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

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

Updated 7 October 2026 · Fact-checked

Standard V(B) requires you to disclose the basic format and general principles of your investment process, and to tell clients about any changes that could materially affect it. You must also separate fact from opinion, and include the factors that are important to your recommendations, including significant limitations and risks.

Understand Standard V(B): Communication with Clients and Prospects

Standard V(B) is about what you tell clients and how you tell them. Clients rely on your communications to decide what to buy, hold or sell. If the message blurs facts with guesses, or hides how you really make decisions, they cannot judge the risk.

The Standard has two parts. First, you must disclose to clients and prospective clients the basic format and general principles of the investment process used to analyze investments, select securities and construct portfolios. You must also promptly disclose any change that could materially affect that process. Second, you must identify the factors that are important to your investment recommendations and actions, and communicate them to clients and prospects. That includes limitations and risks inherent in the process.

The core skill is separating fact from opinion. A fact is something verifiable, such as reported earnings or a past price. An opinion is a judgment or forecast, such as an expected return or a view that a stock is undervalued. Both are allowed. The breach is presenting an opinion as if it were established fact, or leaving out the assumptions behind it.

You do not have to reveal proprietary details, such as the exact code of a model. You must explain the general approach, what it relies on and where it can fail. If you use a quantitative model, say what it does and its main limitations. Use of outside research or a model does not remove the duty to communicate clearly.

The level of detail depends on the audience. A prospect needs enough to understand the process and its risks. When the process changes, for example a switch from fundamental analysis to heavier use of a quantitative screen, existing clients must be told promptly. Communications can be written or oral and include reports, presentations and conversations.

Key formulas to remember

Duty 1: Investment process disclosure
Disclose basic format + general principles of the process (analysis, selection, portfolio construction) + material changes
Applies to clients and prospects. Proprietary detail need not be revealed.
Duty 2: Important factors
Identify and communicate factors important to recommendations and actions, including limitations and risks
Includes risks of the process and assumptions behind forecasts.
Duty 3: Fact versus opinion
Fact (verifiable) ≠ Opinion (judgment or forecast); label each clearly
Breach arises when opinion is presented as fact or assumptions are omitted.
Recommended practice
Use the process consistently; update clients when it changes; keep communications clear and complete
Brief reports can be used, but must not omit significant factors.

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

Use this method on any V(B) item. Read the vignette for what was said to the client, then test it against the two duties.

  1. 1Identify who communicated, to whom, and about what: process, a recommendation, or a change.
  2. 2Mark each statement in the vignette as fact or opinion. Look for words like will, guarantee, certain, which signal opinion presented as fact.
  3. 3Check process disclosure: did the analyst describe the general approach, and did a material change in the process get communicated promptly?
  4. 4Check important factors: were the main inputs, assumptions, limitations and risks included, such as model limits or reliance on one factor?
  5. 5Check whether the omission is material. Dropping a detail that would not change a client's decision is usually not a violation.
  6. 6Name the Standard. If the issue is a weak basis for the view itself, consider V(A); if the statement is false, consider I(C).
  7. 7Choose the answer that matches: a violation only where required disclosure or fact/opinion separation is missing, otherwise no violation.

Quickest way: Three-question V(B) screen

When to use it: When you have under two minutes for a V(B) question in an item set.

  1. Ask: was the process or a change in it left undisclosed?
  2. Ask: was any opinion or forecast stated as fact?
  3. Ask: were key risks, limits or assumptions omitted?
  4. If all three answers are no, pick the no-violation option. If any is yes, pick the violation option and name V(B).

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

  • Thinking forecasts and opinions are forbidden

    Students read 'separate fact from opinion' as 'avoid opinion'.

    Fix: Opinions are fine when labelled and supported. The breach is passing them off as fact or hiding assumptions.

  • Believing you must reveal the full proprietary model

    Disclosure sounds like total transparency.

    Fix: Only the basic format, general principles and limitations are required, not secret code or exact parameters.

