Level III Core · Guidance for Standard V: Investment Analysis, Recommendations, and Actions

Standard V Case Study Questions for CFA Level III

Updated 8 October 2026 · Fact-checked

Standard V has three parts: V(A) Diligence and Reasonable Basis, V(B) Communication with Clients, and V(C) Record Retention. To solve a case, find the action, match it to the part it breaks, state the violation, then give the corrective step the Code and Standards call for.

Understand Application Cases for Standard V

Standard V covers how you build, share and document an investment view. Think of it as three questions. Did you do enough work to support the view? Did you tell the client what they need to know? Can you prove both later?

V(A) Diligence and Reasonable Basis is about the work behind a recommendation or action. You need a reasonable and adequate basis, supported by appropriate research and investigation. This includes checking third-party research, understanding the limits of models and quantitative tools, and making sure group research reflects your own view or that you dissociate from it.

V(B) Communication with Clients is about what you say. You must disclose the basic format and general principles of your investment process, and any changes to them. You must separate fact from opinion. You must include the factors that are important to your recommendation, and tell clients about significant limitations and risks of the process, including those in models.

V(C) Record Retention is about proof. You must develop and keep records that support your investment analyses, recommendations, actions and communications with clients and prospects. Records are the firm's property. The Standards recommend keeping them for at least seven years, unless local law requires longer or the firm has a longer policy.

In cases, the usual pattern is a short story where one action quietly breaks one part. A manager copies a broker report. A firm hides a model limit. An analyst deletes notes. Your job is to name the part, say why, and give the fix. Fixes are usually practical: do independent checks, disclose the limit, update clients about the process change, or retain the records.

Key rules to remember

V(A) Diligence and Reasonable Basis: Reasonable and adequate basis + appropriate research and investigation + independent checks of third-party or group work; Breached when work is thin, a model is used blindly, or someone else's output is accepted without checking. Applies to recommendations and actions.
V(B) Communication with Clients: Disclose process + separate fact from opinion + include important factors + state limitations and risks; Applies to clients and prospective clients. Disclose process changes promptly. Models and their limits must be explained where relevant.
V(C) Record Retention: Keep records that support analyses, recommendations, actions and client communications; Seven years is the recommended minimum unless local law or firm policy requires longer. Records belong to the firm. Electronic communications count.
Quick distinction V(A) vs V(B): V(A) = quality of the work done; V(B) = quality of what is told to the client; If the problem is shallow research or blind model use, it is V(A). If the problem is what the client was or was not told, it is V(B).

How to solve Application Cases for Standard V questions

Use the same sequence for every Standard V case. It keeps your answer short and ties each point to the text.

1Read the question first so you know whether you must identify a violation, name the standard, or give a corrective action.
2Underline the action in the vignette: research done, source used, model used, message sent, or record kept or discarded.
3Classify it: work behind the view is V(A), message to clients is V(B), proof and storage is V(C). A case can break more than one.
4Test the facts against the rule. Was the basis reasonable? Were limits and risks disclosed? Were facts separated from opinion? Were records kept?
5Decide if there is a violation. Do not assume one. Reliance on third-party research is acceptable after reasonable checks, and a model is acceptable when its limits are understood and disclosed.
6State the fix in one line: perform independent checks, disclose the limitation or process change, label opinion, or retain the records.
7Answer using the command word. For a multiple-choice item, pick the option that matches the exact rule, not the one that sounds most cautious.

Quickest way: Three-Question Filter

When to use it: Use it on item sets when time is short and the options look similar.

Ask: was the work adequate? If no, it is V(A).
Ask: was the client told the process, the limits and the key factors? If no, it is V(B).
Ask: can the firm prove it later? If no, it is V(C).
Then choose the option whose fix matches that part, such as check independently, disclose, or retain.

