Standard V:
Investment Analysis,
Recommendations, and Actions
Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(A): Diligence and Reasonable Basis
Exercise diligence, independence, thoroughness in
analyzing investments, making investment
recommendations, and taking investment action
Have a reasonable and adequate basis, supported by
research, for analysis, recommendation, or action
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(A): Diligence and Reasonable Basis
Guidance
Make reasonable efforts to cover all relevant issues
when arriving at an investment recommendation
Level of diligence will depend on product or service
offered
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(A): Diligence and Reasonable Basis
Guidance
Using secondary or third-party research:
Determine soundness of the research—review
assumptions, rigor, timeliness, and independence
Encourage firm to adopt policy of periodic review of
quality of third-party research: assumptions,
timeliness, rigor, objectivity, and independence
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(A): Diligence and Reasonable Basis
Recommended procedures
Establish policy that research and recommendations
should have reasonable and adequate basis
Review/approve research reports and recommendations
prior to external circulation
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(A): Diligence and Reasonable Basis
Recommended procedures
Establish due diligence procedures for judging if
recommendation has met reasonable and adequate
basis criteria
Develop measurable criteria for assessing quality
of research
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(A): Diligence and Reasonable Basis
Recommended procedures
Consider scenarios outside recent experience to assess
downside risk of quantitative models
Make sure firm has procedures to evaluate external
advisers they use or promote, including how often to
review
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(A): Diligence and Reasonable Basis
Recommended procedures
Written procedures of acceptable scenario testing,
range of scenarios, cash flow sensitivity to assumptions
and inputs
Procedure for evaluating outside information providers
including how often
No need to dissociate from group research that the
member disagrees with
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(B): Communication with Clients and
Prospective Clients
Disclose the nature of services provided, and the cost of
those services:
Disclose at initiation and when services or costs change
Not necessarily specific money amounts (e.g., may be
percentage fees)
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(B): Communication with Clients and
Prospective Clients
Disclose basic format/general principles of investment
processes used to analyze investments, select securities,
and construct portfolios
Promptly disclose any changes that may affect those
processes materially
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(B): Communication with Clients and
Prospective Clients
Disclose risks and limitations (e.g., liquidity, capacity)
associated with the investment process:
Use reasonable judgment in identifying which factors
are important to investment analyses,
recommendations, or actions
Include those factors in communications with
clients/prospective clients
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(B): Communication with Clients and
Prospective Clients
Distinguish between fact and opinion in presentation of
investment analysis and investment recommendations
Clearly communicate potential gains and losses on an
investment
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(B): Communication with Clients and
Prospective Clients
Guidance
Include basic characteristics of the security
Inform clients of any change in investment processes
Suitability of investment—portfolio context
All communication covered, not just reports
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(B): Communication with Clients and
Prospective Clients
Recommended procedures
The inclusion or exclusion of information depends on
a case-by-case review
Maintain records
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(C): Record Retention
Develop and maintain appropriate records to support
investment analyses, recommendations, actions, and other
investment-related communications with clients and
prospective clients
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(C): Record Retention
Guidance
Maintain records to support research, and the rationale
for conclusions and actions
Records are firm’s property and cannot be taken when
member leaves without firm’s consent
If no regulatory requirement or firm policy, CFA Institute
recommends retention period of 7 years
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(C): Record Retention
Recommended procedures
Responsibility to maintain records generally falls with
the firm
However, individuals must retain documents that support
investment-related communications
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Standard V: Investment Analysis,
Recommendations, and Actions
Standard V(C): Record Retention
Recommended procedures
When member changes firm, must recreate records from
public sources and new firm’s information (can’t rely on
memory or materials from old firm)
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