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

An investment adviser makes a recommendation that is well researched and documented, but the stock later falls sharply because of an unforeseeable event. The adviser's conduct is most likely:

The conduct is most likely consistent with Standard V(A). Downside risk exists in every investment, and decisions are judged on the information available when they were made. A diligent, well-documented process supports a reasonable basis even if an unforeseeable event later causes a loss.

  1. Aa violation of Standard V(A), because any recommendation that loses value lacked diligence
  2. Ba violation of Standard V(C), because the loss shows records were inadequate
  3. Cconsistent with Standard V(A), because decisions are judged on the facts known at the time they were madeCorrect

Explanation

Downside risk remains for any investment, and every decision is based on facts known and understood at the time. Members can base decisions only on information available then, and a diligent, reasonable process helps minimize unexpected negative outcomes. A later loss alone does not prove a violation.

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