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

An analyst tests a stock-selection model on historical data and applies it retroactively to a later period, then includes the resulting returns in a brochure sent to clients. Which action is most likely required by Standard III(D)?

The analyst must disclose that the results are simulated and explain that they came from applying the model retroactively. Standard III(D) does not ban simulated results, but presenting them without identification would misrepresent performance and fail the fair, accurate, and complete requirement.

  1. ARemove the returns, because simulated results may never be shown
  2. BDisclose that the results are simulated and explain how they were producedCorrect
  3. CShow the results without comment, since they rely on actual market data

Explanation

Guidance states that results from applying a model retroactively must be accompanied by full disclosure of the data source, including that they are simulated. Simulated results are not prohibited, but failing to identify them misleads clients.

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