Level 1 CFA® Exam Cheat Sheet on GIPS, Ethics

CFA Exam: Level 1 / Ethics / GIPS Standards

Level 1 CFA Exam: GIPS = Global Investment Performance Standards

Reviewing Global Investment Performance Standards (GIPS)

Global Investment Performance Standards (GIPS) are ethical principles for standardized calculation and presentation of investment performance set for investment companies by CFA Institute and applied voluntarily worldwide. The newest 2010 edition consists of 9 sections including both requirements and recommendations for GIPS-compliant companies to follow.

This blog post was created as a part of the CFA exam review series to help you in your level 1 exam revision, whether done regularly or shortly before your CFA exam.

Level 1 CFA Exam: GIPS Key Features

The main characteristics of the CFA Institute Global Investment Performance Standards are as follows:

  • ethical standards
  • for asset managers
  • to be applied both company-wide and industry-wide
  • goals: accurate investment performance measurement, fair representation, full disclosure
  • govern the investment performance process: from data input to performance presentation
  • include not only returns provisions but also risk provisions (as of 2010)
  • industry best practices established through requirements & recommendations
  • use of composites required
  • integrity of input data and specific calculation methodologies required
  • compliance with all requirements required, incl. updates, interpretations, etc.
  • requirements are just the minimum (for full compliance, adherence to recommendations may be also needed)

You can learn more about the Global Investment Performance Standards by visiting our CFA exam lesson on GIPS .

9 Sections of the GIPS Standards

  1. Fundamentals of Compliance (Level 1 CFA Exam obligatory section! See your CFA Program curriculum for details.)
  2. Input Data
  3. Calculation Methodology
  4. Composite Construction
  5. Disclosure
  6. Presentation and Reporting
  7. Real Estate
  8. Private Equity
  9. Wrap Fee/Separately Managed Account (SMA) Portfolios

Why the GIPS Standards are Important at All

Companies often use different methodologies to measure their performance, which makes the comparison among companies impossible or difficult (even for companies that value ethics). Moreover, many companies may adopt different misleading practices, which hinders comparison and evaluation even more. All these difficulties can be handled as companies demonstrate a growing interest in the GIPS standards application.

GIPS Objectives

  • to standardize performance measurement practices
  • to enable an accurate and credible assessment of investment performance
  • to make the comparison of investment performance among companies possible and easier (based on the investment performance data)
  • to avoid misleading practices
  • to promote industry self-regulation on a global basis

If a company wants to be GIPS-compliant, it has to comply fully with the GIPS standards
(no partial compliance claim nor reference to the GIPS standards for just some of the company’s products or composites is allowed).

Level 1 CFA Exam GIPS Questions

Question 1: Application of GIPS

With respect to the Global Investment Performance Standards and their application, it is least likely that a company:

  1. may adopt none of the GIPS provisions.
  2. may apply some of the GIPS provisions.
  3. must abide by all of the GIPS provisions.

Answer: B

Adherence to the Global Investment Performance Standards (GIPS) is voluntary. If a company wants to abide by the GIPS standards, it must either obey all of the GIPS provisions or not claim compliance with the GIPS standards at all. In other words, companies cannot abide by the GIPS standards only partially if they want to comply.

Question 2: GIPS Requirements

If a company wants to comply with the GIPS standards, it has to meet all the GIPS requirements. Which of the following statements is the most accurate when it comes to disclosures under GIPS?

  1. ...
  2. ...
  3. ...

Question 2 is available for CFA program candidates using our study planner to control their prep:

Already using Soleadea? 1. Sign into your account 2. Refresh this page to see Question 2.

Some GIPS Definitions for Your CFA Exam

composite = when all actual, discretionary, fee-paying portfolios managed according to a similar mandate, objective, or strategy (both currently and historically) are presented together; aim >> to endorse fair investment performance presentation and avoid selection or misrepresentation

requirements = a company that wants to be GIPS-compliant must obey all of the GIPS requirements

recommendations = a company that wants to be GIPS-compliant is encouraged to follow the GIPS recommendations, which are considered industry best practices and help to maintain compliance

definition of the company = according to the GIPS standards, section 0, Fundamentals of Compliance, it’s the foundation of company-wide compliance and it should define the company’s assets

company’s definition of discretion = criteria used for including portfolios in a composite should be based on the company’s ability to implement its investment strategy

FOR MORE GIPS DEFINITIONS: see Module 92 e-book inside our study planner or GIPS Glossary in your Level 1 CFA Exam Curriculum, Module 92.

ALSO, you may want to see our Level 1 CFA Exam Ethics Summary >>

Level 1 CFA Exam Takeaways For GIPS Standards

  1. Global Investment Performance Standards (GIPS) are ethical standards for investment companies to be applied both company-wide and industry-wide.
  2. The main goals of the GIPS standards are accurate investment performance measurement, fair representation, and full disclosure.
  3. The binding GIPS standards have 9 sections: Fundamentals of Compliance, Input Data, Calculation Methodology, Composite Construction, Disclosure, Presentation and Reporting, Real Estate, Private Equity, and Wrap Fee/Separately Managed Account (SMA) Portfolios.
  4. The most important requirements stemming from the adoption of the GIPS standards are: the use of composites, integrity of input data, and application of specific calculation methodologies.
  5. GIPS requirements are just the minimum. For full compliance, the company’s adherence to GIPS recommendations may be also necessary.

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LAST UPDATE: 7 Nov 2023

Read Also:

CFA Exam Ethics Summary, Standard I
CFA Exam Ethics Summary, Standard II
CFA Exam Ethics Summary, Standard III