Global investment performance standards (GIPS) were developed by the Chartered Financial Analyst Institute to standardize the reporting guidelines and an investment firm’s profitability. The CFA Institute introduced these standards of ethics in 1999 to ensure that investment managers would conduct full disclosure of the performances of investments in different countries. Regulation, performance measurements and investment practices vary in different countries, but the global investment performance standards provide a worldwide set of performance presentation standards that give firms the ability to penetrate global markets.
Several key characteristics of the global investment performance standards reflect the basic elements that a financial planner or a financial analyst uses to present performance information from a firm that manages investments. GIPS encapsulates seven standards with which these firms are required to comply. These standards include things such as professionalism, integrity, duty to client and diligence.
The first global investment performance standard is professionalism, which requires a high standard of ethics even if an issue is not identified in writing. Financial professionals must comply with the rules, regulations and laws that govern the accounting profession. This applies even in countries where the securities laws are not strict. A charter financial analyst must adhere to the Code and Standards in this situation.
Integrity of capital markets is another standard that addresses the use of nonpublic information. Investment firms are not allowed to act on nonpublic information that could affect the value of a stock. This is considered insider trading when an investor acquires information on a stock to sell or buy before the information becomes public knowledge.
Global investment performance standards acknowledge fiduciary duties that brokers have to clients. The interests of the clients are placed above the interest of the firm or broker. This includes advising the client about investment risks and ensuring that the information provided is accurate, complete and fair. The brokers’ first duty is to the client. Global Investment Performance Standards require brokers to perform their assigned duties according to the required skills and abilities for the position. Brokers are not to reveal confidential information or cause harm to the investment firm.
GIPS for investment analysis, recommendations and actions address diligence and reasonable basis. A financial analyst must analyze investments and make investment recommendations. These recommendations must be supported by research and evidence. Additionally, the basic format and principles that guided the recommendations must be disclosed to clients and prospective clients. This information should also distinguish between fact and opinion.
Global investment performance standards require members of the CFA Institute to avoid compromising conduct. This type of behavior could affect the integrity or reputation of CFA Institute. Members also should not misrepresent the implications of the membership in the institute.
