CFA Standards of practice - Investment analysis, recommendations and actions

Question 1

Explain how CFA Members and Candidates should deal with “Diligence and reasonable basis”

Answer 1

MaC must :

1. Exercise diligence, independence and thoroughness in analysing investments, making investment recommendations and taking investment actions
2. Have a reasonable and adequate basis, supported by appropriate researches and investigation for any investment analysis, recommendation or action

Question 2

Define diligence and reasonable basis

Answer 2

Clients expect IP to have more information and knowledge than they do. Communicating the level and thoroughness of the information reviewed before the MaC makes a judgment allows clients to understand the reasonableness of the recommended actions

Question 3

Give the 4 guidance MaC should follow regarding diligence and reasonable basis

Answer 3

1. Use secondary or third party research. MaC must make reasonable and diligent efforts to determine whether such research is sound
2. Use quantitatively oriented research. MaC must be able to explain the importance of the quantitative research and how results were used
3. Select external advisers and sub advisers. Specialized managers are used
4. Create a group research and decision making.

Question 4

Give the 6 elements to compliance about diligence and reasonable basis

Answer 4

1. Establish a policy requiring investment recommendations to have a basis that can be substantiated as reasonable and adequate
2. Develop detailed, written guidance for supervisory analysts and review committee that establish due diligence procedures
3. Develop measurable criteria for assessing the quality of research
4. Develop detailed written guidance that establish minimum levels of scenario-testing
5. Develop measurable criteria for assessing outside providers
6. Adopt a standardised set of criteria evaluating adequacy of external advisors

Question 5

Explain how CFA Members and Candidates should deal with “Communication with clients and prospective clients” 3 points MaC must :

Answer 5

1. Disclose to clients the basic format and general principles of the investments process they use to analyse investments, select securities and construct portfolios
2. Use reasonable judgment in identifying which factors are important to their investment and include those factors in communications with clients
3. Distinguish between fact and opinion in the presentation of investment analyses and recommendations

Question 6

Give specificities about Communication with clients

Answer 6

1. MaC should Identify limitations of analysis and outline known limitations of the analysis
2. MaC should distinct between facts and opinions in reports, example, future market prices information are opinions subject to future circumstances

Question 7

Explain how CFA Members and Candidates should deal with “Record retention”

Answer 7

MaC must develop and maintain appropriate records to support their investments and other investment-related communications with clients

Question 8

Give 2 guidances for record retention

Answer 8

1. Record are property of the firm

2. local requirements, in absence of of regulatory guidance, keep records for 7 years