CFA CFA Level 1 Question of the Week – Ethical and Professional Standards

Question of the Week – Ethical and Professional Standards

  • Author
    • Avatar of AdaptPrepAdaptPrep
        • Undecided

        Richard Frizell, CFA has recently completed his research report on Lukesrun, Inc. and he is generally favorable on the stock. The report shows a preliminary “buy” on Lukesrun. Frizell’s supervisor approves the report, and it is being reading for distribution. Frizell recently came across some negative information on the company (publicly available information) and meets with his supervisor. The supervisor advises to go ahead and issue the preliminary report, with no mention of the new negative information. What should Frizell do, in order to properly comply with the Standards?

        • Frizell should notify all clients of the additional information on Lukesrun.
        • Frizell is in full compliance of the Standards since the added information
          was publicly available.
        • Insist that the report be revised, and if that is not done, he should
          request to have his name removed from the report.
      • Avatar of AdaptPrepAdaptPrep
          • Undecided

          The relevant Standard is:

          V(A) Diligence and Reasonable Basis

          and Candidates must:

          diligence, independence, and thoroughness in analyzing investments, making
          investment recommendations, and taking investment actions.

          Have a
          reasonable and adequate basis, supported by appropriate research and
          investigation, for any investment analysis, recommendation, or action.

          The report needs to be revised. It
          is not sufficient to just notify clients. The report will be publicly available
          and it is not accurate. This is also likely a violation of Standard IV(C)
          Responsibilities of Supervisors. In order to properly comply with Standard
          V(A), diligence and thoroughness must be exercised in preparing analysis and
          recommendations.  Frizell has done this.
          Frizell should document his difference in opinion, and request that his name be
          removed from the report.

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