CFA Level IEthical and Professional StandardsMedium
A portfolio manager pitches her strategy to a prospective institutional client by showing only 3 of her 10 discretionary accounts from the past year, all of which had the highest returns, without disclosing that the other 7 accounts underperformed their benchmark. Which Standard is most directly violated?
- AStandard III(D), Performance Presentation, because the presentation is not fair, accurate, and complete
- BStandard VI(A), Disclosure of Conflicts, because she failed to disclose a conflict of interest
- CStandard III(B), Fair Dealing, because she is not treating all clients fairly
- DStandard I(C), Misrepresentation, because she is guaranteeing future investment performance
Show answer & explanationAnswer & explanation
Correct answer: A. Standard III(D), Performance Presentation, because the presentation is not fair, accurate, and complete
Standard III(D) requires that performance information presented to clients or prospects be fair, accurate, and complete. Cherry-picking only the best-performing accounts while omitting underperformers creates a misleading impression of overall investment results.
Why the other options are wrong
- B. There is no described conflict of interest in this scenario.
- C. Fair Dealing concerns treatment of multiple clients regarding investment opportunities, not selective performance disclosure.
- D. No explicit performance guarantee is being made — the issue is selective, incomplete disclosure.
Performance Presentation (III(D))
Members must ensure that performance information communicated to clients or prospects is fair, accurate, and complete, avoiding selective or misleading presentations.
- Cannot cherry-pick best-performing accounts
- Must disclose relevant time periods and methodology
- GIPS compliance is one way to satisfy this Standard
Memory trick: Show the whole orchard, not just the best apples.