Standard V: Investment Analysis, Recommendations and Actions

Question 1

What are the three substandards in standard V(5)?

Answer 1

Standard V(A): Diligence and Reasonable Basis 
Standard V(B): Communication with clients and prospective clients 
Standard V(C): Record retention

Question 2

What does standard V(A) relate to?

Answer 2

Diligence and Reasonable Basis

• Exercise diligence, independence and thoroughness in analysing investments, making recommendations and taking actions
• Have a reasonable and adequate basis, supported by research and investigation, for any investment analysis, recommendation or action

Question 3

What is the rule in relation to using or relying upon secondary or third party research? What is secondary and third party research?

Answer 3

Secondary research: Conducted by someone else in the firm
Third party research: Conducted by entities outside the firm
Must make reasonable and diligent efforts to determine whether such research is sound
Can conduct due diligence to assess the reasonableness of relying on third party information

Question 4

What are the rules for individuals who create new quantitative models and services?

Answer 4

Must exhibit a higher level of diligence in reviewing new products than the individuals who ultimately use the output

Question 5

What does ‘diligence’ involve?

Answer 5

Putting in the necessary effort to support the recommendations that they are making

Question 6

What are members required to understand when using quantitatively orientated research?

Answer 6

Do not need to understand all of the ins and outs - just need to understand the assumptions and limitations inherent in any model and how the results were used in the decision making process

Question 7

What should firms develop for selecting external advisers?

Answer 7

Should have a standardised criteria fro selecting these external advisers and managers

Question 8

Do members have to agree with the findings our group research and decision making?

Answer 8

No, as long as the candidate believes the consensus opinion has a reasonable and adequate basis and is independent and objective

Question 9

What does standard 5(B) require?

Answer 9

Communication with clients and prospective clients in relation to:

• Disclosure of the investment processes used to analyse investments, select securities and construct portfolios and promptly discuss changes
• Disclose limitations and risks of investment process
• Identity factors that are important to their analysis
• Distinguish between fact and opinion

Question 10

What does standard 5(C) require?

Answer 10

Record retention; members and candidates must develop and maintain appropriate records to support their investment analysis, recommendations, actions other other investment related communications with clients and prospective clients