Best Practices for Meeting the Distribution Requirement

March 5, 2019

Best Practices for Meeting the Distribution Requirement

Global Investment Performance Standards (GIPS^®) Provision 0.A.9. requires firms to make every reasonable effort to provide a compliant presentation to all prospective clients. Firms must not choose to whom they present a compliant presentation. As long as a prospective client has received a compliant presentation within the previous 12 months, the firm has met this requirement.

The GIPS standards defines a prospective client as any person or entity that has expressed interest in one of the firm’s composite strategies and qualifies to invest in the composite. If an existing client has expressed interest in a strategy different from their current one, then they would also qualify as a prospective client. If a consultant represents investors that qualify as prospective clients, then the consultant is considered a prospective client and must receive a compliant presentation.

Before a person or entity is a prospective client, they are considered an interested party. An interested party is any person or entity that has expressed interest in learning about the asset manager but has not expressed interest in a specific composite strategy. As described in the GIPS standards, an interested party becomes a prospective client when the following two tests are met:

1. the interested party expresses interest in a specific composite strategy or strategies
2. the firm has determined that the interested party qualifies to invest in the respective composite strategy

When an interested party becomes a prospective client, firms must make every reasonable effort to provide a compliant presentation in a timely manner.

If a prospect remains a prospect for more than one year, then the firm must provide an updated compliant presentation at least once every 12 months and must do so for as long as the prospective client remains a prospective client.

As a best practice, firms should establish policies and procedures for:

• tracking when each contact transitions from interested party to prospective client;
• distributing the appropriate compliant presentation to the prospect in a timely manner;
• logging the compliant presentation distribution including date, recipient, and composite name; maintaining this distribution log provides firms the documentation needed to prove provision 0.A.9 has been met and will serve as an important tool if a material error occurs and redistribution of the compliant presentation is required;
• tracking when 12 months have passed since the compliant presentation was provided and a new compliant presentation is required to be sent;
• distributing compliant presentations to databases once every 12 months; and
• situations where the firm does not have an appropriate composite to present to a prospective client; when this occurs, firms must disclose that they do not currently manage the specific strategy.

Posting compliant presentations on the firm’s website and directing a prospective client to obtain the compliant presentation from the website does not meet the compliant presentation distribution requirement.  Distribution may be done electronically through email or as a hard copy.

Source: https://www.cfainstitute.org/-/media/documents/code/gips/gips-handbook-3rd-edition.ashx