Wednesday, March 9, 2011

"It depends on what the meaning of the word 'is' is."

I won't bother to identify the source for today's post's title, but it does serve a valuable purpose in trying to understand what words mean. I just finished How I Killed Pluto and Why It Had It Coming, and found it to be exceptional, not just because at one time I thought I wanted to be an astronomer. It's a book that I think everyone would enjoy. In it the author discusses the challenge in trying to determine a meaning for the word "planet," and seeks the help of a philosopher friend who says that words mean what we think they mean. Not very helpful.

In A History of Reading I encountered the following: "It would seem that, in order to read at even a skin-deep level, the reader requires information about the text's creation, historical background, specialized vocabulary and even that most most mysterious of things, what Saint Thomas Aquinas called quem auctor intendit, the author's intention."

Picking up from the "planet" example, there are some aspects of GIPS(R) (Global Investment Performance Standards) which could benefit from some eluci'dation (i.e., to be made clearer). I was recently engaged in a discussion about the meaning of "model fees." The term was introduced in the 2010 edition of the standards but without any explanation. Was it because the framers assumed that everyone would know what it means? Was it because they couldn't arrive at a definition themselves? Or, perhaps was it because it didn't occur to them that a definition was in order? I have no idea; but what I do know is that I don't know what the term means. Risking the possibility of being called pedantic, I will say that to me clarification is in order. I have opined on this in the past, and bring it up again, as my recent readings have once again caused me to reflect upon this matter.

The standards aren't designed to answer all questions and interpretation is often in order. But when the standards require a compliant firm to disclose if model or actual fees are used in their net-of-fee calculations (see ¶ 4.A.6), clarity is in order.Hopefully it will be forthcoming.


  1. Stephen Campisi, CFAMarch 9, 2011 at 7:33 PM

    The philosopher Voltaire said “If you would converse with me, first you must define your terms.” Definitions of terms are especially needed in technical areas, and on a practical level, they're needed wherever it is reasonable to have differing interpretations of words and phrases. If someone is developing standards of practice, it seems reasonable that they should have clear nomenclature.

    That said, I thought that “model fees” were theoretical or statutory fees, such as the maximum sales charge that is used to calculate mutual fund returns, as per SEC regulation, or the returns calculated using a UMA platform’s maximums, also an SEC guideline. So, in that case, a GIPS compliant presentation would likely state returns calculated with these maximum fees, loads, etc. As such, they would not be representative of an individual account’s return, but rather would represent a “worse case” return in terms of fees. Then again, maybe I’m wrong because I too am speculating in the absence of a clear definition of the term. Glossary, anyone?

  2. Thanks for your comments, Steve.

    Your understanding of the term could be correct. However, it is still open to interpretation. And to aid the reader, a definition is in order. And since the framers and maintainers of the standards have gone to the trouble of including a glossary, what better place to include a definition of newly introduced terms?


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