While most firms, small or large, are confident that they are in compliance and adhering to industry best practices, the reality is quite different. In particular, the way in which many firms are managing composites is unintentionally misleading. The OSC research identified several problems with the composites they reviewed, including:
- Composites did not include all relevant portfolios
- Portfolios were not consistently included in composite over time
- Historical performance of terminated portfolios were excluded
- Inappropriate or inconsistent methodology was used
- Lack of adequate disclosure of performance returns of composites
- Unclear disclosures on whether returns were net or gross of fees
- Inadequate books and records maintained to support composite data
- Disclosure claims of GIPS®compliance were false
Performance analysts and operations staff who are attempting to comply with best practices using spreadsheets for composite tracking are the most at risk. Without a system designed to manage the complexities of tracking, then disclose and properly calculate the composites, your firm is clearly at risk of violating OSC Rule 31-505. If you are currently using a performance measurement system, but are constructing and managing composites in spreadsheets, it's time to move to the next level.
SS&C's Sylvan™ Composites Management system is a comprehensive system that will work with any performance measurement system you currently have, or provide full performance and composite management in a single integrated database, and is easy to implement. Achieve compliance with industry standards, reduce your verification costs and improve the consistency of your marketing materials with SS&C.
To find out more about composite tracking, please contact Charmaine Flockhart at 905-212-3246. The OSC notice may be found at http://www.osc.gov.on.ca/Regulation/Rulemaking/Current/Part3/sn_20071109_33-729_marketing-practices.jsp.