"The individual investor, the institutional investor and those that represent investors" all will benefit from the new provisions, said Alecia Licata, director of Investment Performance Standards for the CFA Institute, formerly the Association for Investment Management and Research.
Investors will be more confident because they will see performance results that are fairly represented and fully disclosed, and firms will benefit because the guidelines ensure the companies have strong internal controls in place and establish procedures for them to market material and measure performance, she
said. Additionally, as an added benefit, Licata
said, some investors seek out firms that are compliant, so it may give managers' entrance into more investors' potential screening processes."If a firm isn't compliant, there is potentially a competitive disadvantage," Licata
said. So what are some of the new SMA guidelines?For one, all information necessary for a firm's performance presentation must be collected and maintained, all SMA returns must be calculated after deducting trading expenses that are incurred during the period, and the composites used to measure performance must be defined according to similar investment objectives and strategies. Additionally, firms must clearly label returns as gross-of-fees or net-of-fees, and they must disclose the fee schedule that is appropriate to the presentation of an SMA. The new standards aren't really different from the AIMR Performance Presentation Standards that many firms in the U.S. and Canada already have been following.However, the new guidelines directly address some of the idiosyncrasies of SMAs. While performance standards have been around for a long time for other investment products, "SMA products are growing, so it was very natural that we would extend to this area to protect investors to make sure they have comparable data and information that is fairly representative," Licata said.
Even though the new standards aren't that much different from what is currently being used, creating them wasn't a piece of cake. "This has been a lengthy process ... to really develop what we believe is a sound set of provisions," Licata