A junior analyst publishes a buy recommendation based on a single management call, no model, no peer comparison, no risk discussion. Standard V exists to prevent exactly this.
Standard V governs the analytical work product. V(A) sets the research-quality bar. V(B) sets the disclosure bar for how that work reaches clients. V(C) sets the documentation bar. The three operate as a chain: do the work, communicate it honestly, document it. Each sub-standard below also carries compliance steps, because members and supervisors should recommend practices and procedures designed to prevent violations of the Code and Standards, not just react after a breach.
Members must exercise diligence, independence, and thoroughness in any investment analysis, recommendation, or action. They must have a reasonable and adequate basis, supported by appropriate research and investigation.
KEY: "Reasonable and adequate basis" scales with the action. A short-term tactical trade requires less depth than a long-horizon allocation recommendation. The basis must match the conviction expressed.
What counts as adequate depends on:
Common mistakes
- Treating "reasonable basis" as one-size-fits-all. The depth of required diligence scales with the action. A retail allocation recommendation requires more disclosure than an institutional tactical trade. Trap: assuming a fixed checklist satisfies V(A) regardless of context.
- Allowing blind reliance on external research. Members may use third-party research, but only after assessing source quality. Trap: a fact pattern where an analyst forwards a sell-side report verbatim, with the wrong answer being "permitted because the source is reputable" rather than "violation because no due diligence was documented."
- Confusing fact and opinion in forward-looking statements. "Earnings will grow 15%" presented without qualification reads as fact. The analyst must use signal phrases: "We project," "We estimate," "In our opinion." Trap: assuming the analyst's sincere belief converts opinion into fact.
Bottom line
- V(A) Diligence: every recommendation needs a reasonable and adequate basis backed by research, not opinion or rumor, scaled to the action taken
- V(B) Communication: disclose the investment process, limitations, and risks, and separate fact from opinion using signal phrases like "We estimate"
- V(B)(1): give prompt notice of any material process change (new factor, shifted weighting, changed benchmark, altered risk parameters)
- Identify the load-bearing factors behind a recommendation and include them in client communications
Exam shortcut
For any Standard V fact pattern, run the three-part scan: basis (V(A)), communication (V(B)), records (V(C)). If the analyst published a recommendation without independent work, V(A). If the analyst changed the process without telling clients, V(B). If a departing analyst took files, V(C).
The full lesson (about 2,616 words, 17 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- standard V investment analysis
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