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

Davis tests a fund selection method by applying it retroactively to past data and then advertises the resulting returns without saying how they were produced. Davis has most likely violated Standard III(D) because he:

Davis most likely violated Standard III(D) by failing to identify the results as simulated. Performance obtained by applying a model retroactively must be disclosed as such, including the source of the data, so that the presentation is fair, accurate, and complete for clients.

  1. Aused historical data
  2. Bfailed to identify the results as simulatedCorrect
  3. Ctested the method on only one period

Explanation

Standard III(D) requires members to disclose when results are simulated, including that the model was applied retroactively. Using historical data is not itself a violation. The violation lies in the missing disclosure that makes the presentation misleading.

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