Why Can’t I Speak Directly to my Advisor about Investment Performance? (Part 2)

First Ascent’s reason for not speaking to me directly made sense but I did not remember any such SEC requirement from my Series 65 study. Since I am trying to learn about the industry, I e-mailed Sean Gilligan of Longs Peak Advisory Services.

Gilligan wrote:

     > The SEC does not require performance to be presented in a
     > 1-on-1 setting, but they do deem anything… presented outside…
     > a 1-on-1… to be an advertisement. Advertisements are subject to
     > more rules and disclosures than what is required when meeting
     > 1-on-1 for a customized presentation.
     >
     > Likely the performance they have available to show is model
     > performance… [always highly scrutinized by the SEC] rather
     > than a composite of all actual accounts, which is what GIPS
     > would require… it is easier for them to have you sit down
     > with an advisor… [who] can… explain… differences that…
     > exist between… model and a live account than… to make a
     > broadly distributed advertisement piece…

Sounds like a legal proceeding with attorney dictating what can or can’t be answered, how to phrase responses, etc.!

I replied:

     > As an IA, I would want to publish performance without need for
     > a 1-on-1 consult. Being GIPS compliant, would I be able to do
     > this? What really frustrates me is the fact that if I were to
     > hire an advisor who sold funds from this company, I could not
     > directly speak with those executing discretion over my money.

I am not able to speak with traders at a mutual fund but I can call and speak directly with a fund representative!

Gilligan responded:

     > To clarify, you can show performance outside a 1-on-1 as
     > long as you have the right disclosures and have calculated
     > performance in an acceptable manner (e.g. SEC requires
     > broadly-distributed performance to be net-of-fees, while
     > 1-on-1’s can be gross-of-fees). As a GIPS compliant firm you
     > would be REQUIRED to distribute performance to all prospective
     > clients… [this firm] you spoke with probably had an internal
     > policy not to distribute performance. Many CCOs are very
     > conservative… [on this] because they feel it is too high
     > risk… [may lead to SEC issues if done improperly]. Most
     > likely the firm’s CCO made a policy not to distribute and
     > blamed it on the SEC when explaining… Truly they could if…
     > they… [took] the time to include… necessary disclosures.

I don’t blame First Ascent for bending the truth. Simplified explanations are best for laypeople.

I will conclude next time.