Can a GIPS® Compliant Financial Advisor Help You Invest with Less Stress?

gips financial advisor invest with less stress


It’s been a wild ride lately in the stock market.  After a record-long bull market, the downside action shouldn’t be a surprise since the stock market is indeed cyclical.  But knowing that fact doesn’t make it much easier when looking at your account statements.  This action is often an excellent reminder to ensure you are invested appropriately for whatever the future holds.  One vital step in that direction is learning if a GIPS® compliant financial advisor might help you get better results with less stress going forward.

What Exactly is GIPS®?

That acronym stands for Global Investment Performance Standards.  These are a set of industry-wide standards for calculating and reporting investment performance. These are designed to ensure that investment firms calculate and report their performance fairly and consistently (instead of cherry-picking or other strategies that can make them look better than they really are). GIPS® standards are used by investment firms worldwide and are endorsed by major organizations such as the Association for Investment Management and Research.

The GIPS® standards are maintained by the CFA Institute.  The CFA Institute is a non-profit organization providing education and industry standards for financial professionals worldwide. The CFA Institute has developed the GIPS® standards and maintains them through the CFA Institute Standards Board. The CFA Institute also offers the Chartered Financial Analyst (CFA) designation, a globally recognized certification for financial professionals.

Why Should I Care about GIPS®?

If you’ve got money invested in stocks, you may wonder why GIPS® matters to you.    Really it gives you one huge advantage in your financial planning:  accountability.

In the institutional financial world, investment managers are routinely held accountable for their results.  If they manage risk properly and get an acceptable return, clients usually allow them to continue managing the organization’s money.  But if they report results that are not up to par, they will often lose that business.  It’s nothing personal. Institutions need to make sure their money is managed prudently.

Strangely, that rarely happens in the personal investment management world.  Your financial advisor probably doesn’t report all of their results over the years to you or any other client.  Instead, they choose not to quantify those overall numbers.  But it’s not hard to do…every mutual fund shows you exactly how much they have generated for investors in prior years.  So without that information, how are you supposed to know how good of an investor they are?  As you might have guessed, you can’t.  It’s nearly impossible to evaluate them.

Or, your advisor may provide you performance reports that don’t present the whole picture accurately.  So you are left relying on something that may or may not be accurate.

Regardless, when your money is on the line, you need accurate and complete reporting.   That’s the only way you can tell if your money is being managed prudently and effectively.

What is a GIPS® Compliant Financial Advisor?

A GIPS® compliant firm is an investment advisor who has agreed to follow the Global Investment Performance Standards.  The advisor has decided to adhere to those industry-wide best practices for calculating and reporting investment performance.

But they have to go a step further.  They have to get those results verified by an independent auditor.

So this involves a substantial commitment and cost.  So as you may have guessed, this implies that this firm is likely very confident in their abilities, or they wouldn’t undertake this expensive but valuable process.   In this way, GIPS® compliance is a fantastic screen for you to evaluate how effective the firm is in managing and safeguarding client money.

What Can a GIPS® Compliant Financial Advisor do for You?

Due to this barrier to entry, it is reasonable to assume that GIPS® compliant financial advisors are likely really good at what they do.  So this is a shortcut to finding a high-quality financial advisor with the knowledge and experience to ensure your investments are managed prudently.

Is it a guarantee?  No, of course not and no quality investment manager would ever guarantee results.  But given there are only about 1,700 GIPS® compliant firms in the world, it is a good bet that those that have invested in GIPS® compliance are serious about performance.  Even fewer are also CERTIFIED FINANCIAL PLANNERS™ who serve individual investors.  But, like Arroyo Investment Group, some of us do exist.

With GIPS® standards in place, you can be confident that the performance information you receive from your advisor is reliable and comparable to other investment firms.

What are Other Benefits of Investing with a GIPS® Compliant Wealth Manager?

First, GIPS® compliance helps ensure that your advisor is following industry best practices. This means you can be more confident that your finances are in good hands.

That includes risk management.  It is during more challenging markets that you see if your money is being invested in a responsible and safe manner. By following best practices, these advisors can help manage your risk more effectively.

Also, because of the high cost and commitment to this process, you have more assurance that your wealth manager is serious about what they do.  This can give you peace of mind knowing that your finances are handled by someone highly qualified and experienced.

Why a Commitment to Transparency is Critical in Today’s Markets

Volatile markets can be an excellent reminder to check in and ensure your investments are on track.  A non-transparent financial advisor may be subjecting you to even more volatility by not focusing on risk management.

Because compliance requires an investment in both time and resources, choosing a GIPS® compliant financial manager can be an important screen. Most financial advisors to individuals, sadly, are not transparent with their investment results. This lack of standardized reporting means that you may be unable to properly compare different firms’ performance. When firms do not report their results in a consistent manner, it makes it difficult to understand how well they are really doing.

In today’s volatile markets, it is more important than ever to have confidence in the standards used to measure investment performance. With GIPS® compliance in place, you can be assured that your financial advisor is adhering to the highest performance reporting standards. This commitment to global standards can help to give you the peace of mind you need in today’s volatile markets.

Can a GIPS® compliant financial advisor help you feel more confident about your money?  Contact us today to learn how we can help.