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You are reading the 2026 curriculum (exams up to November 2026). Sitting in February 2027 or later? Go to the 2027 Ethical and Professional Standards guide.

Learning Module 4 of Ethical and Professional Standards 15–20% of the exam

Introduction to the Global Investment Performance Standards (GIPS)

3 lessons. About 16 minutes in cram mode, 70 minutes in full.

Start with lesson 1 Learn with Sensei Read the module summary

Lessons

  1. 1
  2. 2
    GIPS key concepts and composites

    explain 6 min cram, 24 min full

  3. 3

What the exam expects you to do

  1. Explain why the GIPS standards were created, who can claim compliance, and who benefits from compliance.Why the GIPS standards exist, who can claim compliance and who benefits
  2. Describe the key concepts of the GIPS Standards for Firms.GIPS key concepts and composites
  3. Explain the purpose of composites in performance reporting.GIPS key concepts and composites
  4. Describe the fundamentals of compliance, including the recommendations of the GIPS standards with respect to the definition of the firm and the firm’s definition of discretion.Defining the firm and discretion, and independent verification
  5. Describe the concept of independent verification.Defining the firm and discretion, and independent verification

Module summary

The whole module on one sheet, organised by lesson: what to memorize, how the ideas fit together, the formulas and the key terms. No paragraphs, just what you need to revise.

How deeply to learn each part
Know the idea
Understand it in general. It frames other topics, but you will not calculate with it.
Use it
Understand it well enough to solve a question with it. Recognize when it applies.
Memorize
Learn it by heart. The exam will not give it to you.
1

Why the GIPS standards exist, who can claim compliance and who benefits

Known

MemorizeGIPS: purpose and who can claim

TopicWhat to know cold
What it isVoluntary, practitioner-driven ethical standards: fair representation and full disclosure of performance
Three practices it stopsRepresentative accounts, survivorship bias, varying time periods
Can claimFirms that manage actual assets; asset owners too (as a firm if they compete for business, otherwise under the Standards for Asset Owners)
Cannot claimConsultants that do not manage the assets, software and its vendors, individuals
Claim ruleFirm-wide, all or nothing, only through the GIPS Compliance Statement. No partial claims
Legal statusVoluntary. Not typically required by law or regulators
Who benefitsFirms, prospective clients and investors, asset owners and their oversight bodies

Memory hook Best account, lost accounts, lucky window: the three ways to flatter a record. One shared rulebook, claimed whole or not at all.

Know it cold Manage money, claim for the whole firm, use the statement; otherwise say nothing about GIPS.

Key terms

  • GIPS standards Memorize
  • fair representation and full disclosure Memorize
  • representative accounts Memorize
  • survivorship bias Memorize
  • varying time periods Memorize
  • firm-wide compliance Memorize
  • GIPS Compliance Statement Memorize
  • voluntary compliance Memorize
  • asset owners Use it
The three practices GIPS was designed to stop
Misleading performance presentationwhy track records could not be compared
  • Representative accounts Memorize one top portfolio stands for the strategy
  • Survivorship bias Memorize portfolios closed after poor results left out
  • Varying time periods Memorize only the flattering window shown
Who can claim GIPS compliance
Claiming complianceonly an organization that manages actual assets
  • Can claim Memorize with the GIPS Compliance Statement
    • Investment management firms GIPS Standards for Firms
    • Asset owners that compete for business same as a firm
    • Asset owners that only report to an oversight body may use the Standards for Asset Owners
  • Cannot claim Memorize may support GIPS, never be compliant
    • Consultants that do not manage the assets may endorse GIPS or require it of managers
    • Software and software vendors can help a firm comply
2

GIPS key concepts and composites

Known

MemorizeComposites: what to know cold

TopicThe rule
DefinitionAggregation of one or more portfolios managed to a similar mandate, objective or strategy
Must includeAll actual, fee-paying, discretionary portfolios that fit, current and terminated
Membership setEx ante, by pre-set criteria. Never after seeing results
Segregated accountsEvery fee-paying, discretionary one sits in at least one composite
Pooled fundsFee-paying, discretionary ones join any composite whose definition they meet
PurposePrevent cherry-picking the best accounts
Firm mustFollow all requirements, including Guidance Statements, interpretations and Q&As. Follow recommendations for best practice

Memory hook Four tests for a member: actual, fee-paying, discretionary, same strategy. Pass all four and you are in, whatever the return.

Know it cold Rules first, results later: if you needed the returns to decide membership, it was ex post and wrong.

Key terms

  • recommendations versus requirements Use it
  • Guidance Statements Know the idea
  • input data integrity Know the idea
  • calculation methodology Know the idea
  • composite Memorize
  • actual, fee-paying, discretionary portfolios Memorize
  • ex ante composite definition Memorize
  • cherry-picking Memorize
  • pooled funds Use it
Who belongs in a composite
A compositeone strategy, one rule set, fixed in advance
  • Must include Memorize all portfolios meeting every test
    • Actual real money, not hypothetical
    • Fee-paying clients who pay for the management
    • Discretionary firm free to run the strategy
    • Same mandate, objective or strategy by pre-set criteria
    • Terminated portfolios stay in the history up to termination
  • Must leave out Memorize not part of the strategy record
    • Non-discretionary portfolios client restrictions block the strategy
  • Placement rules Use it where accounts and funds sit
    • Fee-paying, discretionary segregated accounts at least one composite each
    • Fee-paying, discretionary pooled funds any composite whose definition they meet
3

Defining the firm and discretion, and independent verification

Known

MemorizeFirm, discretion and verification

TopicWhat to know cold
Core principlesDefine the firm properly; give GIPS Reports to all prospective clients; follow laws; no false or misleading information
Definition of the firmBroadest, most meaningful definition: all offices under the same brand name, whatever the legal entity names
Why it mattersFoundation of firm-wide compliance and of total firm assets
DiscretionBased on the firm's ability to implement its strategy. Documented client restrictions that stop it make a portfolio non-discretionary
Non-discretionaryMust not be in any composite
VerificationVoluntary, by an independent third party, firm-wide
What it testsPolicies and procedures for composite and pooled fund maintenance and for calculating, presenting and distributing performance: designed in compliance and implemented
What it does not doDoes not ensure the accuracy of any specific report or composite

Memory hook Draw the circle wide, drop the handcuffed accounts, then let an outsider test the whole system, not one report.

Know it cold Verification is optional, independent and firm-wide. It never certifies a single composite.

Key terms

  • definition of the firm Memorize
  • total firm assets Use it
  • discretion Memorize
  • non-discretionary portfolio Memorize
  • GIPS Report Use it
  • verification Memorize
  • verifier Memorize
Fundamentals of compliance and verification
GIPS compliance foundationsfirm, discretion, then optional verification
  • Definition of the firm Memorize broadest, most meaningful
    • All offices under the same brand any country or region
    • Regardless of legal entity name brand decides, not the legal name
    • Sets total firm assets the boundary for firm-wide compliance
  • Discretion Memorize can the firm run the strategy?
    • Discretionary goes in a composite if it fits
    • Non-discretionary documented client restrictions; stays out
  • Verification Memorize optional assurance on the claim
    • Independent third party the firm cannot verify itself
    • Firm-wide not a single composite or fund
    • Policies and procedures designed and implemented correctly

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