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

Kilmer presents to prospective clients a five-year "balanced" composite. It includes only some qualifying accounts, silently excludes small accounts, adds non-balanced accounts that boost results, and changes its members over time. Kilmer's conduct is best described as a violation of Standard III(D) because he:

Kilmer violated Standard III(D) by misrepresenting the facts, distorting the firm's performance record through selective and changing composite membership, and failing to include clarifying disclosures such as the undisclosed exclusion of small accounts. Using a composite is itself acceptable and encouraged.

  1. Aused a composite instead of a single account
  2. Bmisrepresented the facts and omitted clarifying disclosuresCorrect
  3. Cfailed to provide results net of all fees

Explanation

The handbook example finds that Kilmer misrepresented facts, distorted the firm's record, and omitted disclosures that would have clarified the presentation. Using a composite is encouraged, not a violation. Fee basis is not the issue in the facts given.

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