Products September 27, 2011

White Paper Discusses the “Myth of GIPS”

Albridge Solutions, an affiliate of Pershing LLC, a BNY Mellon company, has published a white paper highlighting the common misconceptions associated with the Global Investment Performance Standards (GIPS).  
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The paper, “The Myth of GIPS: Money-Weighted Return for Client Performance Reporting,” was developed in partnership with The Spaulding Group, specializing in investment performance measurement. The paper explains how these measurement standards can end up adversely impacting financial and reporting results by investment firms and potentially misleading clients if not used correctly.   

According to the CFA Institute, GIPS were created to be “a set of standardized, industry-wide ethical principles that provide investment firms with guidance on how to calculate and report their investment results to prospective clients.”  The “Myth of GIPS” discusses the value and limitations of the standards and suggests that they should be viewed with a more critical eye.  The absence of client reporting standards has resulted in GIPS being used as the de facto standard for ongoing client reporting, writes Albridge.  As a result, time-weighted returns are often employed, even though they can sometimes mislead clients on the true performance of their investments.   

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“The Myth of GIPS is designed to educate professionals on how this popular set of performance standards is frequently misinterpreted and misapplied,” said Gregory Pacholski, chief executive officer of Albridge Solutions. “It offers valuable suggestions for investment professionals to better-serve prospective clients and manage their businesses.”

Highlights from the white paper include:   

  • Time-weighted returns are useful to compare managers and to understand how a manager has performed.These returns are most valuable when they are used to report on the returns of asset managers.In contrast, money-weighted returns are useful to show investors how their money has performed.
  • Investment professionals should determine whether they are trying to assess personal performance or manager performance when selecting a calculation method for their clients.It is often incorrectly assumed that to be GIPS-compliant, time-weighted returns must be used. The study suggests that for clients seeking information on how their money has performed, money-weighted returns are the best option.
  • Whether the client is self-directed, retail non-discretionary or discretionary, money-weighted returns can frequently be the best way to represent the return experienced by the investor.  Money-weighted returns are also known as “personal rates of return” and answer common investor questions related to financial goals and the performance of money over time.
  • Typically, time-weighted returns are used for larger clients and money-weighted returns for smaller or retail investors.However, financial firms should offer advisers a choice of calculation methods that match the profile and need of their clients.

To receive a copy of the white paper, visit www.albridge.com, or send a request to info@albridge.com.

Deals & People September 27, 2011

Mutual of Omaha Adds 401(k) Wholesalers for Northeast

Mutual of Omaha has expanded its 401(k) product distribution team in the Northeast with two new retirement plan wholesalers, Ken Cappelli and Tom Mirra.
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Cappelli has more than 32 years of experience in providing business and personal clients with wealth management and 401(k) needs. Prior to joining Mutual of Omaha, he was an option floor broker at The Philadelphia Stock Exchange and The American Stock Exchange.He earned his Accredited Investment Fiduciary Designation from The Center for Executive Education, Joseph M. Katz Graduate School of Business at the University of Pittsburgh. He also holds the FINRA Series 7, 62, 63. and 66 licenses.  

Mirra has been a wholesaler of 401(k) and retirement plans through financial intermediaries for more than 20 years. Throughout his career he has sold investment management services for pension plans for several life insurance companies as well as qualified plan administration services for third party administrative firms in New York City. He earned a bachelor’s degree in Business Administration from Iona College in New Rochelle, N.Y., and a master’s degree in Investment Management from Pace University in New York. He is a Certified Employee Benefit Specialist, holds life and health insurance licenses in New York and has FINRA Series 6 and 63 licenses.

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“Both Ken and Tom have extensive experience as retirement plans advisers and will help us foster relationships with advisers and TPAs throughout the Northeast as we expand into some of the largest metropolitan centers in the country,” said Chuck Lombardo, president and CEO of Retirement Marketing Solutions, Inc. (RMS), a Mutual of Omaha subsidiary. “Ken will primarily focus on New Jersey and Eastern Pennsylvania, while Tom will cover the New York metropolitan area.” 

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