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

A firm's quantitative model has long produced the buy ratings that an analyst, Ravi Menon, passes on to clients. Ravi changes the model's methodology to a new valuation approach, updates the ratings, and does not tell clients about the change, believing the new results are more accurate. Ravi has most likely violated:

Ravi most likely violated Standard V(B). The guidance requires members to disclose any changes in methodology and to communicate significant changes in recommendations. His belief that the new approach is more accurate does not excuse silence, because clients must be able to evaluate the basis of the ratings.

  1. Ano Standard, because the new methodology is more accurate
  2. BStandard V(B), because changes in methodology must be disclosedCorrect
  3. CStandard V(C), because he did not keep the old model's output

Explanation

Standard V(B) guidance states that members must disclose any changes in methodology and communicate significant changes in a recommendation. The belief that the new approach is better does not remove the disclosure duty. Retention of records is not the issue described.

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