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

An analyst at a brokerage firm issues a buy recommendation after reading only a one-page summary of a company's results prepared by the company's investor relations team. Which Standard is the analyst most likely to have violated?

The analyst most likely violated Standard V(A), Diligence and Reasonable Basis. A recommendation needs a reasonable and adequate basis supported by appropriate research and investigation, and relying on one company-prepared summary shows neither diligence nor independence in the analysis.

  1. AStandard V(C) Record Retention
  2. BStandard V(A) Diligence and Reasonable BasisCorrect
  3. CStandard V(B) Communication with Clients and Prospective Clients

Explanation

Standard V(A) requires a reasonable and adequate basis, supported by appropriate research and investigation, for any recommendation. Relying only on a company-prepared summary is not diligent or independent. Record retention concerns documentation, and communication concerns what is disclosed to clients, neither of which is the core problem here.

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