/gips-compliance

name: gips-compliance
description: "Ensure firms claiming GIPS compliance under the CFA Institute Global Investment Performance Standards satisfy requirements for composite construction, performance calculation, presentation, and verification. Use when the user asks about building composites, time-weighted return calculation under GIPS, GIPS Reports and pooled fund reports, error correction policies, wrap fee or SMA program performance under GIPS, GIPS verification, or GIPS advertising guidelines. Also trigger when users mention 'claiming GIPS compliance', 'composite membership rules', 'terminated portfolio returns', 'gross vs net of fees under GIPS', or 'GIPS verification findings'. (For SEC Marketing Rule and FINRA 2210 regulatory compliance of marketing materials, use advertising-compliance.)"

GIPS Compliance — Global Investment Performance Standards

Regulatory status current as of June 2026 — verify effective dates, dollar thresholds, and pending rulemakings against current SEC/FINRA/FinCEN and CFA Institute sources before advising.

Core Concepts

GIPS Overview and Applicability

The Global Investment Performance Standards are voluntary ethical standards maintained by the CFA Institute for calculating and presenting investment performance. GIPS are not law — no regulator mandates compliance — but they are widely adopted by investment managers seeking institutional mandates, as many institutional investors, consultants, and plan sponsors require or strongly prefer GIPS-compliant track records.

GIPS applies to "firms," defined as an investment firm, subsidiary, or division held out to clients or prospective clients as a distinct business entity. The definition of the firm is foundational: a firm must define itself consistently and cannot change its definition to manipulate compliance. A firm claiming GIPS compliance must do so on a firm-wide basis. A firm cannot claim compliance for select composites or strategies while excluding others — compliance is all or nothing.

The 2020 edition of GIPS (effective January 1, 2020) is the current standard, replacing the 2010 edition. Key changes in the 2020 edition include provisions for pooled fund reports, enhanced requirements for overlay strategies, broader applicability to asset owners, and streamlined advertising guidelines. The 2020 edition maintains the core principles that have defined GIPS since inception: fair representation of performance, full disclosure of material information, and comparability across firms and time periods.

GIPS compliance is self-declared — there is no central authority that grants or certifies GIPS compliance. A firm claims compliance by including a specific compliance statement in its GIPS-compliant presentations. However, the claim carries weight precisely because it binds the firm to a comprehensive set of requirements that can be (and frequently are) tested through independent verification.

Composite Construction

Composite construction is the foundation of GIPS compliance. A composite is an aggregation of one or more portfolios managed according to a similar investment mandate, objective, or strategy. The purpose of composites is to prevent cherry-picking — firms cannot show only their best-performing accounts while hiding underperformers.

**Inclusion requirements.** All actual, fee-paying, discretionary portfolios must be included in at least one composite. The key terms are:

• **Actual portfolios** — only real portfolios with real assets. Simulated, model, or backtested portfolios are never included in composites.
• **Fee-paying** — portfolios that pay advisory fees to the firm. Non-fee-paying portfolios (such as employee accounts or pro bono accounts) may be included in composites, but the firm must disclose their inclusion.
• **Discretionary** — portfolios over which the firm has full investment authority to implement its intended strategy. Portfolios with client-imposed restrictions that materially prevent the firm from implementing its strategy are non-discretionary and must be excluded.

**Timing of inclusion.** New portfolios must be included in their respective composites on a timely and consistent basis. The GIPS standards recommend inclusion at the beginning of the next full measurement period after the portfolio is funded and invested. For example, if a new portfolio is funded on March 15 and the firm uses monthly measurement periods, the portfolio would be included in the composite beginning April 1. The firm must apply the same timing policy consistently across all composites.

**Exclusion of portfolios.** Portfolios must be excluded from composites only for valid, documented reasons:

• Non-discretionary status (client-imposed restrictions that prevent strategy implementation)
• Portfolios below a stated minimum asset level (if the firm has set a minimum, it must apply it consistently and disclose it)
• Portfolios in the process of funding or liquidation (significant cash flows that temporarily prevent strategy implementation)

**Terminated portfolios.** When a client terminates a portfolio, the portfolio must remain in the composite through the last full measurement period that the portfolio was under management. The terminated portfolio's historical returns remain in the composite permanently — they cannot be removed after the fact.

**Prohibition on retroactive composite creation.** Firms cannot create composites retroactively to cherry-pick favorable performance histories. Composite creation dates must be documented and disclosed.

**Composite switches.** If a portfolio's mandate changes and it moves from one composite to another, the switch must be documented with the effective date. Historical returns remain in the original composite; the portfolio's returns are included in the new composite only from the switch date forward.

**Documentation.** All composite membership decisions — inclusions, exclusions, switches, and the rationale for each — must be document