What must a firm that manages client investments do regarding performance comparison?

A firm that manages client investments must specify an index for performance comparison to provide a consistent benchmark against which the performance of client investments can be measured. This is critical because clients need a frame of reference to assess how well their investments are performing relative to market conditions and similar products or strategies. Specifying an index not only aids in transparency but also ensures that clients have realistic expectations about their investment performance based on conventional benchmarks.

In doing so, the firm helps clients understand whether the returns generated are satisfactory in light of overall market movements or specific sectors, thus empowering clients to make informed decisions regarding their investment portfolios. This practice aligns with regulatory expectations for firms to operate transparently and with due diligence towards their client interests.