account doesn't allow the purchase of XYZ, but did that REALLY affect investment decisions?"
Jul 5, 2010 9:18 pm

I've seen RIA firms post track records of the programs they are offering using their own model account on their website - they just have a full disclosure that it is of a "Model Account". If the track record is decent, nobody really seems to care that it's not "GIPS" compliant. Conversely, if the track record stinks, people won;t be knocking on your door just because you've done GIPS.

To me the GIPS stuff is a real pain in the ass especially if you have a lot of accounts with "hyperactive" clients wiring money in an out several times a week. How do you make a "firm wide" composite of that? The cost for a CPA to create monthly composites in many cases will eat into the management fee big time, especially if you have many small accounts.