Common mistakes in Application Cases for Standard V

Calling any use of third-party research a violation.
Candidates remember the warning about copying and forget that reliance is allowed.
Fix: Reliance is acceptable when you have made reasonable inquiry into the source's quality and assumptions. The violation is blind reliance.
Putting model limitation problems under V(B) only.
Both V(A) and V(B) mention models, so they blur.
Fix: Failing to understand or test a model is V(A). Failing to tell clients about its significant limitations is V(B). Name both if both occur.
Saying a firm must disclose every detail of its process.
The word disclose is read too broadly.
Fix: V(B) requires the basic format and general principles of the process, and any changes, not proprietary detail.
Treating record retention as only for written reports.
Candidates think of formal documents.
Fix: Records include notes, models, and client communications, including electronic ones, that support the work.
Recommending that the analyst keep the records personally.
The analyst created them.
Fix: Records are the property of the firm. The fix is for the firm's system to retain them.
Assuming a group report needs the analyst's name removed whenever there is disagreement.
Candidates mix up when to dissociate.
Fix: If you do not agree with the group view and it lacks a reasonable basis, you may need to dissociate. If you do agree and it has a reasonable basis, you may stay on it.

Worked examples

Example 1

An analyst at a global asset manager uses a vendor's quantitative screen to pick stocks for client portfolios. She has never reviewed how it works and its assumptions are not documented. Clients are told only that the firm uses a disciplined quantitative process. The screen failed in earlier periods of market stress. Identify the violations and the corrective actions.

Show the solution

Action 1: she relies on a vendor model without understanding it. This is the work behind the recommendation, so it is V(A).
Action 2: clients are told only a generic description and not the model's limits, including its poor behaviour in stress. This is what clients are told, so it is V(B).
Test V(A): without understanding assumptions or testing, there is no reasonable and adequate basis.
Test V(B): significant limitations and risks of the process were not disclosed.
Fix V(A): review the model's assumptions and testing, and check it independently before using it.
Fix V(B): tell clients the format and general principles of the process and the model's significant limitations.

Answer: Violations of V(A) for failing to understand and check the model, and V(B) for not disclosing its limitations. Correct by independently reviewing the model and disclosing its process and limits to clients.

Example 2

A portfolio manager sends clients a recommendation to buy a bond fund. The note includes only the expected yield and the manager's belief that rates will fall, written as certain. Six months later a compliance review finds that the supporting analysis files were deleted after three months. Which Standard V parts are breached, and what should the firm do?

Show the solution

The note omits the main risk and presents an opinion as certain, so it breaks V(B): fact and opinion must be separated and important factors included.
Test V(B) further: expected yield is a fact or estimate, while the rate view is an opinion and should be labelled as one with relevant risks stated.
The deleted analysis files break V(C): records supporting the recommendation should be kept, with seven years as the recommended minimum unless local law or firm policy requires longer.
V(A) cannot be judged because the facts do not show whether the research was adequate, so do not claim a violation there.
Fix: issue communications that label opinion, state risks, and include the key factors. Set a retention policy so the records are kept for the required period.

Answer: V(B) is breached by presenting opinion as certain and omitting key risk. V(C) is breached by deleting records early. No V(A) violation can be concluded from the facts given.

Exam tips

Name the part, the breach and the fix in that order. This is usually enough for a constructed response.
Read the command word. Identify asks for the violation, justify asks for the reason, and recommend asks for the corrective step.
Do not invent a violation. If the facts show reasonable checks, disclosure and records, the correct answer may be that no violation occurred.
In item sets, wrong options often use right words in the wrong place, such as a V(B) fix for a V(A) problem. Match the fix to the part.
Link the answer to the facts given, such as a stress failure or a deleted file, so the points are clearly earned.

Application Cases for 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.

Application Cases for Standard V: frequently asked questions

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

V(A) is about the quality of your research and analysis before you recommend or act. V(B) is about what you communicate to clients, including your process, key factors and limitations. A case on shallow work is V(A). A case on missing or misleading disclosure is V(B).

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

The Standards recommend at least seven years, unless local regulation or firm policy requires longer. The records support your analyses, recommendations, actions and client communications. They belong to the firm.

Can I rely on third-party research under Standard V?

Yes, if you make reasonable and diligent efforts to check the quality of the research and its assumptions. Blind reliance is the problem. The depth of checking depends on how much you rely on it.

How should I approach Standard V case study questions?

Find the action, classify it as work, communication or records, test it against the rule, and state the fix. Practise until the three-part classification is automatic, and always tie your answer to facts in the vignette.