The CFA Centre for Financial Market Integrity today issued guidance that establish an industry-wide approach for how firms should calculate and report investment performance results to prospective investors in separately managed accounts.

Guidance for wrap fee/SMA products are already in place for firms in the U.S. and Canada under the AIMR Performance Presentation Standards. However, the new Global Investment Performance Standards will replace the existing AIMR-PPS provisions and guidance.

Firms currently compliant with the AIMR-PPS standards should only have a few changes as a result of the transition, it says. Under the new GIPS standards, firms will have more options for how performance results can be calculated and presented. The effective date will be January 1, 2006.

The new GIPS provisions and guidance will ensure that prospective wrap fee/SMA investors worldwide are provided with detailed information about the fees charged for these products and their impact on performance returns by requiring: the disclosure of a fee schedule reflecting the current fees charged to investors in the product; and, the presentation of performance on a “net-of-fees” basis.

The GIPS standards are voluntary, ethical standards used worldwide by investment firms for the calculation and presentation of investment performance information to prospective clients.

“The addition of wrap fee/SMA provisions and guidance to the GIPS standards culminates a lengthy process in which we considered a broad range of issues and concerns from the investment community,” said Alecia Licata, director of investment performance standards at the CFA Centre.

“After two public comment periods and many rounds of discussions, we believe that we have fairly addressed the complexities raised about applying the GIPS standards to these products without compromising the need for transparency that is in investors’ best interests,” said Licata, noting that the Centre received input from more than 75 investment management firms and associations, including the Money Management Institute and the Investment Adviser Association.

“It may take time and resources for firms that have until now only considered GIPS compliance to gather the appropriate information necessary to satisfy the Standards’ requirements,” Licata said. “However, this process is not dissimilar to the industry transformation of the early 1990s when the AIMR-PPS standards were first introduced. And, the CFA Centre stands ready to help firms through this transition.”

“Fair representation and full disclosure are essential in helping investors evaluate investment alternatives,” said Jeff Diermeier, CFA, president and chief executive officer of CFA Institute. “The enhancements the CFA Institute Board approved for the GIPS standards will enable prospective investors worldwide to see more clearly the impact of fees charged by separately managed accounts on total returns and, second, to more easily compare investment products before making portfolio decisions.”

Assets held in SMA/wrap accounts exceeded US$600 billion in 2004, according to Cerulli Associates. While these portfolios have typically been a United States and Canadian product, they have expanded recently to other markets, including Japan and the UK.