The GIPS standards are the benchmarks for the interbank comparisons. The comparisons between investment firms become extremely difficult if there are no standards.
Without the comparisons, the firms start involving themselves in misleading practices, such as:
a. Representative Accounts: This involves selecting the portfolio that represents the firm as a whole. Sometimes to improve their credibility, the firms present their best-performing portfolios as representing the firm as a whole.
b. Survivorship Bias: This involves not including the failed accounts or poor performing accounts that closed that may result in termination of the firm.
c. Varying Time Periods: This includes presenting the data only for those time periods when the performance of the firm was good and outperformed its benchmarks.
Therefore, the GIPS standards provide clients and prospective clients with comparable and representative investment performance data. It provides an industry-wide standard approach for the calculation and presentation of performance.