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

Standard V(B) Communication with Clients and Prospective Clients

Updated 8 October 2026 · Fact-checked

Standard V(B) has three main duties. You must tell clients and prospects the basic format and general principles of your investment process, and update them promptly if it changes. You must identify the important factors in your analysis, explain how you used them, and disclose significant limitations and risks. You must also clearly separate fact from opinion.

Understand Standard V(B) Communication with Clients

Clients rely on your advice. To judge it, they need to know how you reached it. Standard V(B) is about giving them that view in a clear and honest way.

The Standard has three main duties. First, disclose the investment process. Explain the basic format and general principles you use to select securities and build portfolios. You do not need to give away trade secrets or formulas. You must give enough that a client understands the approach. If the process changes in a material way, tell clients promptly.

Second, communicate the right content. Use reasonable judgment to identify the factors that are important to your analysis and recommendations, include them, and explain how you used them. Report the limitations and risks of the analysis too. For example, a model that relies on a short data history, or a strategy that can lose money in a stress period, should be explained.

Third, separate fact from opinion. A fact is something verifiable, such as a reported earnings figure. An opinion is a judgment or forecast, such as an expected growth rate. Mixing them can mislead clients into treating a guess as certain. Wording such as "we expect" or "in our view" helps.

The Standard applies to all forms of communication: reports, presentations, emails and conversations. It covers both current clients and prospective clients. It does not require you to include every detail. It requires that what you leave out does not make the message misleading.

Key rules to remember

Process disclosure: Disclose the basic format and general principles of the investment process; update clients promptly when it changes materially; Detail needed is enough to understand the approach, not proprietary secrets.
Content rule: Use reasonable judgment to identify the important factors, explain their use, and include significant limitations and risks; Do not omit a factor that would change the client's view of the recommendation.
Fact vs opinion: Fact = verifiable; opinion = judgment or forecast; label them separately; Presenting a forecast as fact is a violation.
Scope: Applies to clients and prospective clients, in all communication formats; Includes written, oral and electronic communication.

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

Use this method for any V(B) case. It works for both item sets and essays.

1Identify the communication: who received it (client or prospect), in what form, and what it said.
2Check process disclosure: did the member explain the basic format and principles of the investment process, and any material change?
3Check content: were the important factors, limitations and risks included, or was something material left out?
4Check fact versus opinion: find each statement and classify it as verifiable fact or judgment. Look for forecasts stated as certain.
5Decide if the member violated the Standard. A single failure in any one area is enough.
6State the corrective action: disclose the process or change, add the limitations, relabel opinions, or update the client.
7In an essay, name the Standard, give the reason in one sentence, and stop. Answer the exact command word.

Quickest way: Three-question check

When to use it: Use it when time is short, especially on item-set questions with four options.

Ask: was the process explained, and updated if it changed?
Ask: were key factors and limitations or risks shown?
Ask: is any opinion or forecast presented as fact?
Pick the option that fixes the failed check. Reject options that say to disclose proprietary details or every possible factor.

Common mistakes in Standard V(B) Communication with Clients

Thinking you must reveal the full model or proprietary details
The word disclosure suggests full transparency.
Fix: The Standard asks for basic format and general principles only. Detail needs to be enough for understanding.
Ignoring limitations and risks because the recommendation looks strong
Candidates focus on the analysis result and forget what could go wrong.
Fix: Always check that significant limitations and risks are communicated, such as model or data weaknesses.
Treating a forecast as a fact
Projections backed by numbers look factual.
Fix: Anything about the future or a judgment is an opinion. It must be labelled as such.
Forgetting to tell clients when the process changes
Candidates assume disclosure happens once at the start.
Fix: Material changes in the investment process must be communicated promptly to clients and prospects.
Applying the Standard to current clients only
The word client is read narrowly.
Fix: The title and text include prospective clients, so marketing material is covered too.
Confusing V(B) with V(A) or III(C)
All deal with recommendations.
Fix: V(A) is about diligence and a reasonable basis. III(C) is about suitability. V(B) is about what and how you communicate.

Worked examples

Example 1

An analyst at an asset manager sends clients a report. It says: "Company X will grow earnings 15% a year for the next five years, so the stock is a certain buy." The report does not mention that the forecast relies on a single scenario. Which part of Standard V(B) is most clearly violated?
A. Disclosure of the basic format of the investment process
B. Separation of fact from opinion and disclosure of limitations
C. Record retention
D. Priority of transactions

Show the solution

Identify the statements: 'will grow 15%' is a forecast, so it is an opinion.
It is stated as certain, so opinion is presented as fact.
The single-scenario basis is a limitation that is not disclosed.
Record retention and priority of transactions are other Standards and not relevant here.

Answer: B. The report presents an opinion as fact and omits a significant limitation of the analysis.

Example 2

A portfolio manager has used a value-based process for years. She now moves to a quantitative screening model and tells only new prospects, since existing clients are not being asked for new money. Did she comply with Standard V(B)? Answer in two or three sentences.

Show the solution

The change from value-based to quantitative screening is a material change in the investment process.
Standard V(B) requires prompt communication of material process changes to clients and prospects.
She told only prospects, so existing clients were not informed.

Answer: No. A material change in the investment process must be communicated promptly to existing clients as well as prospects. She should notify current clients now and explain the new process and its limitations.

Exam tips

Look for the trigger words: 'certain', 'guaranteed', 'will' on forecasts. These signal a fact-versus-opinion violation.
If an option demands full disclosure of proprietary models, it is usually wrong. The Standard needs basic format and general principles.
Check whether a process change was communicated. This is a common hidden violation in cases.
In essays, name V(B), give one reason tied to the case, and give a specific corrective action. Follow the command word, such as identify, state or justify.
Remember that prospective clients are covered. Marketing and pitch materials count.

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 explain your investment process in general terms, include the important factors and the significant limitations and risks, and keep fact and opinion separate. You must also tell clients promptly if the process materially changes.

How is fact different from opinion under the CFA Standards?

A fact is verifiable, like a reported figure. An opinion is a judgment or forecast, like expected growth. Opinions must be presented as opinions so clients do not take them as certain.

Do I have to disclose my proprietary model to clients?

No. You need to disclose the basic format and general principles of the process. The aim is client understanding, not revealing trade secrets.

Does Standard V(B) apply to prospective clients?

Yes. It covers communications with both current clients and prospective clients, in any format, including written reports, presentations and conversations.