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

Question of the Week – Ethical and Professional Standards

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    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.

    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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