Lesson 4 of 4 · 12 min
Defining the firm, discretion and verification
Compliance starts with drawing the firm's boundary broadly and deciding which portfolios are discretionary; verification is an optional, independent, firm-wide test that adds credibility to the claim.
In short
- Core principles: define the firm properly, give GIPS Reports to all prospective clients (and certain pooled fund prospective investors), follow applicable laws, and present nothing false or misleading.
- The firm should adopt the broadest, most meaningful definition, including all offices under the same brand name, whatever their legal entity names.
- Discretion turns on whether the firm can implement its strategy. If documented client restrictions stop it, the portfolio may be non-discretionary and is then excluded from composites.
- Firms self-regulate their claim. Verification by an independent third party is voluntary but recommended.
- Verification tests the whole firm's policies and procedures; it does not guarantee the accuracy of any specific performance report.
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