Investment Analysis - V(A) Diligence and Reasonable Basis

LOS

a. demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations of issues involving issues of personal integrity

b. distinguish between conduct that conforms to the Code and Standards and conduct that violates the Code and Standards

c. recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct

What are the two primary directives of Standard V(A) Diligence and Reasonable Basis? Member and Candidates must: 1. Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions. 2. Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action.

What three factors of Standard V(A) Diligence and Reasonable Basis determine how much diligence should be conducted? 1. Investment philosophy followed. 2. The role of the member or candidate in the investment decision-making process. 3. The support and resources provided by the employer.

Why must you establish a reasonable basis for all investment recommendations and actions? In order to avoid material misrepresentation, you cannot be quick or negligent in making investment recommendations.

What is secondary research? Research conducted by somebody else in your firm.

What is third-party research? Research conducted by entities outside of your firm.

What are four examples of checking that research by second and third parties is sound? 1. The assumptions used 2. The rigor of the analysis 3. The timeliness of the research 4. The objectivity and independence of the recommendations

What should you do if you suspect that research is unsound? You should not rely on it for your own investment recommendations or actions.