How GIPS Can Help Advisors Boost Client Confidence

Under GIPS, an advisor uses a time-weighted rate of return to calculate account/portfolio performance. This metric takes investor behavior out of the equation and puts the performance squarely on the advisor’s skills.

Alternatively, non-GIPS-compliant advisors can show results less transparently, such as highlighting returns from one client while ignoring another client with a similar objective who didn’t do as well. Some RIAs have had weak auditing methods, even buying software to generate hypothetical data and then passing those off to their clients as real returns.

Beyond performance and comparability, a GIPS-compliant advisor must provide their clients with access to transparent information about the investments themselves. It’s encouraging to see the industry moving in the right direction. In addition to providing transparency to clients, being GIPS-compliant can also help advisors meet more strict guidelines set by the Securities and Exchange Commission under the new Marketing Rule to offer investors a clear picture of their firm’s performance record.

Fortunately, firms that are already GIPS-compliant will likely be prepared to handle and comply with SEC regulations because they’re already using composites and have resources dedicated to ensuring the full disclosure of their investment performance. Non-compliant firms, however, will likely find that they need to invest significant resources to meet requirements and record-keeping standards. So, if you’re an advisor who is not already complying with GIPS, now might be a good time to ask yourself, “Why not?”

Every financial professional should go above and beyond to demonstrate trust and transparency by adhering to the fiduciary standard and placing their client’s interests above all else. Now more than ever, investors have many options when it comes to where and with whom to invest their money. If advisors want to earn the trust of their clients and prospects — and win their business — complying with standards like GIPS should simply be a given.

Mark Matson is founder and CEO of Matson Money, an asset management and advisor coaching firm with $9.6 billion in assets under management (as of January 2023) that provides outsourced investment management, education and tools to over 500 advisory practices across the U.S., Puerto Rico and Canada.

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