Schweser says the following statement does not accurately describe a GIPS objective: “GIPS try to provide an opportunity for large and smal firms to compete on an equal footing by imposing external rules and regulations.” In its answer, it says this statement is incorrect and says “GIPS seek to promote global self regulation through voluntary acceptance and adherence to the standards.” I don’t quite see their point or the distinction here. Are they saying GIPS are not external rules or regulations and instead are standards that participants are voluntarily submitting themselves to?
I reckon the distinction is in the words ‘impose’ vs ‘promote’ and ‘voluntary’. GIPS does not impose rules. It promotes standards and encourages voluntary acceptance.
Adopted from Schweser notes: “GIPS are a set of ethical principals based on a standardized, industry-wide approach. Investment firms can voluntarily follow GIPS in their presentation of historical investment results to prospective clients. These standards seek to avoid performance misrepresentations. GIPS apply to investment management firms and are intended to serve prospective and existing clients of investment firms. GIPS allow clients to more easily compare investment performance among investment firms and have more confidence in reported performance.” …so, the question gives you a plausible statement followed by an incorrect backup. While it may be true that GIPS are intended to allow large and small firms to compete on an equal footing (through elimination of misleading reporting procedures), they are adhered to on a voluntary basis- not through external rules and regulations.