Sign up  |  Log in

What is the difference between Misrepresentation, Performance Presentation and Communication with Clients and Prospective Client

What is the difference between Misrepresentation, Performance Presentation and Communication with Clients and Prospective Client? 

Michelieu tells a prospective client, “I may not have a long-term track record yet, but I’m sure that you’ll be very pleased with my recommendations and service. In the three years that I’ve been in the business, my equity-oriented clients have averaged a total return of more than 26% a year.” The statement is true, but Michelieu only has a few clients, and one of his clients took a large position in a penny stock (against Michelieu’s advice) and realized a huge gain. This large return caused the average of all of Michelieu’s clients to exceed 26% a year. Without this one investment, the average gain would have been 8% a year.

What is the violation here? I think it may be performance presentation because it tells about his past performance. I also think it may be communication with clients and prospective client because it is a conversation between him and his prospective client. But the answer is misrepresentation.

The best just got better. Schweser's upgraded content and redesigned study platform are exactly what you need to pass the Level III exam. Save 10% when you preorder a Premium Package for a limited time.

He misrepresented the returns by misleading 

Return is performance……..

It’s clearly not Communication with Clients.  As for the other two,

By definition:

Standard I(C) Misrepresentation

A misrepresentation is any untrue statement or omission of a fact or any statement that is otherwise false or misleading.

 

Standard III(D) Performance Presentation covers any practice that would lead to misrepresentation of a member’s or candidate’s performance record, whether the practice involves performance presentation or performance measurement.

 

Since Performance Presentation has broader scope, they might expect Misrepresentation as the answer.