  • Ignoring changes to the process

    Students focus on the initial disclosure only.

    Fix: A material change in the process must be disclosed promptly to clients. Check vignettes for a shift in method.

  • Confusing V(B) with V(A) or I(C)

    All three involve recommendations and accuracy.

    Fix: V(A) is about the reasonable basis, I(C) about misrepresentation, V(B) about what is communicated and how fact and opinion are presented.

  • Assuming third-party or model output removes the duty

    Students think the analyst is only passing information on.

    Fix: You must still explain the model's role and limits and not present its output as certain.

  • Treating any omission as a violation

    Students over-apply the rule.

    Fix: Judge materiality. Only omissions of significant factors, risks or limitations breach the Standard.

Worked examples

Example 1

Vignette: Mei Tan, an analyst at a global asset manager, sends clients a report on Orbis Foods. It states: 'Orbis reported revenue growth of 8% last year. Orbis will double its earnings in three years, so the stock is certain to outperform.' The report does not mention that the forecast rests on one assumption of continued input price declines. Q1: Which statement is a fact? Q2: Does Tan violate Standard V(B)?

Show the solution
  1. Q1: Reported revenue growth of 8% is verifiable, so it is a fact.
  2. The earnings doubling and 'certain to outperform' are forecasts, so they are opinions.
  3. Q2: The opinion is stated as certain, with no label as a forecast.
  4. The key assumption (input price declines) and the related risk are omitted, and they are important to the recommendation.
  5. Both failures breach the duty to separate fact from opinion and to disclose important factors and limitations.

Answer: Q1: The 8% revenue growth is the fact. Q2: Yes, Tan violates Standard V(B) by presenting opinion as fact and omitting the key assumption and risk.

Example 2

Vignette: Kofi Mensah manages portfolios for a European fund. His marketing materials tell prospects that stock selection uses fundamental analysis. Six months ago the firm began relying mainly on a quantitative screen that ranks stocks by momentum, with fundamental review only for the top ranks. Existing clients and prospects were not told. The proprietary scoring weights are confidential. Q1: Did the firm breach V(B) by the change not being disclosed? Q2: Must Mensah disclose the exact scoring weights?

Show the solution
  1. Q1: The change moves the main selection method from fundamentals to momentum screening. That materially affects the investment process.
  2. Standard V(B) requires prompt disclosure of material changes in the process to clients and prospects. This was not done, so there is a breach.
  3. Q2: The Standard requires the basic format and general principles, not proprietary detail.
  4. Mensah should explain that a momentum screen drives selection and describe its limitations, but the exact weights can stay confidential.

Answer: Q1: Yes, failing to disclose the material process change violates V(B). Q2: No, only the general principles and limitations must be disclosed, not the confidential weights.

Exam tips

  • Underline words like 'will', 'certain', 'guaranteed' in the vignette. They often mark opinion presented as fact.
  • If the vignette says a process change was made but clients were not told, V(B) is usually the tested point.
  • Remember proprietary details can stay private. An answer demanding full model disclosure is usually wrong.
  • Check materiality before choosing violation. Minor omissions rarely breach the Standard.
  • Name the Standard in your reasoning. Distinguish V(B) from V(A), I(C) and III(C) before you pick.

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

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

You must tell clients and prospects how your investment process works in general terms and promptly report material changes to it. You must also show which parts of your communication are fact and which are opinion, and include the important factors, limits and risks behind your recommendations.

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

A fact can be verified, such as reported results or past prices. An opinion is a forecast or judgment, such as expected returns or a valuation view. In a vignette, look for certainty language attached to a forecast, as that is the usual violation.

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

No. You must disclose the basic format and general principles of the process and its limitations. You do not have to reveal confidential details such as exact parameters or code.

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

V(A) requires diligence and a reasonable basis for a recommendation. V(B) concerns how you communicate it: process disclosure, fact versus opinion and the important factors. A question can involve both, so check whether the flaw is in the analysis or in the message.