What does GIPS verification mean?

I'm an amateur when it comes to understanding investment performance standards. So I was surprised when a speaker at the CFA Institute's GIPS (global investment performance standards) conference speaker said verification does NOT verify that firm's composite numbers are correct or that firm is compliant. Huh?

As I understand it, verification simply means the firm has the right processes to be compliant and to calculate performance accurately.

If you've got questions about this topic, I suggest you mosey on over to the Investment Performance Guy's blog, which includes a post on "Verification verifies compliance...not!" Blogger David Spaulding, president of The Spaulding Group, Inc., looks like a valuable resource for your GIPS and performance questions. Back in March 2009, I enjoyed writing "Fixed income attribution falls short" about his talk to the Boston Security Analysts Society.

Related posts:
*  SEC's update to CFA Institute's GIPS conference
*  A quant's guide to detecting a future "Madoff"
*  Top 5 tips for investment performance advertising

____________________
Susan B. Weiner, CFA
Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

A quant's guide to detecting a future "Madoff"

Worried about getting taken in by an investment management Ponzi scheme?

With the SEC ratcheting up its fraud detection efforts, it's less likely that you'll get scammed, based on what I heard at the CFA Institute's GIPS conference last week. But the conference also introduced me to a quantitative method for detecting fraud in "The Importance of Risk and Attribution in the Post-Madoff Era" by Dan diBartolomeo, president and founder of Northfield Information Services.

The solution boils down to identifying investment returns that aren't economically feasible. The effective information coefficient is an important tool for that, said diBartolomeo. 

A personal commitment to preventing future Madoff-style fraud 
DiBartolomeo wants to make people more aware of--and attentive to--risk.  He's so committed that every year he hires a pickpocket to attend his annual client conference and warns his clients that "Keith the thief" will be targeting their wallets, watches, and other possessions. Despite the warning, each year, diBartolomeo has to return a pile of stolen goods. Keith succeeds because he's good at distracting people--and Bernie Madoff was good at this, too, said diBartolomeo.

Speaking of Madoff, diBartolomeo's firm was involved in the efforts of Harry Markopolos to uncover the secret to Madoff's steady investment returns. At the time, diBartolomeo only knew that he was analyzing the returns of Manager B. But within a few hours, analysis revealed that Manager B's returns "were either fictitious or had arisen from a strategy other than what was being represented to investors, wherein returns were probably being enhanced by illegal means." You can read more of the details of this analysis in a March 2009 FactSet podcast with diBartolomeo. 

How to uncover a fraud 
"Do these returns make sense?" That's an essential question for those who perform due diligence on potential investments, according to diBartolomeo. Returns-based methods aren't adequate for analyzing this question, he said. Instead, one needs "a risk-based measure of investment performance that can detect manager skill(or lack thereof) quickly."

The information ratio is one place to start, but it has flaws. The information ratio has nothing to do with making money for investors," said diBartolomeo. For example, the information ratio would look great for a manager with alpha of 1 basis point and a tracking error of zero, but the manager's clients wouldn't benefit much. He also pointed out that "the statistical significance of a ratio is hard to calculate."

The effective information coefficient (EIC) could be the answer to this problem. For more details on the EIC, read "Measuring Investment Skill Using the Effective Information Coefficient," which appeared in The Journal of Performance Measurement (Fall 2008). 

I wonder what Madoff's EIC was. I don't know if diBartolomeo got an opportunity to calculate it.

Oct. 31 update: diBartolomeo's talk is now available as a podcast from the CFA Institute.


____________________
Susan B. Weiner, CFA
Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

Poll: Do you use "pride capitals"?

If you're in business, you probably use capital letters more than grammar geeks recommend.

I confess. I was guilty of overcapitalizing titles until Prof. Albert Craig, my Ph.D. thesis advisor, drummed the rules into me. I learned to write "Goto Fumio, home minister" instead of "Goto Fumio, Home Minister." Titles should be capitalized only when they directly precede the titleholder's name, as in "Home Minister Goto Fumio." Goto Fumio, by the way, was the focus of my Ph.D. dissertation.

For a quick overview of the rules, read--or listen to--the Grammar Girl blog's "When Should You Capitalize Words?" The blog post, written by Rob Reinalda, who goes by word_czar on Twitter, discusses "pride capitals" to explain why "One mistake business writers often make is capitalizing words simply for emphasis or to augment their importance." You're using pride capitals, if your firm's biographies refer to "Jane Smith, President and Chief Investment Officer" instead of "Jane Smith, president and chief investment officer."

Please take the poll in the right-hand column of this blog and feel free to leave comments below. Thank you!

____________________
Susan B. Weiner, CFA
Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

Top 5 tips for investment performance advertising

Knowing the rules for advertising your investment performance is your key to staying out of trouble with the regulators.

Here are some of the tips I gathered from "Performance Advertising 101: Regulatory Do's and Don'ts" presented on Sept. 23 at the CFA Institute's GIPS conference by Rajan Chari of Deloitte & Touche, who focused on GIPS issues, and Steven W. Stone of Morgan, Lewis Bockius, who focused on SEC issues. 

