SEC Marketing Rule: Best practices for simplifying and automating composites and GIPS® reports

Navigating the intricate landscape of investment management demands a delicate balance between regulatory compliance, operational efficiency and delivering accurate and meaningful data. As firms grapple with managing numerous composites, meeting tight deadlines, and adhering to evolving industry standards, the need for simplification and automation becomes increasingly evident.

Here, we explore how firms can harness the power of technology to streamline their processes and how automation is transforming their approaches to managing GIPS^® Reports and composite data, ultimately driving greater efficiency, accuracy and compliance.

Streamlining the compliance process: A case study

Firms with many composites to manage, tight deadlines to produce information, and manual or spreadsheet-driven processes across multiple facets of the business, often find this combination to be unsustainable. For Madison Investments (“Madison”), the answer was to automate the calculation and reporting of multiple net of fees presented with gross returns across GIPS^® Reports.

Using Confluence, Madison streamlined the review process by creating a Composite Outlier Analysis report which compares each account’s returns to the composite and includes significant cash flow information. This enabled their analysts to look for the highest and lowest returns, analyze and research the outlier accounts in the composite. The automated reports run overnight and are ready for review first thing in the morning.

Madison also improved their ability to meet tight deadlines by eliminating manual keying, copying, and pasting of data, replacing those processes with bulk uploads. The firm made additional productivity improvements with reports showing net-of-fee return streams, an enhanced GIPS^® Composite Report including the required SEC Marketing Rule requirements, a repository of composite disclosures and each strategy’s net-of-fee calculation model fees, all in one place.

As a result, Madison releases gross and net of fees performances by business day three, empowering their marketing team with a faster way to obtain numbers populated in databases and fact sheets.

GIPS^® compliance and the SEC Marketing Rule

Are GIPS^® compliant firms in a better position to comply with the SEC Marketing Rule’s advertising performance requirements?

At Confluence, we firmly believe leveraging technology can empower GIPS^® firms to comply with the SEC Marketing Rule’s advertising performance requirements.

In addition, we believe GIPS^® isn’t just about GIPS^® compliance. There are additional benefits in becoming compliant or implementing GIPS^® requirements, including streamlined administration, regulatory controls, and structuring useful information within your organization in a simplified way.

Using the right technology can help firms achieve this. Our latest composites solution, Confluence Revolution Composites, provides firms with an unlimited number of return streams and allows net performance to be populated based on different fee schedules. Additionally, it allows for every firm to have its own error correction policy and ensures the policy is followed efficiently by allowing users to review material changes in the same location. A new self-service reporting tool enables users outside the GIPS^® team to access approved reports on their own. The system provides an audit trail to the GIPS^® team so that they can quickly identify who’s receiving the reports, version/s received, and for what reason. The solution sits within the best-in-class performance, risk and analytics Revolution platform as an optional module for easy integration.

Client demands and regulatory mandates are ever likely to increase in the years ahead. To thrive in this shifting landscape, firms need to create meaningful composites which are essential in the fair presentation, consistency and comparability of performance over time and among firms. Technology is a key enabler in helping firms deliver best practice composites through streamlined processes.

Meeting local regulatory needs

The SEC Marketing Rule is relevant to other jurisdictions around the globe since regulations tend to follow through to other regions, making GIPS^® compliance particularly useful. Having composite structures in place and a system flexible enough to cater for regulatory needs can make processes easier. Examples include:

• Annual reviews and audits: Properly organizing and displaying tens of thousands of mandates across different strategies, increasing accuracy and efficiency of audits.
• Structuring data: Building composites to organize mandates, making it easier to monitor, report and display for both audit and client reporting purposes.
• GIPS^® compliance: Pension funds and fiduciary managers around the world are becoming GIPS^® compliant, establishing both traditional and market-specific standards.

Technology’s crucial role in compliance

As we stand at the crossroads of GIPS^® compliance and the SEC Marketing Rule, the need for efficient, accurate and compliant reporting has never been more essential. By leveraging technology, firms can navigate the complexities of regulatory demands, and also pave the way for improved administration, streamlined processes and the seamless structuring of critical information.

GIPS^® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.

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