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CFA Level I · CFA Level I Exam · Guidance for Standard III: Duties to Clients

A portfolio manager prepares a marketing brochure for prospective clients showing the returns of one highly successful client account, described as "typical of our balanced strategy." The firm manages many similar balanced accounts. Under Standard III(D), the manager's approach is most likely:

The approach is most likely a violation. Standard III(D) guidance recommends presenting a composite of similar portfolios instead of a single representative account. Showing one successful account as typical can mislead prospective clients about the performance of the strategy, even if it was managed under the same mandate.

  1. Aacceptable, provided the account is described as typical
  2. Ba violation, because a composite of similar portfolios should be presented rather than a single representative accountCorrect
  3. Cacceptable, because the account was managed under the balanced mandate

Explanation

Guidance for firms not complying with GIPS says to present the performance of a composite of similar portfolios rather than a single representative account. Calling one top account "typical" can mislead prospects, so labeling does not cure the problem.

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