V. INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS
B. Communication with Clients and Prospective Clients.
Members and Candidates must:
All important factors relating to the investment recommendation must be included in the report. Members must include known limitations in the analysis and conclusions in the report and consider all risks associated with the investment.
Members should consider including the following information in research reports:
A report can be given in many forms: a written report, in-person communication, telephone conversation, media broadcast, or transmission by computer (e.g., on the Internet or by email).
Opinions should be distinguished clearly from facts. Specifically:
Procedures for compliance
To simplify his report, an analyst leaves out details of the valuation models. He violates this standard because clients need to fully understand the analyst's process and logic in order to implement the recommendation.
An analyst issues a "buy" recommendation on a stock, mainly based on his optimistic assessment of the company's operation. He violates this standard by failing to distinguish between opinions and facts; his optimistic assessment of the company is his own opinion.
An analyst issues a report promoting a firm's new investment strategy. The report stresses the likelihood of high returns. However, it does not describe the strategy in detail. The analyst violates this standard because his report fails to describe properly the basic characteristics of the investment strategy.
An analyst has a duty to gather information about a company in order to make fully informed recommendations about it. As a result, the analyst is required to ask the management of the company to review his research report for inaccuracies. The analyst still has a duty to examine and verify the information presented to him by the company he is examining.
|asianl6: need to inform client the basis of the recommendation.|
|Galt2012: Don't quite agree with example #2: doesn't word "assessment" at least leave open the possiblity that the analyst did some objective diligence? If I plow through statiscal charts, company and industry info, economic analysis and calculate probabilities won't I end up with an "assessment"?|
|Dohei: Galt I think the focus should be more on the word optimistic. If he had done a proper scenario or sensitivity analysis then his assessment may be sound. Its just the basis for his assessment that lacks the proper grounding in this case.|
|NikolaZ: I agree with Dohei, a proper assessment should be thorough and not optimistic. Once you are conducting an assessment with an optimistic approach, you are doing so in bias. However from Galt's view, it could also be inferred that the optimism was gained as a result from a thorough assessment. I agree there is ambiguity but that is what makes these questions so difficult.|