Firms do not have the processes in place to calculate the net performance data that the SEC requires, says Olivier Verburg at FactSet.
A key requirement of the SEC’s marketing rule is the presentation of net performance data along with gross performance data, but many firms have processes in place only for gross returns, says Olivier Verburg, vice president, analytics manager at FactSet in this latest edition of the FTF Exchange podcast series.
“Suddenly switching that to net will present challenges on the operational side of things,” Verburg says.
The regulator says that the rule is intended to provide more transparency for investors. “I think they’re trying to make sure consumers are comparing apples to apples when they’re comparing one fund advertisement with another fund advertisement,” Verburg explains.
Olivier Verburg
“I think one of the main challenges is that firms may not have the processes in place to calculate net performance [at] every level that the SEC requires,” Vergburg says.
“Calculating net performance on the total fund level usually is nothing new, right? Especially when many firms are GIPS compliant, which many are. Firms also need to make sure that so-called extracted performance in their advertisements is reported net of fees as well,” Verburg says.
“So, an example of extracted performance in advertisements is it could be like a little table showing the sector or country returns of the funds. Or a table with returns and contributions of the top five or 10 securities,” Verburg says. “Values in a table like this need to be net of fee as well and that is something I believe pretty much no one has bothered to calculate for, therefore making it one of the main challenges.”
During this podcast, Verburg focuses on:
- The IT and operations changes firms will have to make;
- Changes in the way performance and compliance teams interact with each other;
- How firms can avoid being hurt by the new rule; and
- How firms can be compliant yet leverage the rule to their benefit;
FactSet is a financial data and analytics provider that offers financial services firms industry intelligence, ways to monitor portfolio risk and performance, and ways to facilitate trade execution. The company’s offerings include data feeds, desktop analytics, web and mobile applications, sell- and buy-side research tools, and client service solutions.
FactSet won the Best Performance Measurement System via the FTF News Technology Innovation Awards for 2023.
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