Reading 3.5 Standard 5: Investment Analysis Recommendations Flashcards
Describe the Investment Analysis, Recommendations, and Actions standard as it applies to Communication with Clients and Prospective Clients.
Disclose the basic format and general principles of the investment processes used to analyze investments, select securities, and construct portfolios; disclose changes that might materially affect those processes.
Disclose limitations and risks associated with the investment process.
Use judgment in identifying which factors are important to investment analyses, recommendations, or actions, and include those factors in communications.
Distinguish between fact and opinion in investment analyses and recommendations.
Identify examples of attributes to consider while forming the basis for a recommendation.
Global, regional, and country macroeconomic conditions.
A company’s operating and financial history.
The industry’s and sector’s current conditions and the stage of the business cycle.
A mutual fund’s fee structure and management history.
The output and potential limitations of quantitative models.
The quality of the assets included in a securitization.
The appropriateness of selected peer-group comparisons.
Describe the responsibilities of the firm and the member or candidate in the retention of records.
The responsibility to maintain records that support investment action generally falls with the firm rather than individuals. Members and candidates must, however, archive research notes and other documents, either electronically or in hard copy, that support their current investment-related communications.
Name criteria for reviewing selected external advisers and managers.
Reviewing the adviser’s established code of ethics.
Understanding the adviser’s compliance and internal control procedures.
Assessing the quality of the published return information.
Reviewing the adviser’s investment process and adherence to its stated strategy.
Describe the Investment Analysis, Recommendations, and Actions standard as it applies to Diligence and Reasonable Basis.
Members and candidates must:
Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions.
Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action.
List criteria a member or candidate can use in forming an opinion on whether research is sound.
Assumptions used.
Rigor of the analysis performed.
Date/timeliness of the research.
Evaluation of the objectivity and independence of the recommendations.
Describe the standard and list the Guidance of the Investment Analysis, Recommendations, and Actions as it applies to Record Retention.
Members and candidates must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients. This is the standard.
Records must be retained to substantiate the scope of research as well as reasons for actions or conclusions.
Records may be maintained either in hard copy or electronic form.
List the Guidance of the Investment Analysis, Recommendations, and Actions standard as it applies to Communication with Clients and Prospective Clients.
In the recommendation, communicate the factors that were instrumental in making the investment recommendation.
Follow up with communication of significant changes in the risk characteristics of a security or asset strategy.
Providing regular updates to any changes in the risk characteristics is recommended.
Describe the Guidance of the Investment Analysis, Recommendations, and Actions standard as it applies to Diligence and Reasonable Basis.
The requirements for issuing conclusions based on research will vary in relation to the role in the investment decision-making process, but all reasonable efforts to cover all pertinent issues when arriving at a recommendation must be made.
Enhance transparency by providing or offering to provide supporting information to clients when recommending a purchase or sale, or when changing a recommendation.
