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

A portfolio manager asks a research group to support a recommendation on a small-cap stock. The group relies only on a single third-party research report and does no other work. Which statement about this approach is most accurate under Standard V(A)?

The approach is inconsistent with Standard V(A). A reasonable basis comes from considering a balance of resources, such as company reports, third-party research and model outputs, so relying on one third-party report alone shows insufficient diligence, regardless of whose names appear on the recommendation.

  1. AIt is acceptable because clients expect third-party research to be used
  2. BIt is inconsistent with forming a reasonable basis through a balance of resourcesCorrect
  3. CIt is acceptable if the group's name is not included on the recommendation

Explanation

Members form a reasonable basis by considering a balance of resources such as company reports, third-party research and quantitative model results. Relying on one outside report alone does not reflect that balance. Leaving off names does not change the diligence duty.

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