Jicu is not correct in the construction of composites. Non-discretionary portfolios cannot be included in a composite. Non-fee-paying discretionary portfolios may be included in the firm’s composites, but if they are, firms are required to disclose the percentage of composite assets represented by non-fee-paying discretionary portfolios. If the firm includes non-fee-paying portfolios in its composites, they are subject to the same rules as fee-paying portfolios. If a portfolio’s status changes from discretionary to non-discretionary, the portfolio may not be removed from a composite retroactively. However, the portfolio must be removed going forward. Composites must include all actual fee-paying discretionary portfolios. All actual fee-paying discretionary portfolios must be included in at least one composite. By including all fee-paying discretionary portfolios in at least one composite, firms cannot cherry-pick their best performing portfolios to present to prospective clients. Firms are permitted to include a portfolio in more than one composite, provided it satisfies the definition of each composite.

Firm composites must be defined according to similar investment objectives and/or strategies. Composites should be defined such that clients are able to compare the performance of one firm to another. Composites must be representative of the firm’s products and be consistent with the firm’s marketing strategy. Firms are not permitted to include portfolios with different investment strategies or objectives in the same composite. Portfolios may not be moved into and out of composites except in the case of valid, documented, client-driven changes in investment objectives or guidelines or in the case of the redefinition of the composite.