CFA Level IEthical and Professional StandardsMedium
An equity analyst's published research report states: "Company Z will report EPS growth of 15% next quarter," without any qualifying language indicating this is her projection rather than a confirmed fact. Which Standard is most directly violated?
- AStandard V(A), Diligence and Reasonable Basis, because she lacks sufficient research to support the forecast
- BStandard V(B), Communication with Clients and Prospective Clients, because she fails to clearly distinguish between fact and opinion
- CStandard I(C), Misrepresentation, because she guarantees a specific investment outcome
- DStandard III(C), Suitability, because the forecast may not be suitable for all client risk profiles
Show answer & explanationAnswer & explanation
Correct answer: B. Standard V(B), Communication with Clients and Prospective Clients, because she fails to clearly distinguish between fact and opinion
Standard V(B) requires members to clearly separate opinions from facts in their research reports and disclose the general principles/basis of a recommendation. Stating a forward-looking EPS estimate as if it were a settled fact fails this requirement, even if the underlying analysis is reasonable.
Why the other options are wrong
- A. There is no indication her analysis itself is deficient — only its presentation.
- C. Misrepresentation under I(C) typically involves guarantees of investment performance for a client's investment, not a general earnings estimate presented as fact.
- D. Suitability concerns individual client recommendations, not general research disclosure.
Communication with Clients (V(B))
Members must disclose the basic format and general principles of investment processes, distinguish fact from opinion, and communicate on an ongoing basis with clients about material changes.
- Reports must separate factual data from analyst opinion/estimates
- Must maintain records supporting recommendations
- Applies to written and oral communications
Memory trick: Facts are proven; opinions are labeled.