1. Don't think that you're not subject to advertising rules because you're not buying a newspaper or magazine ad. Advertising is broadly defined. It's "basically, any written communication addressed to more than one person (or used more than once) that offers investment advisory services with regard to securities," according to the speakers' slides. Advertising includes client materials. It may also refer to anything that you distribute in unchanged form to 10 or more people. 

2. Make the necessary disclosures about performance. Consult with experts who are knowledgeable about your disclosure requirements. 

3. Tread carefully in performance advertising areas of particular concern to the SEC. For example, projecting returns may be viewed as promissory. Back testing is easily manipulated. To avoid the appearance of cherry picking, top stock picks must be balanced with worst stock picks. 

4. Keep a log of the people to whom you send advertising materials. I'll bet that many people aren't doing this. But it's essential for making things right if you discover that inappropriate materials have been distributed. 

5. Take your audience's sophistication into account when you choose the materials you send them. The regulators give you more leeway in materials aimed at sophisticated investors.

Despite the fact that "Performance Advertising 101: Regulatory Do's and Don'ts" was presented at the CFA Institute's GIPS conference, GIPS didn't get much attention compared to the SEC.  That's because investment managers always have to pay attention to SEC rules, whereas "GIPS advertising rules are only applicable if you choose to claim [GIPS] compliance in an advertisement." You can read the GIPS Advertising Guidelines, on pages 33-37 of the Global Investment Performance Standards.

Happy advertising!

Sept. 27 addition from Rajan Chari
Thanks to the generosity of Rajan Chari, here are two links to give you more information on advertising standards.

• SEC ComplianceAlert from June 2007--Scroll down to the section on "Performance Advertising Deficiencies."
• The SEC's No-Action Letter on Clover Capital's use of model portfolio results in advertising
  

____________________
Susan B. Weiner, CFA
Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

RFP dilemma: What should my colleague do?

You may have the answer to my colleague's investment management RFP dilemma.

Here's his question: “When preparing an RFP response (one in which you repeat the question, then provide the answer) should you correct the original author’s spelling or grammatical error?” 

Also, should you worry about offending the client if you correct an error?



What do YOU think? I'll give my opinion after I hear from some of you.
____________________
Susan B. Weiner, CFA
Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

SEC's update to CFA Institute's GIPS conference

One of the SEC latest initiatives resonates with the experience of Lucile Corkery, Associate Regional Director for Examinations, Boston Regional Office, U.S. Securities and Exchange Commission. That's enhancing the licensing, education, and oversight of back office personnel. Corkery and her colleague, Melissa Clough, senior staff accountant, discussed a list of SEC initiatives on the first day of the CFA Institute's GIPS (Global Investment Performance Standards) two-day conference in Boston on September 22. Both speakers gave the standard SEC disclaimer that their statements were strictly their personal opinions. 

Lesson from the back office 
Prior to joining the SEC, Corkery worked in an industry back office where she knew an aggressive registered rep who made her suspicious.

One day the rep came in with his cousin the lawyer and conservatorship papers for aunt, who had to be alive for the this purpose. Just one week later, the rep came in a death certificate for the aunt dated prior to his coming in with the conservatorship papers.

When Corkery challenged the rep, he said "I'll give you whatever you want. What does it take?"

It's no wonder that Corkery believes the licensing, education, and oversight initiative for back office personnel is "long overdue." 

SEC initiatives 
Other SEC initiatives discussed by Corkery and Clough included:

• Investor Advisory Committee
• Proposed amendments to custody rules, including annual surprise exam and added controls when custody is provided by a related person
• Revamping handling of complaints and tips
• Advocating for a whistle blowing program
• Conducting risk-based examinations of financial services firms
• Establishing a new division of Risk Strategy and Financial Innovation, announced on Sept. 16
• Enhancing examiners' knowledge of fraud detection techniques and recruiting staff with specialized skills
• Seeking resources to hire more examiners
• Integrating broker-dealer and investment advisor examinations  
  

Job opening in Boston--posting closes this ThursdayThere's an opening in the SEC's Boston office for a senior specialized examiner, according to Corkery.

Act fast, if you're interested. The posting closes on Thursday, Sept. 24. I think that means that Thursday is the last day you can apply. 

Posts from last year's GIPS conference:

• New GIPS standards will change the rules for marketer of separate accounts
• Better client reporting on investments is coming
• Financial crisis will change client reporting
  

____________________
Susan B. Weiner, CFA
Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

Thank you, Maine CFA Society!

The Maine CFA Society got into the spirit of my Sept. 17 presentation on "How to Write Investment Commentary People Will Read." They skewered me for using an unnecessary adverb in a sample sentence.

That's the enthusiasm I enjoy when I teach CFA charterholders to write more concise, compelling investment commentary.
____________________
Susan B. Weiner, CFA
Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

Why I write for you

You can reach more clients and prospects when you put your useful ideas into writing. However, many investment and wealth managers lack the time--or maybe the skill--to put ideas into writing persuasively. That means your audience loses an opportunity to benefit from your expertise.


I feel pain when I see great ideas hidden behind weak writing. That's especially true because I know a good editor or writer with industry knowledge could shape your ideas into compelling prose.


