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

CFA Standard V(B): Communication with Clients and Prospective Clients

Updated 7 October 2026 · Fact-checked

Standard V(B) requires you to disclose to clients and prospects the basic format and general principles of your investment process, and promptly tell them of any change that could materially affect it. You must use reasonable judgment on what is relevant, state limitations and risks, and clearly separate fact from opinion.

Understand Standard V(B): Communication with Clients

Clients can only make good decisions if they understand how you reach your advice. Standard V(B) is about that understanding. It covers what you tell clients and prospects about your process, and how you present your recommendations and actions.

The official standard has four components.

Process disclosure: you must disclose to clients and prospective clients the basic format and general principles of the investment processes used to analyze investments, select securities and construct portfolios, and you must promptly disclose any changes that might materially affect those processes.
Limitations and risks: you must disclose to clients and prospective clients significant limitations and risks associated with the investment process.
Relevant factors: you must use reasonable judgment in identifying which factors are important to investment analyses, recommendations or actions, and include those factors in communications with clients and prospective clients.
Fact versus opinion: you must distinguish between fact and opinion in the presentation of investment analysis and recommendations.

Two ideas help you on the exam. Disclosure is about the process, not secret detail. You do not have to reveal proprietary formulas, only the basic format and general principles. And communication must be adequate: a client should be able to see what is fact, what is your judgment, and what could go wrong.

The Handbook also notes that communication includes the factors that drive a recommendation. Leaving out an important factor, or giving undue weight to a minor one, can mislead. Quantitative models are covered too: if a model has limits or relies on assumptions that matter, you should explain them.

Key formulas to remember

Process disclosure: Disclose: basic format + general principles of the process (analysis, security selection, portfolio construction); Applies to clients and prospective clients. Update them promptly when a change could materially affect the process.
Limitations and risks: Disclose: significant limitations and risks of the investment process; Includes limits of models and assumptions that could materially affect results.
Relevant factors: Use reasonable judgment to identify important factors and include them in communications; Do not omit a key factor or overstate a minor one.
Fact vs opinion: Distinguish fact from opinion in analysis and recommendations; Label forecasts, views and judgments as opinion. Facts are verifiable.

How to solve Standard V(B): Communication with Clients questions

Use this method on any Standard V(B) question. The question usually describes a communication and asks whether the member violated the standard.

1Identify who is receiving the communication: a client, a prospective client, or neither.
2Ask what was communicated: the investment process, a change to it, a limitation or risk, or a specific recommendation.
3Check whether the basic format and general principles of the process were disclosed, and whether a material change was told promptly.
4Check whether significant limitations and risks were disclosed, including model or assumption limits.
5Check whether important factors were included and no key factor was left out or exaggerated.
6Check whether fact and opinion were clearly separated. A forecast or view presented as certain is a problem.
7Pick the option that matches the standard. Remember that you need not disclose proprietary detail, and that a trivial change does not need disclosure.

Quickest way: Four-question scan

When to use it: Use when you have about 90 seconds and the stem is a short scenario. It is a shortcut to spot the violation, not a guarantee of compliance.

Process: was the general process and any material change disclosed promptly?
Limits: were significant risks and limitations stated?
Relevant factors: was an important factor left out, or a minor one overstated?
Fact vs opinion: is a view dressed as fact?
If any one of the four fails, the member likely violated the standard. If all four look fine, the member likely complied. Eliminate the option that demands full proprietary detail or that treats a trivial change as needing disclosure.

Common mistakes in Standard V(B): Communication with Clients

Thinking you must reveal every detail of a proprietary model.
The word disclosure sounds like full transparency.
Fix: Remember the standard asks for the basic format and general principles only, plus significant limitations.
Applying the duty only to existing clients.
Students link duties to the client relationship.
Fix: The standard names clients and prospective clients. Prospects are covered.
Ignoring a change in the process.
Students focus on the first disclosure and forget updates.
Fix: Any change that might materially affect the process must be disclosed promptly, not at the next annual review.
Treating forecasts as facts.
Confident wording in a research note feels factual.
Fix: Label projections and views as opinion. Only verifiable information is fact.
Confusing V(B) with V(A) or III(C).
All three involve recommendations.
Fix: V(A) is diligence and reasonable basis, III(C) is suitability, V(B) is what and how you communicate.
Assuming risk disclosure only means market risk.
Risk is linked to volatility in most study.
Fix: Limitations also include model limits, data issues and strategy constraints that could materially affect results.

Worked examples

Example 1

An analyst at a global asset manager changes the firm's portfolio construction approach from a fundamental screen to a quantitative factor model that materially changes expected holdings. She plans to mention it at the next annual client meeting in nine months. Under Standard V(B), the analyst has:
A. not violated the Standard, because annual meetings are sufficient
B. violated the Standard, because a material change must be disclosed promptly
C. violated the Standard, because she must reveal the full model code

Show the solution

The change alters the portfolio construction process and is described as material.
Standard V(B) requires prompt disclosure of changes that might materially affect the process.
Waiting nine months is not prompt, so option A is wrong.
Option C overstates the duty: only basic format and general principles are required, not code.

Answer: B

Example 2

A portfolio manager writes to a prospect: 'Our emerging-market bond strategy will return 9% next year. The model is highly reliable.' She does not mention that the model relies on assumptions about stable currencies. Which statement is most accurate?
A. She complied, because the prospect is not yet a client
B. She violated the Standard by presenting an opinion as fact and omitting a significant limitation
C. She complied, because models are proprietary and need no explanation

Show the solution

Prospective clients are covered by V(B), so A fails.
The 9% return is a forecast, which is opinion, but it is stated as certain, so fact and opinion are not distinguished.
The currency assumption is a significant limitation of the process and was not disclosed.
Proprietary status does not remove the duty to disclose significant limitations, so C fails.

Answer: B

Exam tips

Expect short scenarios with three options. Eliminate the option that demands full proprietary disclosure.
Look for the words prospective clients and promptly. They signal V(B) rules.
Watch for forecasts phrased as certainties. That is usually the violation.
If the stem is about the research being sound, think V(A). If it is about unsuitable advice, think III(C). V(B) is about communication.
Use the official wording in your head: basic format and general principles, significant limitations and risks.

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

Standard V(B): Communication with Clients in other exams

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

Standard V(B): Communication with Clients: frequently asked questions

What does Standard V(B) require in simple terms?

You must tell clients and prospective clients how your investment process works in general terms, and warn them of significant limitations and risks. You must also separate fact from opinion and include the important factors behind a recommendation.

How do I tell fact from opinion for the CFA exam?

Facts can be verified, such as reported earnings or a stated fee. Forecasts, valuations and views about the future are opinion. Exam questions test whether the member labelled them clearly.

Do I have to disclose my proprietary model under V(B)?

No. You disclose the basic format and general principles of the process, and its significant limitations. You need not reveal confidential formulas or code.

How is V(B) different from Standard V(A)?

V(A) is about doing diligent work with a reasonable basis before making a recommendation. V(B) is about what you communicate to clients about the process, its limits and the factors behind the advice.