Members and Candidates must:
1 Disclose to clients and prospective clients the basic format and general
principles of the investment processes they use to analyze investments,
select securities, and construct portfolios and must promptly disclose
any changes that might materially affect those processes.
2 Disclose to clients and prospective clients significant limitations and
risks associated with the investment process.
3 Use reasonable judgment in identifying which factors are important to
their investment analyses, recommendations, or actions and include
those factors in communications with clients and prospective clients.
4 Distinguish between fact and opinion in the presentation of investment
analysis and recommendations.
Members should communicate the basic characteristics of the security being analyzed and the factors that were instrumental in making the recommendation. Care must be taken to clearly distinguish opinions from facts. Changes to the investment process or to recommendations should be communicated in a timely fashion. Known risks and other limitations of the investment should be disclosed.
Communication can include in-person presentations, written reports, telephone, email, or Internet distribution. Regardless of the delivery chosen, members must ensure that all clients receive a fair opportunity to receive and act on the recommendation. Brief communications should include instructions for how to access more detailed research.
Firms should establish a rigorous review system for reports. Records should be kept supporting the material basis behind the decision.
The CFA Institute Standards of Practice Handbook outlines several potential client communications violations.
- failing to inform clients of the basic investment process
- presenting opinions as fact
- failing to disclose the basic characteristics of an investment
- not notifying clients of a change in investment strategy
- not disclosing material errors
- failing to sufficiently disclose risks