I enjoy taking complex information and making it clear to readers at any level of sophistication. While you may get your thrills from helping your clients reach their financial goals, mine come from cracking the mystery of how to communicate your information persuasively. I've developed my skill through a variety of experiences.


From my days as a reporter for a weekly mutual fund publication, I know that you've got to grab your reader's attention at the beginning of your story. I'll question you until I understand your "hook." I'm a skilled interviewer, having gotten my start asking questions in Japanese of elderly bureaucrats, politicians, and journalists in Tokyo before becoming a financial reporter. It's a heck of a lot easier to ask questions and record answers in my native English.


From my days working at Columbia Management and freelancing for leading investment and wealth management firms, I understand your industry and your vocabulary. Between real-life experience and the studies that led to earning my CFA charter, I know that if you talk about a bond's "duration," I've got to translate that into simpler language for the average investor.


From my days doing corporate training and public speaking, I've developed the ability to help you become a better writer and editor. It has been exciting to speak across the U.S. and Canada on "How to Write Investment Commentary People Will Read" for the CFA Institute. I also conduct customized training for companies.



From my days as a student, I retain my ability to organize information in logical order. That's helpful when I work on your articles, commentary, white papers, and other publications.


When my editing or writing enables you to communicate effectively with your clients, prospects, referral sources, and colleagues, that's my greatest thrill. I feel as if I'm giving you a voice as a writer that complements your skills as a financial professional and in-person communicator. That's the best reward of all.


Thank you for giving me the opportunity to enjoy helping you!
____________________
Susan B. Weiner, CFA
Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

Three tips for how often to publish your newsletter

Newsletters are a great way to connect with your clients, prospects, and referral sources. But you may lose--or even alienate--readers if you communicate too often. If you don't contact them often enough, they may not think of you at the right time.

In this blog post, I'm sharing my top three tips to help you decide how often to publish your newsletter.

1. Consider what your readers want 

How often do your readers want to hear from you? Poll them informally when you meet with them. If they're frequent web surfers, you could conduct an online poll.

Weekly is too frequent, in my opinion, unless your audience is signing up for short market commentary or financial planning tips.
Monthly is the sweet spot for many newsletters. Especially if you're targeting prospective clients and referral sources, it's a gentle reminder of your existence. But it's not so frequent that it's obnoxious.
Quarterly works well for many financial advisors. Your newsletter can complement quarterly account statements or market commentary.

2. Don't over-commit.

Come up with a publishing schedule you can stick to because there's no sense in making promises you can't keep. Your readers will begin to count on you if you communicate regularly. If you can't stock to your commitment to publish, clients and prospects may wonder how committed you are to other aspects of your business.  

3. Offer choices.

If your company is robust enough to offer multiple publications at different intervals, let your readers choose how often they'll hear from you. For example,  Kahler Financial offers the option of receiving emails "for each new post, daily, weekly, or monthly. You can even choose to receive an e-mail for each new post AND weekly in order to ensure you don’t miss out on anything." Rick Kahler's default is to send a weekly newsletter.

____________________
Susan B. Weiner, CFA
Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

Six ways to stop sending emails with errors

Everybody sends occasional emails with typos and punctuation mistakes. But some emails are more important than others. When you want to make your email perfect, follow these rules. 

1. Print out your email.
Somehow it's easier to see errors on paper. 

2. Read it out loud.
This is good for catching missing words that your mind might otherwise fill in. Otherwise, you often see what you expect to see.


3. Get someone else to proofread it.
It's easier for a third party to catch your errors. 

4. Let it sit overnight.
When you read with fresh eyes, you're more likely to catch errors. 

5. Use a spell-checking program.
If your email program doesn't support spell-checking, copy the email into your word-processing program, so you can check it there. However, remember that spell-checkers aren't foolproof. 

6. Create a checklist of common errors.

Using a checklist makes you slow down and, so you're more likely to catch the errors highlighted on the checklist. For example, let's say you're confused about "How to punctuate bullet-pointed lists." Add to your checklist: "check bullet point punctuation rules" with a link to the rules. 

Have you got other suggestions for keeping emails error-free? Please share them in the Comments section.

____________________
Susan B. Weiner, CFA
Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

It's not ONLY about your audience

Think more about your reader and less about yourself. That's one of the main things I say in my writing workshops. But sometimes it makes sense to bring yourself into your communications.

Ask this question:

What aspects of myself and my life experience will help me connect with [my audience]?
--G. Richard Shell and Mario Moussa, "The Art of Woo," Arrive (Nov./Dec. 2008)

Shell and Moussa give the example of singer-activist Bono using his knowledge of the Bible to connect with Jesse Helms, the conservative senator, on the topic of AIDS. Anchoring his pitch to their shared ideas, helped Bono make his case to Helms.

You can apply these lessons to your clients, too. Use something you share with your clients to make yourself more persuasive. It doesn't have to be religion. It could be a hobby, a dilemma, or something else.

Shell and Moussa are the authors of The Art of Woo: Using Strategic Persuasion to Sell Your Ideas.
____________________
Susan B. Weiner, CFA
Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved