CMA Exam Quiz 17

The North American Securities Administrators Association (NASAA) is the membership organization for each state’s securities administrator as well as for U.S. territories, Canada, and Mexico.

IMCA staff shall be responsible for:
a. Receiving and maintaining the confidentiality of complaints and other information
received by IMCA from Clients or other parties with respect to Licensees’
alleged violations of the Code, Standards of Practice, and/or Rules.
b. Providing periodic summaries to the PRB of all such complaints.
c. Conducting investigations of complaints at the direction of the PRB.
d. Preparing and submitting disciplinary petitions to the PRB after review by Legal
Counsel.
e. Preparing and submitting disciplinary recommendations by a Hearing Panel to
the PRB.
f. Preparing draft orders for review and approval by a Hearing Panel, the PRB,
the IMCA Appeals Board, and/or any member of any of the aforementioned
bodies.
g. Obtaining all necessary confidentiality and/or conflict of interest agreements by
members of the PRB, the IMCA Appeals Board, and/or Hearing Panel members.

A. Calculations
1. The reporting start date should be the date that represents the appropriate
starting point for monitoring the investment manager’s results, which is generally
the month following inception.
2. When portfolio performance is segregated, cash and equivalents should be
treated as a distinct asset class.
3. Portfolio data should be calculated on the basis of trade date. When trade-date
accounting is not possible, settlement-date accounting may be used.
4. Switching between trade-date and settlement date calculations is not permitted
unless required for reasons such as a change in the accounting basis of
the underlying custodial reports.
5. Interest income should be calculated on an accrual basis. The use of dividend
receivables is strongly recommended.
6. Estimates of accrued income are permissible and should be disclosed to the
client when used in lieu of actual accrued income.
7. Convertible securities should be treated as a separate asset class or equity
asset.
8. Total rate of return, including capital appreciation plus income, is strongly
recommended for judging overall investment results.
9. A time-weighted rate-of-return calculation that minimizes the impact of cash
flows should be used for any comparisons of the investment manager with
appropriate indices or other managers.
10. A dollar-weighted (internal) rate-of-return calculation should be used for
comparisons with “dollar-” or “value-based” investment objective(s) such
as actuarial rates of return or inflation. Dollar-weighted returns should
also be used for some alternative investments where the manager controls
cash flows.

C. Statistical measures of risk
1. Measures of risk should be presented in addition to rates of return to give
the client a more complete picture of the investment manager’s results. The
consultant should determine the number of observations that are sufficient
for risk calculations.
2. At a minimum, portfolio risk should be measured by calculating an annualized
standard deviation derived from monthly or quarterly total rates of return for
a meaningful reporting period (as determined by the consultant).
3. Beta, residual standard deviation, correlation, covariance, semivariance, or
other measures may be presented when appropriate.
4. Presentation of fundamental portfolio characteristics such as yield, priceearnings
ratio, duration, or quality is encouraged.

To minimize time-period bias, the consultant should normally focus on longer
time periods and trends, while also being mindful of short-run trends, in
judging the performance of the investment manager.

NONTRADITIONAL ASSET CLASSES
A. These asset classes would include but not be limited to: derivative securities,
municipal bonds, private investments, and real estate.
B. Performance reporting for nontraditional assets should be handled in a manner
that provides the client with a reasonable and objective assessment of the
portfolio’s performance.
C. Because many nontraditional asset classes involve complex investment strategies,
complete disclosure of the nature

The minimum recommended reporting and disclosures
for compliance with the IMCA Performance Reporting Guidelines regarding manager
search and analysis.
A. Performance composites presented to clients should be obtained from firms that
state they are in compliance with GIPS.
B. The investment manager should provide individual performance composites that
have been prepared in accordance with GIPS. The consultant should present
GIPS-compliant performance composites to clients.
C. Supplemental performance information should be identified and disclosed. At
least one GIPS compliant performance composite should accompany the supplemental
information.
D. Model portfolio results should not be linked with performance composites of
actual accounts for presentation to a client.
E. A statement should be included indicating that because a performance composite
is an average of two or more accounts, it does not represent the performance
of an actual portfolio.
F. When the investment manager has compiled the performance composite, this
should be disclosed.
G. Cumulative returns for the longest common term should be shown for each
manager.
H. Annual returns for each year presented should be shown for every manager.
I. Rates of return for periods longer than one year should be presented on an
annualized basis. Returns for periods shorter than one year should not be annualized.
J. If only gross return information is presented to the client, information should be
provided to enable the client to determine the impact of the manager’s fee.
K. The manager’s fees should be presented.
L. At least one appropriate risk measure should be presented.
M. At least one appropriate market index or custom benchmark should be presented
as a basis for comparison.

The minimum recommended reporting and disclosures for compliance with the IMCA Performance Reporting Guidelines regarding reporting performance results to clients.
A. Time-weighted total rates of return should be calculated on at least a quarterly
basis, using quarterly asset valuations and monthly transactions.
B. If the investment manager is the source of the portfolio accounting data, this
should be disclosed to the client.
C. Annual rates of return for each year should be presented for 10 years or for
the period from inception of the firm or inception of the investment product—
whichever is shorter.
D. A cumulative return for the period from inception of the firm or inception of the
investment product to date should be shown.
E. Rates of return for periods longer than one year should be presented on an
annualized basis. Returns for periods of less than one year should not be annualized.
F. Information should be provided to enable the client to determine the impact of
the manager’s fees.
G. At least one appropriate risk measure should be presented.
H. At least one appropriate market index or custom benchmark should be presented
as a basis for comparison.
I. The consultant should disclose potential conflicts of interest, relevant business
relationships, or other pertinent information that might cause the consultant to
have a conflict of interest.

Listed below are recommended additional reporting and disclosures for
compliance with the IMCA Performance Reporting Guidelines regarding manager
search and analysis.
A. If sufficient history exists, one-, five-, and ten-year cumulative returns should be
presented.
B. Cumulative returns should be shown for each manager from inception of the
firm, inception of the investment product, or 10 years—whichever is shorter.
C. Performance composites presented to clients should be shown on both a gross
basis (before deduction of the investment manager’s fee) and a net basis (after
deduction of the investment manager’s fee).

The PRB is empowered
to:
a. Investigate alleged infractions of the Code, Standards of Practice, and Rules
and issue orders regarding private or public censure, the suspension or termination
of the right to use an IMCA Designation by Licensees, or termination
of Candidates who are found to have violated the Code, Standards of Practice,
Rules, or other orders as may be appropriate.
b. Report to the IMCA Board with respect to the operations of the PRB.
c. Consider and propose amendments to the Code, Standards of Practice, and
Rules for action by the IMCA Board.
d. Develop and adopt procedures for the fair and expeditious hearing of matters
that come before it.