CFA Level I Exam · Code of Ethics and Standards of Professional Conduct

Investment Analysis, Recommendations and Actions: Standard V

Updated 7 October 2026 · Fact-checked

Standard V has three parts. V(A) requires diligence, independence and a reasonable basis, with appropriate research, for every recommendation or action. V(B) requires you to tell clients the process, the factors and the limits of your analysis. V(C) requires you to keep records that support your work. To solve questions, identify which part is breached.

Understand Investment Analysis, Recommendations and Actions: Standard V

Standard V covers the work between getting the information and acting on it. It asks three things. Did you do the homework? Did you tell the client what you did? Can you prove it later?

V(A) Diligence and Reasonable Basis. Members and candidates must exercise diligence, independence and thoroughness in analyzing investments, making recommendations and taking investment actions. They must have a reasonable and adequate basis, supported by appropriate research and investigation, for any recommendation or action. How much research is enough depends on the situation. A routine trade needs less than a complex new product. Using research from others is allowed, but you must make reasonable efforts to check that it is sound. Relying on a firm's group research is fine if you believe it has a reasonable basis. You may still rely on group research that has a reasonable basis even if you disagree with its conclusion. You should dissociate only if you believe the research lacks a reasonable basis, for example by asking that your name not be associated with the opinion.

V(B) Communication with Clients and Prospective Clients. You must disclose to clients and prospects the basic format and general principles of your investment process, and promptly disclose any change that could materially affect it. You must identify the important factors in your analysis and recommendations, and communicate them. You must separate fact from opinion. Clients should understand what drives a recommendation, including its risks and limitations. Using quantitative models, say so and explain the limits.

V(C) Record Retention. You must develop and maintain appropriate records to support your investment analyses, recommendations, actions and other investment-related communications with clients and prospects. The Standard text does not set a number of years. The Handbook recommends keeping records for at least seven years, unless local regulation requires longer. Records belong to the firm, not to the individual, and when you change employers you cannot take them with you without permission. Records can be paper or electronic.

The exam tests this by short scenarios. You find the facts, match them to V(A), V(B) or V(C), and pick the action that fits. Questions often combine Standard V with other Standards, such as I(B), III(C) or IV(C).

Key formulas to remember

Standard V(A) core duty: Diligence + independence + thoroughness + reasonable and adequate basis supported by appropriate research; Applies to analysis, recommendations and actions. The depth of research scales with the complexity and risk of the situation.
Standard V(B) core duty: Disclose the investment process + identify important factors + separate fact from opinion; Applies to clients and prospective clients. Disclose material changes in the process promptly.
Standard V(C) core duty: Maintain records that support analyses, recommendations, actions and client communications; Handbook recommends at least 7 years unless local law requires longer. Records are firm property.
Use of third-party or group research: Reasonable effort to confirm the research is sound before relying on it; Reliance without any check on the source's diligence and assumptions is a breach risk.

How to solve Investment Analysis, Recommendations and Actions: Standard V questions

Use this routine for any Standard V scenario. It keeps you from drifting into the wrong Standard.

1Read the last line first so you know whether the question asks for a violation, the best action or the correct statement.
2Identify the activity: researching, recommending or acting (V(A)), explaining to clients (V(B)), or keeping files (V(C)).
3Ask what the member did before the recommendation. Was there research proportionate to the situation, or a blind reliance on someone else's work?
4For client communication, check whether the process, key factors, risks and limits were shared, and whether fact and opinion were separated.
5For records, check whether support exists, who owns it, and whether the retention period is met (seven years recommended unless law requires longer).
6Check whether another Standard is also involved, such as I(B) independence, III(C) suitability or IV(C) supervision.
7Eliminate options that overstate the duty, such as guaranteeing returns, or that ignore it, such as relying on a name or reputation alone.
8Choose the option that is the most proportionate and protective of clients.

Quickest way: Three-letter sort for Standard V

When to use it: Use when you have about 90 seconds and the stem is a short scenario about research, communication or files.

Tag the problem: A = research basis, B = telling the client, C = records.
For A, look for a lack of checking or blind reliance. For B, look for a missing explanation of process or mixing fact with opinion. For C, look for missing files or a wrong period.
Remove the option that does nothing or only hides the problem.
Remove the option that goes too far, for example stopping all use of outside research.
Choose the remaining option that adds the check, disclosure or record that was missing.

