Twelve Steps to an Effective GIPS Compliance Program

1. Secure management support. Management must commit time and resources to bring the firm into compliance.
2. Know the Standards. Assign individuals or teams to review the Standards and complete each step.
3. Define the firm. The definition should accurately reflect how the entity is portrayed to the public and will determine the scope of firmwide assets under management.
4. Define investment discretion. The Standards use the term "discretion" more broadly than just whether or not a manager can place trades for a client. Defining investment discretion is an important step in determining whether or not accounts must be included in a composite.
5. Identify all accounts under management within the firm over the past five years, or since firm inception if less than five years. This should include all discretionary and nondiscretionary accounts, including terminated relationships.
6. Determine if the firm has the appropriate books and records to support historical discretionary account performance.
7. Separate the list of accounts into groups based on discretionary status, investment mandate and/or other criteria. These groups will be the foundation for your composites.
8. List and define the composites that will be constructed.
9. Document your firm's policies and procedures for establishing and maintaining compliance with the Standards.
10. Document reasons for composite membership changes throughout each account's history and reasons for nondiscretionary status, if applicable.
11. Calculate composite performance and required annual statistics.
12. Develop fully compliant marketing materials.

Anthony Sperling is SVP of services for investment management technology provider Advent Software. He is responsible for developing and enhancing Advent customers' overall experience. Sperling joined Advent in 1993.

Kimberly Cash is the partner in charge of compliance verification services for CPA firm Ashland Partners & Co. She is responsible for responding to the Investment Performance Council (IPC) on proposed guidance statements.