GIPS - Everyone's "favorite" topic

From 2013 Mock (PM Section) - Question #58

  1. Gross-of-fees returns are presented before investment management fees and custodial fees but after trading expenses. All clients pay an investment management flat fee of 75 basis points on the month-end account value plus a 10-basis-point performance fee whenever the composite return exceeds the benchmark return by 100 basis points.

  2. With respect to gross-of-fees returns, Note 4 is least likely compliant with GIPS required standards in its treatment of: A. custodial fees. B. performance fees. C. trading expenses. Answer = A__A is correct because custodial fees should not be considered a component of direct trading expenses. Is it just me, or does the answer explanation not make sense? Because I’m pretty sure that note 4 already said that Gross-of-Fees returns didn’t include custodial fees, just the direct trading expenses…

yep, in thi case answer C would be correct as well, since custodial fees would be included

The asperger section of the CFA material…

i think gross only excludes management fee am i right?

The gross-of-fees return is defined as the return on investments reduced by any trading expenses

Found a discussion from last year, this should clear up the confusion