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 nature of the services and the costs the client will pay (V(B)(1), no dollar figures required), the investment process, limitations, and risks, and separate fact from opinion using signal phrases like "We estimate"
- V(B)(2): 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, or never told them what the service costs, V(B). If a departing analyst took files, V(C).
The full lesson (about 3,523 words, 23 min read) adds 5 worked examples, all 7 common mistakes, a self-check, free in the app.
Learning objectives
- standard V investment analysis
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