Friday, February 12, 2010
What do GIPS examinations and undercoating have in common?
If you're not old enough to remember what undercoating is, I'll provide a brief explanation. Invariably, if you were going to buy a car 15 years or so ago, the salesman would try to talk you into adding "undercoating." What was undercoating? It was supposed to provide extra protection to the car's underbody; however, many would suggest it was really a way for the dealer to make another hundred bucks or more on the sale: many thought it was a waste of money and that it did nothing to enhance the vehicle. But, virtually everyone added it (I know we did to just about every new car we bought). At some point dealers stopped offering this "added option" (Perhaps word got out that it didn't actually do much for the car).
I'd suggest that for the most part GIPS(R) (Global Investment Performance Standards) examinations fall into this category: they add little, other than to put some extra bucks into the verifier's back pocket. I know this may sound like an extreme statement, but I believe it to be true.
I spoke with someone from a very large (many hundreds of billions of dollars under management) asset manager this week, who told me that they annually spent several hundred thousand dollars on verification, including examinations. They decided to check to see how often they were actually asked if their composites were examined. After reviewing more than 2,000 RFPs they discovered that only one specifically asked! And so, they decided not to spend the money going forward. Wise move!
Our position is that you should avoid spending the money unless there's truly a justifiable reason. If our clients suddenly have a need to get a composite examined, we can come in, even on the weekend if necessary, to do the work. We are fully capable of doing examinations, and will do them. Very few of our clients ask for them. If there's a business case for them, by all means, have them done; if not, reconsider.