1 question on Ethics

Here is a question taken from 2013 Schweser:

“The current buy recommendations include Pearson Metals, Nuvo Chemical Co., and Luna Mining. These three investment opportunities will provide returns in excess of 15% over the next 12 months. However, if a significant number of market participants develop (or are already using) models similar to Statlnvest’s model, returns on these three company’s common stock could be different from our expectations.” Question: In his first report on investments in the industrial sector, did Gonzales’s three investment recommendations violate any CPA Institute Standards of Professional Conduct? A. No. B. Yes, because he failed to distinguish between fact and opinion with regard to expected performance. C. Yes, because he provided an inherent guarantee of investment performance that cannot reasonably be expected.

The answer is C.

What is the difference b/t B and C?

anticipatory peformance statement is about numbers and return . In fact there is no wording like “expected” at all in the statement . Its a simple and matter-of-fact , like saying the sun will shine and the temeperature will be 75 degrees tomorrow

fact-and-opinion relates to analysis work which on the face are hypothetical but stated as though they are given.

See standard I-C ,page 36 of book I . and example 6 on page 40.

Methinks the use of the phrase “will provide returns in excess of 15%…” with the condition that very few market participants latch on to the magic system is implying a guarantee of future performance.

Both are right. C is more right. I think it would not be unusual to see another question where this B is the answer, but C here is the more damming and trumps B

C is correct, because B doesn’t even make sense. It may or may/not be true, no one knows. This is not a fact vs opinion question.

The critical element is identifying that his wording implied a guarantee of performance

I disagree. He is stating performance (15%) as a fact and not clearly expressing that this is just his opinion. Since logically it’s expected performance being opined, I’d argue that B is correct but agree that C is more correct.

This type of question encapsulates CFAI’s strategy towards its ethics section on all three levels, and I think it’s crap. In practice, who cares if B or C is more correct than the other? So long as an author avoids expressing certainty about a 15% return, his precise reasoning for being ethical are unimportant, just simply that he is being ethical.

F jackie…love the pic