Common mistakes in Investment Analysis, Recommendations and Actions: Standard V

Thinking third-party research can never be used under V(A).
Students read 'independence and thoroughness' as 'do everything yourself'.
Fix: Outside and group research is allowed if you make reasonable efforts to confirm it is sound and has a reasonable basis.
Stating that V(C) fixes a retention period of seven years.
The seven-year figure is memorised and attached to the Standard text.
Fix: Say that the Handbook recommends at least seven years, unless local regulation requires a longer period. The Standard itself only requires appropriate records.
Treating records as the member's personal property.
Analysts feel ownership over models and notes they created.
Fix: Records created as part of employment belong to the firm. On leaving, do not take originals without the employer's permission.
Assuming V(B) needs a guarantee or full disclosure of every detail.
Candidates confuse thorough communication with exhaustive communication.
Fix: V(B) requires the basic format and principles of the process, the important factors and limits, and prompt disclosure of material changes.
Mixing up V(A) and III(C) Suitability.
Both involve recommendations.
Fix: V(A) asks whether the recommendation has a sound, researched basis. III(C) asks whether it fits the client's objectives and constraints.
Applying the same research depth to every situation.
Students think diligence means maximum effort always.
Fix: Diligence is proportionate. A complex or high-risk product needs more investigation than a routine one.

Worked examples

Example 1

An analyst at an asset manager in London is asked to recommend a bond from a new issuer. She has only a brochure and a colleague's verbal opinion. Under the Standards, what should she do before recommending it? A. Recommend the bond because the colleague is senior. B. Carry out further research on the issuer and the bond before recommending it. C. Recommend the bond with a note saying the research was limited.

Show the solution

Identify the activity: making a recommendation, so Standard V(A) applies.
A brochure and a verbal opinion are not a reasonable and adequate basis supported by appropriate research.
Option A relies on seniority alone, which is not a check on soundness.
Option C discloses the weakness but still recommends without a reasonable basis.
Option B supplies the missing research, which is what V(A) requires.

Answer: B. She must build a reasonable and adequate basis through appropriate research before recommending the bond.

Example 2

A portfolio manager in New York changes his process from fundamental analysis to a quantitative screening model for client portfolios. He does not tell clients, because performance has been good. Which Standard is most directly violated? A. Standard V(B) Communication with Clients. B. Standard V(C) Record Retention. C. Standard III(E) Preservation of Confidentiality.

Show the solution

The issue is a change in the investment process that clients were not told about.
V(B) requires prompt disclosure of any change that could materially affect the investment process.
Moving from fundamental analysis to a quant model is a material change.
Good performance does not remove the duty to disclose.
V(C) concerns records and III(E) concerns confidential information, and neither is the problem here.

Answer: A. He breached Standard V(B) by not promptly disclosing a material change in the investment process.

Exam tips

Match the verb to the Standard: researching and recommending is V(A), explaining is V(B), filing is V(C).
If an option says to recommend anyway or ignore the gap, eliminate it first. The best answer adds a check, disclosure or record.
Remember the seven-year figure is a Handbook recommendation, and local law that requires longer prevails.
Watch for questions that mix Standard V with III(C), I(B) or IV(C). Choose the Standard the facts fit most directly.
With no penalty for wrong answers, always answer. Eliminating the extreme options usually leaves a clear choice.

Practice questions from Code of Ethics and Standards of Professional Conduct

Investment Analysis, Recommendations and Actions: Standard V in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CFA Level IIIInvestment Analysis, Recommendations and Actions (Standard V)

Investment Analysis, Recommendations and Actions: Standard V: frequently asked questions

How long must I keep records under Standard V(C)?

The Standard requires appropriate records but does not state a period. The Handbook recommends keeping them at least seven years, unless local regulation requires longer. If the law requires a longer period, follow the law.

Can I rely on research from another firm under V(A)?

Yes, if you make reasonable efforts to confirm the research is sound and has a reasonable basis. Using it without any check is a risk. You stay responsible for your own recommendations.

What does V(B) require me to tell clients?

You must disclose the basic format and general principles of your investment process and any material change to it. You must identify the important factors behind recommendations and separate fact from opinion.

Who owns the records I create at work?

Records created in the course of your employment are generally the property of your firm. If you leave, you should not take originals without the employer's permission.