Group floats new performance standards for retail advisers, CFA Institute pushes back

Brightscope, Spaulding Group seek comment on paper outline GIPS alternative

By Dan Jamieson

Sep 11, 2013 @ 7:39 pm (Updated 9:07 am) EST

standards, gips, performance, brightscope, spaulding group

Brightscope Inc. and The Spaulding Group Inc. are proposing new performance-reporting standards for retail advisers.

In a whitepaper released Wednesday, the organizations proposed a set of “universal advisor performance standards,” or UAPS, for the wealth management industry.

Brightscope, an online provider of data on retirement plans and advisers, and the Spaulding Group, a performance-reporting consultant, contend that the current global investment performance standards don't always work well when applied to the typical wealth management firm. Retail firms often have hybrid advisers who don't manage all client money on a discretionary basis, they said.

The GIPS standards were created and are administered by the CFA Institute.

GIPS-like rules, which cover composite reporting of discretionary accounts, would be used under the proposed UAPS, but with modifications to incorporate non-discretionary accounts. Unlike GIPS, UAPS would allow advisers to use representative portfolios, model portfolios, hypothetical performance or back-tested results, as long as certain disclosures are included.

“UAPS is going to be a lot more flexible,” said Sonia Ahuja, executive vice president of business development and strategy for Brightscope. “We want to provide investors all the right tools” for selecting advisers.

A comment period on the UAPS will last until Oct. 18. Comments can be e-mailed to info@SpauldingGrp.com.

“The UAPS executive board is currently exploring options for moving forward with the new standards, including transferring responsibility to a third party,” Brightscope and Spaulding said in a statement.

The obvious third-party to administer performance-reporting standards is the CFA Institute.

But the institute sees no need for UAPS, said Jonathan Boersma, executive director of the Global Investment Performance Standards at the institute.

The GIPS standards “pretty comprehensively address all the issues,” Mr. Boersma said.

“Anytime you mix discretionary and non-discretionary accounts, you’re getting a mixed bag,” he added. “The GIPS standards were created to prevent some of these things. You don’t want advisers taking credit or being blamed for things not under their control.”

Mr. Boersma also said that including a hypothetical return or back-tested portfolio in a composite is a “cardinal sin when it comes to GIPS standards. If you’re coming up with a strategy, and you do some back-testing and the numbers don’t show well, you don’t show it to anyone.”

Brightscope and Spaulding have spearheaded the UAPS effort with the help of an 11-person advisory board that includes representatives from Albridge Solutions, the Money Management Institute, Black Diamond Performance Reporting, a unit of Advent Software Inc., Morningstar Inc., UBS Financial Services Inc., Bank of America Merrill Lynch and Morgan Stanley.