Why does my GIPS verification cost what it does?
Having spent nine years as the partner in charge of business development at Ashland Partners, another five years (over two tours of duty) at ACA Compliance Group as director and managing director of business development and now as a managing member of Assurance Accounting Group, I have worked with thousands of firms looking for GIPS verification and other performance services.
Initial conversations or meetings with prospective clients (prospects from here on out) usually follow a pattern. First, a discussion of the prospect’s firm, i.e. its operations, how they manage money and in what assets, their timing, why they are interested in GIPS/performance work, and some initial questions. Second, a discussion of my firm, i.e. who we are, what we offer, how we service the client, and who do we work with. Third, an overview of the process, how long it takes, what is to be expected, who will actually work with me, etc. And Fourth, WHAT IS THE COST?
“WHAT IS THE COST?” is a fascinating question. The reactions to a fee quote can range from ho-hum to absolutely priceless. Having said that, it is a very legitimate question. As for the answer to, “WHAT IS THE COST?”, if you would like my opinion on what your fees should reflect and what they shouldn’t (but very well might), please read my second blog on this topic, “A rose by any other name would smell as sweet”. For relative brevity, I only want to touch on how you, the prospect, should view this question when you ask it.
First and foremost, even though GIPS largely sets the scope of testing and other process mechanics for verification firms, the engagement should not be viewed as a commodity. Every verification firm will have different approaches, experience, expertise, processes, and services (consulting and support). These are the areas that drive your verification fees through the equation:
Verification Fee = Estimated Total Hours X Target Fee per hour
I should mention that most engagements are going to be priced as a fixed fee, making the “Hours” variable an estimate and the “Target Fee per hour” a desire. If you get an hourly quote, you at least know the “Fee per hour” although I also know you are going to get creamed.
Alas, the Verification Fee is not your only cost. The Total Cost can be expressed this way:
Total Cost of Verification = Verification Fee + Your Employees’ Time + Your Frustration
In reality, some firms are simply looking for the lowest cost, others the best fit or best value, and some the highest cost. This last one may seem odd, but let’s face it, some folks perceive highest cost equals best option, all other evidence be damned. I personally am in the best fit camp. If you give Verification Fee, Your Time and Your Frustration equal weightings, 66% of your decision has nothing to do with cost and everything to do with approach, experience, expertise, process and service.
It may sound disingenuous for me to say that Verification Fees should be no more than 33% of your decision, but if you pay your employees well (or you have to work on the project yourself) Your Employees’ Time may need to be a big factor. If one verification firm only consumes 50 hours of your employees time and another 100 hours, what is that worth? Alternately, if you have deadlines to meet or you can’t stand having to do the same task twice, especially when you can’t determine why, the lower fee probably won’t compensate you for your blood pressure reaching 140/100 every time you think of GIPS.
In short, I don’t want to downplay the importance of the Verification Fee. We certainly view it as positive when you ask us this question since we feel our fees reflect the things they should and avoid the things they shouldn’t, but certainly it is but one factor in your important decision of who to engage as your verifier.