V. INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS
A. Diligence and Reasonable Basis.
Members and Candidates must:
Members must perform the diligent and thorough investigations necessary to make an investment recommendation or to take investment action. Three factors determine the nature of the diligence, thoroughness of the research, and level of investigation required by the standard:
Members must establish a reasonable basis for all investment recommendations and actions. Diligence must be exercised to avoid any material misrepresentation. In other words, members cannot be quick or negligent in making investment recommendations.
You are very excited about a small high-tech firm that is developing a new method of making Internet connections more efficient. You advise your clients to buy this security and tell them that a full report will be available shortly. Your recommendation is neither diligent nor thorough. You have not provided reasonable basis for the recommendation. It is impossible to distinguish between fact and opinion without further information.
Using secondary or third-party research
Secondary research: research conducted by someone else in the member or candidate's firm.
Members and candidates should check if research is sound. Examples of criteria include the assumptions used, the rigor of analysis, the timeliness of the research, and the objectivity and independence of recommendations. If the research is suspected to lack a sound basis, members and candidates should refrain from relying on it.
|asianl6: shouldn't make recommendations until a thorough pursue of evidence.|
|AUAU: Sometimes, analysts are wrongly predict/conclude a recommendation should they be subject violation of standards or be sued???|
|kforcfa: why do we need longer than 3 year period?|
| bhaynes: AUAU - No. As long as their analysis was thorough and they did due diligence, they have not violated the standard. |
Kforcfa - 3 years is too short of a time period. The time frame should longer, i.e. 10 year time horizon or back to inception if available
| leftcoast: Isn't the issue with the investment banker not giving a range of production numbers something other than a violation of diligence and reasonable basis?|
Sounds like misrepresentation to me. Standard I.C. I believe?
|johntan1979: No, it is V(A) Diligence. He failed to do his homework of churning out a range of production scenarios (best case to worst case), which demands a lot of effort.|