Skip to content

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

A research analyst changes the valuation methodology used in her quarterly reports from a price-to-earnings approach to a discounted cash flow approach. She does not tell clients, and the new rating is a buy versus the prior hold. Her conduct is most likely:

Her conduct most likely violates Standard V(B). Members and candidates must disclose any changes in methodology so clients can evaluate the recommendation. Moving from price-to-earnings to discounted cash flow without telling clients leaves them unable to understand why the rating changed.

  1. Aa violation of Standard V(B), because changes in methodology must be disclosedCorrect
  2. Bconsistent with the Standards, because ratings changes are communicated through the new rating alone
  3. Cconsistent with the Standards, because only changes in the rating require follow-up communication

Explanation

Standard V(B) guidance says members must disclose any changes in methodology and support quantitative-based advice with readily available reference material. Communicating only the new rating leaves clients unable to evaluate why the view changed. The other options wrongly treat the rating as sufficient.

Did you get it right without looking?

One question tells you little. A timed set on Guidance for Standard V: Investment Analysis, Recommendations, and Actions shows your real accuracy, how long you take and where you lose marks.

Practise Guidance for Standard V: Investment Analysis, Recommendations, and ActionsFree diagnostic mock

More Guidance for Standard V: Investment Analysis, Recommendations, and Actions questions