Thursday, February 21, 2013

What can GIPS compliant firms do with their advisory assets?

A client sent me a note recently asking how they can incorporate their advisory assets' performance into their GIPS(R) (Global Investment Performance Standards) materials. It is becoming clear that the market sees appeal in UMA (Universal Managed Account) platforms, where the advisor provides their model and updates to another party, who in turn finds clients and implements the model for them. This is different than the SMA (Separately Managed Account), aka "wrap fee," where the manager directs the trading for their clients.

By definition, advisory assets are non-discretionary: from a LEGAL perspective, not from a DISCRETIONARY one, meaning that the assets are not to be included in the firm's "AUM" (assets under management). Even if the manager has great confidence that their model is being fully implemented in a timely manner, the  assets remain advisory.

That being said, there are ways to showcase this part of a manager's business.

First, the firm CAN create composites, if they want. But these composites are not "GIPS" composites, and would have to be labeled as "supplemental." These documents should also clearly indicate that the assets are "advisory." I would expect additional language is needed, that indicates, for example, that the manager does not control the timing of the trading, and cannot be assured that their models are implemented completely; also perhaps that the portfolio may include securities that are outside the manager's model. I would think a firm's compliance department can construct appropriate disclosure language. Note that these composites should not be included in the firm's "list of composite descriptions." I would also recommend that the materials' format not be identical to the firm's compliant materials, as this might suggest an attempt to make them appear to be GIPS composites when they are not. They should have a distinctive look, so the recipient isn't confused or mislead.

Second, the firm can show their "assets under advisement," along with their "assets under management." This, too, is supplemental.

It makes sense that firms want to provide some visibility into this segment of their business. Perhaps the GIPS Executive Committee and/or one of its subcommittees can come up with something that addresses this formally. Here are my views, at present. Your thoughts and ideas are invited.


  1. With regards to UMA assets and supplemental information. I agree with what you have stated for the most part, but am unclear what the non-GIPS UMA “composites” would be supplemental to? I’m interpreting “supplemental” in the since of the Guidance Statement on Supplemental Information. I guess the same would go for the AUM as well…but that is a bit clearer to me.

  2. Steve, thanks for the question. The "supplemental to" issue can be a confusing one, and is probably worthy of its own guidance. Anyway, if a manager has UMA accounts for a strategy, they no doubt have actual accounts being managed that way. And so, would have a composite. The "advisory composite" supplement the actual GIPS composite for the strategy. Such a presentation could presumably be helpful to (a) demonstrate the further breadth of accounts being managed to the strategy and (b) market to other platforms/providers.


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