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

Using Secondary and Third-Party Research Under Standard V(A)

Updated 7 October 2026 · Fact-checked

Under Standard V(A): Diligence and Reasonable Basis, you may rely on secondary or third-party research, but only after making a reasonable and diligent effort to confirm it is sound. You must judge the provider's assumptions, rigor, objectivity and track record. Blind reliance breaches the Standard, and responsibility for the action stays with you.

Understand Using Secondary and Third-Party Research and Services

Standard V(A) says members must exercise diligence, independence and thoroughness in analysing investments, making recommendations and taking investment actions. They must also have a reasonable and adequate basis, supported by appropriate research and investigation, for each recommendation or action.

Most analysts do not build every input themselves. They use secondary research (reports from other analysts in the same firm or from outside the firm) and third-party research (reports, data, ratings and models from outside vendors or advisers). The Standard allows this. It does not allow you to treat that work as automatically correct.

The key idea is that you remain responsible for your own recommendation. If you pass on or act on someone else's work, you must first make a reasonable effort to check that it is sound. The depth of checking depends on how much the conclusion matters and how well you know the provider. A well-known source with a long record needs less checking than an unfamiliar one, but never none.

The Handbook points to things you should look at: whether the assumptions and methods are sound and clearly stated, how rigorous the analysis is, how timely it is, whether the provider is independent and objective, and how reliable its past work has been. Firms should also review providers periodically, not just once. Use of outside advisers or services follows the same logic: the member should confirm their qualifications and process before relying on them.

On the exam, this appears as a vignette where an analyst copies, adopts or relies on someone else's research. You decide whether enough diligence was done, and which action fixes any gap.

Key formulas to remember

Core requirement of Standard V(A)
Reliance on others' research = reasonable effort to confirm it is sound
Responsibility for the recommendation or action stays with the member.
Factors to assess in third-party research
Assumptions + rigor + timeliness + independence/objectivity + past record
These are the checks the Handbook points to. You do not need to repeat the provider's full work.
Scale of diligence
Depth of checking rises as the importance of the conclusion and the provider's unfamiliarity rise
A guide, not a fixed rule. Some checking is always required.
Ongoing review
Firm should review its research providers periodically
A single initial review is not enough if quality may change.

How to solve Using Secondary and Third-Party Research and Services questions

Use this sequence on any item set where an analyst relies on outside or other-analyst research.

  1. 1Identify who produced the research: the member, a colleague, or an outside provider.
  2. 2Identify what the member did with it: used as an input, adopted as the conclusion, or passed on to clients.
  3. 3Check what verification the member performed on assumptions, method, data and the provider's independence and record.
  4. 4Ask whether the effort was reasonable for the importance of the decision and the provider's familiarity.
  5. 5If checking was missing or weak, conclude a violation of Standard V(A) and name it.
  6. 6If checking was reasonable, conclude no violation even if the research later proves wrong.
  7. 7Pick the answer that fixes the gap: verify, review the provider, or stop relying on the research.

Quickest way: Two-question screen

When to use it: When time is short and the options all sound plausible.

  1. Ask: did the member make a reasonable effort to confirm the research was sound?
  2. If no, choose the option that adds verification or removes blind reliance.
  3. If yes, choose the option saying no violation, because a later error alone is not a breach.
  4. Reject any option that says reliance on a respected firm or a past record is enough by itself.

Common mistakes in Using Secondary and Third-Party Research and Services

  • Thinking reliance on a reputable provider removes the member's duty to check.

    A famous name feels like proof of quality.

    Fix: Reputation lowers the depth of checking but never removes it. Some reasonable effort is always required.

  • Believing the member must fully redo the provider's research.

    Students overread the word diligence.

    Fix: The Standard asks for reasonable effort to confirm soundness, not duplication of the work.

  • Treating a recommendation that turns out wrong as a violation.

    Outcome is confused with process.

    Fix: Judge the process at the time. Reasonable diligence with a bad outcome is not a violation.

  • Assuming the provider carries the responsibility if the research is flawed.

    Students think the author is accountable.

    Fix: The member who recommends or acts remains responsible to clients.

  • Reviewing a provider once and never again.

    Students see due diligence as a one-time task.

    Fix: Firms should review research providers and their quality periodically.

  • Confusing this with Standard I(B) or II(A).

    Independence and information issues overlap in vignettes.

    Fix: If the issue is whether the research basis is sound and verified, choose Standard V(A).

Worked examples

Example 1

Vignette: Mei Tan, an analyst at a global asset manager, wants to recommend a mid-cap industrial stock. She uses a target price from a small, little-known research boutique, copies its earnings forecasts into her report, and does not review its assumptions. The boutique is paid by the company it covers. Question 1: Does Tan violate the Code and Standards? Question 2: What should she have done?

Show the solution
  1. The research is third-party and she adopted its forecasts as her own basis.
  2. She did no checking of assumptions, method or the provider's record.
  3. The provider is unfamiliar to her and paid by the covered company, which raises independence concerns that call for more checking, not less.
  4. So the effort was not reasonable. This breaches Standard V(A): Diligence and Reasonable Basis.
  5. The fix is to evaluate the boutique's assumptions, rigor and objectivity, and ideally test the forecasts against her own work before recommending.

Answer: 1: Yes, she violates Standard V(A) by relying on third-party research without reasonable verification. 2: She should have assessed the boutique's assumptions, methods, independence and record, and confirmed the forecasts before using them.

Example 2

Vignette: Carlos Ortega's firm subscribes to a large, long-established credit ratings provider. Before the subscription, the firm reviewed the provider's methodology and past accuracy, and it re-reviews the provider every year. Ortega uses the ratings as one input in a bond recommendation, alongside his own spread analysis. The bond later defaults. Question 1: Has Ortega violated Standard V(A)? Question 2: Which fact matters most for your answer?

Show the solution
  1. The ratings are third-party research used as one input, not the sole basis.
  2. The firm reviewed the methodology and track record and repeats the review annually.
  3. Ortega also did his own analysis, so his basis was supported by appropriate research.
  4. A later default is an outcome, not proof of poor process.
  5. Therefore reasonable diligence was applied and no violation occurred.

Answer: 1: No, there is no violation of Standard V(A). 2: The firm's initial and ongoing due diligence on the provider, plus Ortega's own analysis, shows a reasonable basis, so the later default does not change the result.

Exam tips

  • Look for the verb in the vignette: copied, adopted, relied on without review all point to a violation.
  • Check the provider's profile: unfamiliar, conflicted or unexplained methods mean more checking was needed.
  • Do not choose an answer based on outcome. The test is the process followed before acting.
  • Prefer answer options that add verification over those that merely add a disclaimer.
  • Remember the member who recommends is responsible, even when the research came from a colleague or a vendor.

Using Secondary and Third-Party Research and Services in other exams

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

Using Secondary and Third-Party Research and Services: frequently asked questions

Can I rely on research from another analyst in my own firm?

Yes, but you still need a reasonable effort to confirm it is sound. Internal research gets the same scrutiny of assumptions and rigor as outside research, though you may know the author's record better.

Do I have to verify every number in a third-party report?

No. The Standard asks for reasonable effort to confirm the work is sound. You judge assumptions, method, timeliness, objectivity and record, with more checking for more important or unfamiliar sources.

If third-party research turns out wrong, is that a Standard V(A) violation?

Not automatically. If you made a reasonable effort to confirm soundness before acting, a later error does not create a violation. A violation arises when diligence was missing.

Does this Standard apply to outside advisers and services as well?

Yes. The same logic applies when you use outside advisers or services. You should make reasonable efforts to confirm their qualifications and soundness, and firms should review them periodically.