CFA Level I Exam · Guidance for Standard V: Investment Analysis, Recommendations, and Actions

Standard V Application: Cases and Compliance Procedures

Updated 7 October 2026 · Fact-checked

Standard V covers investment analysis, recommendations and actions. V(A) requires diligence, independence and a reasonable basis. V(B) requires clear communication with clients. V(C) requires record retention. To solve a case, find the activity (research, communication or records), match it to the sub-standard, then check for a violation.

Understand Application of Standard V: Cases and Compliance

Standard V has three parts. V(A) Diligence and Reasonable Basis is about how you build a recommendation. V(B) Communication with Clients and Prospective Clients is about how you explain it. V(C) Record Retention is about proving it later.

The quick way to tell V(A) from V(B): V(A) asks, "Did you do the work?" V(B) asks, "Did you tell the client the truth about the work?" If the case is about weak research, no thorough check, or blind reliance on someone else, think V(A). If it is about what the client was told, think V(B). If it is about missing files or notes, think V(C).

In summary, under V(A) you must exercise diligence, independence and thoroughness, and have a reasonable and adequate basis, supported by appropriate research and investigation, for any recommendation or action. Under V(B), you must disclose the basic format and general principles of the investment process, and promptly disclose any changes that could materially affect it. You must also include important factors in communications and distinguish fact from opinion.

Recommended procedures reflect these duties. For V(A), firms should have a policy on what makes a reasonable basis, review third-party and group research before relying on it, and make sure a dissent in a group is not penalized. For V(B), firms should give clients the process and its limits, and be open about risks and limitations. For V(C), absent regulatory requirements, retain records for at least seven years; records are the firm's property.

Exam cases are short. They give a scenario and ask whether a Standard was violated or what the analyst should do. Often only one fact decides the answer, such as reliance on research with no check or a changed process the client was never told about.

Key formulas to remember

Standard V(A) Diligence and Reasonable Basis (official wording): Members and Candidates must: 1. Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions. 2. Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action.; Applies to the work done before recommending or acting.
Standard V(B) Communication with Clients (summary, not exact wording): Summary of four duties: (1) disclose to clients and prospective clients the basic format and general principles of the investment processes used; (2) promptly disclose any change that might materially affect those processes; (3) identify and include important factors in communications; (4) distinguish between fact and opinion.; This is a summary of the Standard's duties. Applies to what clients are told and how.
Standard V(C) Record Retention (summary): Members and Candidates must develop and maintain appropriate records to support their investment analysis, recommendations, actions and other investment-related communications with clients and prospective clients.; Absent regulatory requirements, retain records for at least seven years; records are the firm's property.
Quick test: Work done poorly → V(A). Client told poorly → V(B). Evidence not kept → V(C).; A single case can breach more than one part.

How to solve Application of Standard V: Cases and Compliance questions

Use the same short routine for every Standard V case. It stops you from picking an answer on instinct.

1Read the last line first so you know whether the question asks for a violation, a Standard, or a corrective action.
2Find the activity in the facts: researching, relying on others, communicating, or keeping records.
3Match the activity to V(A), V(B) or V(C).
4Look for the trigger fact: no check of third-party work, fact mixed with opinion, a process change not disclosed, or no records.
5Check the recommended procedure the firm or analyst should have followed.
6Eliminate the two options that cite the wrong Standard or ignore the trigger fact.
7Pick the option that names the right Standard and a fix that matches the problem.

Quickest way: Three-word triage: Work, Tell, Keep

When to use it: Use it when time is short and the case is clearly about Standard V.

Underline the key action in the stem.
Label it Work (V(A)), Tell (V(B)) or Keep (V(C)).
Cross out options that cite a different Standard unless the facts clearly show a second breach.
Choose the option that fixes the stated problem directly.

Common mistakes in Application of Standard V: Cases and Compliance

Treating V(A) and V(B) as the same
Both involve recommendations, so the labels blur.
Fix: Ask whether the fault is in the research or in what was said to the client.
Assuming third-party research can always be used as is
Reputable sources feel safe.
Fix: Under V(A) you may rely on it only after checking that it has a reasonable basis and was prepared with diligence. Check the assumptions and rigor.
Thinking a group member who disagrees must always dissociate from the group's work
Students confuse disagreement with a lack of reasonable basis.
Fix: A member who disagrees but believes the group view has a reasonable basis need not dissociate and may record a dissent. If the member believes the view lacks a reasonable basis, they should dissociate from it. The firm should not penalize a documented dissent.
Ignoring fact versus opinion in client reports
Confident wording feels like analysis.
Fix: V(B) requires you to separate fact from opinion and to show the limitations and risks.
Forgetting to tell clients about process changes
Students think only the initial disclosure counts.
Fix: V(B) requires prompt disclosure of changes that might materially affect the investment process.
Treating record retention as optional once the client leaves
The relationship ended, so records seem unnecessary.
Fix: V(C) requires records to support the work. Absent regulatory requirements, retain records for at least seven years. Records are the firm's property, not the analyst's, so they stay with the firm if the analyst leaves.

Worked examples

Example 1

An analyst at an asset manager receives a research report on a company from a respected external broker. She copies the buy recommendation into her client note without reading the assumptions or testing the model. Which Standard has she most likely violated? A. V(A) B. V(B) C. V(C)

Show the solution

The activity is relying on someone else's research.
That concerns the work behind a recommendation, not the client communication or records.
V(A) requires diligence and a reasonable basis, which includes checking third-party research before relying on it.
She did not review assumptions or the model, so the basis was not verified.
Options B and C do not match the main fault.

Answer: A. She most likely violated Standard V(A).

Example 2

A portfolio manager changes the firm's stock selection process from fundamental analysis to a quantitative screen. He does not tell existing clients, and the change may materially affect results. Which Standard has he most likely violated? A. V(A) B. V(B) C. V(C)

Show the solution

The activity is communicating about the investment process.
V(B) requires prompt disclosure of changes that might materially affect the investment process.
The change might materially affect results, so disclosure was required.
He did not disclose, so this is a communication failure.
There is no evidence of missing records or poor diligence in the facts.

Answer: B. He most likely violated Standard V(B).

Exam tips

Find the verb in the stem. Researching, relying or checking points to V(A). Disclosing, explaining or reporting points to V(B).
Do not pick V(C) unless the facts mention records, files or retention.
For corrective-action items, choose the answer that matches the Standard's own duty, such as verify the research, disclose the change or keep the records.
With no penalty for wrong answers, always answer. Eliminate options that cite the wrong Standard first, then choose between the remaining two.
Keep the Standard's key words in mind, such as reasonable basis, fact and opinion, and records, to match the options quickly.

Practice questions from Guidance for Standard V: Investment Analysis, Recommendations, and Actions

Application of Standard V: Cases and Compliance in other exams

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

Application of Standard V: Cases and Compliance: frequently asked questions

What is the difference between Standard V(A) and V(B)?

V(A) is about doing the analysis properly: diligence, independence, thoroughness and a reasonable basis. V(B) is about telling clients clearly: disclosing the process, key factors, risks and limits, and separating fact from opinion.

What are the recommended procedures for Standard V?

Firms should set a policy on what makes a reasonable basis, review third-party and group research, and tell clients about the process and any material changes. They should also keep records that support their work. Absent regulatory requirements, retain records for at least seven years.

Can I rely on research from another firm?

Yes, but only after you have checked that it was prepared with diligence and has a reasonable and adequate basis. Blind reliance can breach Standard V(A).

How long must records be kept under Standard V(C)?

Absent regulatory requirements, retain records for at least seven years. If local regulation or law requires a longer period, follow that. Records are the firm's property.