JustasS

Which of the following is least likely a GIPS valuation requirement?

A) Firms must disclose if their valuation hierarchy differs from the GIPS recommended hierarchy.

B) If local laws or regulations related to valuation conflict with GIPS, firms are required to follow the more strict of the law or standard.

C) Firms must disclose their portfolio valuation policies and hierarchy.

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If local laws or regulations related to valuation conflict with GIPS, firms are required to follow the local laws or regulations and disclose the conflict. The other two answer choices are both GIPS valuation requirements.

JustasS

Which of the following regarding the GIPS real estate valuation principles is most accurate?

A) Fees paid to external valuators must not be based on resulting value.

B) The GIPS recommend that real estate investments be valued externally by outside sources.

C) The GIPS require the reporting of a single appraisal value.

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The amount of the external valuator’s fee must not be based on the resulting value. The GIPS require(not recommend) that real estate investments be valued externally by outside sources. Although appraisal standards allow reporting values in ranges, the GIPS recommend (not require) the reporting of a single value.

JustasS

According to the GIPS valuation principles, for periods beginning January 1, 2011, firms must:

A) use only objective valuation methods.

B) disclose the use of any subjective valuation inputs.

C) disclose the use of any subjective valuation inputs if the portfolio is a significant portion of the composite.

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For periods beginning on or after January 1, 2011, firms must disclose the use of any subjective valuation inputs if the portfolio valued using the subjective input represents a significant portion of the composite.

JustasS

Brown and Brown Associates is a money management firm that is advertising that it is GIPS compliant. In its advertisements, the statement that the firm can use in claiming compliance is:

A) “Brown and Brown Associates has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS®)”.

B) “CFAI confirms that Brown and Brown Associates are in compliance with the Global Investment Performance Standards (GIPS®)”.

C) “Brown and Brown Associates claims compliance with the Global Investment Performance Standards (GIPS®)”.

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The correct statement is “Brown and Brown Associates claims compliance with the Global Investment Performance Standards (GIPS®)”.

JustasS

White and White Associates (WWA) is a money management firm that is planning to advertise that it is GIPS compliant. In the advertisement, WWA may include performance results:

A) and does not have to include any additional information concerning performance.

B) only if WWA includes further information including the return of the composite's benchmark.

C) only if there has been third-party verification.

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Guideline B.7 stipulates that any advertisement that includes performance results must also include additional information such as the return of the composite's benchmark.

JustasS

Black and Black Associates (BBA) is a money management firm that is advertising that it is GIPS compliant. BBA actively employs derivatives and leverage, and these tools have a material affect on composite returns. With respect to describing their use of these tools in their advertisements, BBA:

A) need not mention neither leverage nor derivatives.

B) must do so with respect to derivatives but not leverage.

C) must do so with respect to both derivatives and leverage.

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Guideline B.11 stipulates that the use of derivatives, leverage, and short positions must be described under these conditions.

JustasS

A firm that is claiming GIPS compliance is considering verification. Verification:

A) could be on select composites after the whole firm has been verified.

B) could be on select composites as part of the firm wide verification.

C) would include all composites as part of the firm wide verification.

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As part of the verification process the firm must comply with all the composite construction requirements of GIPS on a firm-wide basis. This means that a single verification report is issued to the entire firm and that GIPS verification cannot be carried out for a single composite.

JustasS

As part of the verification process of a firm claiming GIPS compliance, the third party doing the verification asks for a list and description of the firm’s composites and a list of all portfolios under the firm’s management. Which of these requests is (are) actually part of the preparation process?

A) A list of all portfolios under management but not a list and description of composites.

B) A list and description of composites but not a list of all portfolios under management.

C) Both asking for a list and description of composites and a list of all portfolios under management.

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The verification includes both of these requests as well as many others such as a sample of performance presentations and marketing materials and all investment management agreements or contracts.

JustasS

The purpose of third-party verification:

A) is required by CFA Institute but not the SEC.

B) is required by CFA Institute and the Securities and Exchange Commission (SEC).

C) may give a GIPS compliant firm a competitive advantage by making the claim to GIPS compliance more credible.

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As of now, the only purpose of verification is to give the GIPS compliant firm a competitive edge. Prospective clients will have more confidence in the claim of GIPS compliance.

JustasS

A portfolio manager whose firm follows GIPS is concerned about the effect on his reported investment performance of a large client-directed withdrawal and the resulting liquidation of certain securities. What would be the best method for adjusting results for client-directed withdrawals in discretionary portfolios, in accordance with GIPS?

A) In this situation, the portfolio should be labeled non-discretionary, and all current and historical returns should be removed from the composite results.

B) GIPS recommend that the manager assumes a proportionate amount of each security is sold, in determining a fair tax adjustment to "add back."

C) The manager is not permitted to add back the non-discretionary taxes in order to improve the reported composite returns.

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This proportional adjustment method should be used in order to properly comply with GIPS. This method is preferred, in order to avoid the temptation to assume the security with the greatest embedded capital gain was sold, in order to improve the adjustment, and resulting reported returns.