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Answer: The creation and maintenance of composites are intended to prevent firms from selectively using top-performing accounts to represent an investment strategy.
**Explanation:** - **Option A** is incorrect because a claim of compliance under GIPS requires the inclusion of all fee-paying *discretionary* accounts in at least one composite, not all accounts (which may include non-discretionary accounts). - **Option B** is correct. The GIPS standards mandate the use of composites to aggregate portfolios with similar investment mandates, objectives, or strategies. This requirement ensures transparency and prevents firms from cherry-picking high-performing accounts to misrepresent the performance of an investment strategy. - **Option C** is incorrect because a composite must include all actual, fee-paying, *discretionary* portfolios managed under the same investment mandate, objective, or strategy. Non-discretionary accounts are excluded from this requirement. **Key Takeaway:** Composites serve as a tool for fair and transparent performance reporting, ensuring consistency and preventing misleading representations of investment performance.
Author: LeetQuiz Editorial Team
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Which of the following statements regarding composites under the GIPS standards is accurate?
A
A firm's claim of compliance necessitates the inclusion of all fee-paying accounts managed by the firm in at least one composite.
B
The creation and maintenance of composites are intended to prevent firms from selectively using top-performing accounts to represent an investment strategy.
C
A composite must encompass all actual, fee-paying, discretionary portfolios managed under the same investment mandate, objective, or strategy.