More on representative accounts and GIPS compliance

A Spaulding Group verification client recently sent me the following note:

Hi Dave, I’m hoping you can answer a questions for us very quickly.  Our CCO and I are having a disagreement over whether representative account performance from a composite can be shown alongside the composite performance being presented to a prospect.  The guidance statement indicates that supplemental information like carve-outs, country weightings and hypothetical performance can be shown as supplemental information but does not specifically reference a representative account from the composite.

You may recall that I blogged about this subject last month. I stand by my earlier statement that GIPS(R) (Global Investment Performance Standards) compliant firms may, in fact, include details from a representative account to a prospect. However, it's important that appropriate disclosures be included.

I was reminded of the risks with rep accounts while listening to a weight loss program advertisement. The examples they provided seemed extreme, and in fact they disclosed this, saying that these examples were "not typical." At least they provided some degree of clarity, though this may be overlooked by many who are seeking  a quick cure to their overweight problem. In the case of performance, the degree that a rep account can be deemed "typical" may be difficult to discern, so again, make sure you sufficiently explain what's being shown. Ideally, what it represents, how it was chosen, how other account experiences may differ, etc.