An analyst finds a stock with historical returns that are not correlated with interest rate changes. The analyst writes a report for his clients that have large allocations in fixed-income instruments and emphasizes the observed lack of correlation. The clients with allocations of fixed income instruments are the only clients to see the report. According to Standard V(B), Communication with Clients and Prospective Clients, the analyst has: A) violated the Standard concerning fair dealings with all clients. B) violated the Standard by emphasizing the information concerning the correlation. C) not violated the Standard. D) violated the article in the Standard concerning facts and opinions. The Answer is C. Why wouldn’t the report get sent to all clients? Is it because all clients don’t hold large amounts of fixed income securities?
Suitability requirement .
Let me give you an example, I hope that would clear things. Suppose I am a sales representative (dealing in products that are meant for car manufactures) of a company that deals in two products a) Raw material for a building a car example: seat covers that would be use by the car manufactures according to their needs. b) Finished products that can be fitter into cars example: baby seat. My company have a categorized the clients according to their need and requirements. My company have come up with a new product or improved the existing product, where will I head to sell that product? Of course, I will take my company’s products to clients who require them (in this case the car manufactures). It is the investment profession, why send an investment report to clients that do not have any interest in Fixed Income Investment. Reports should be written according to the client’s suitability and requirements.
I would guess it is C. what’s the correct answer?
Standard V(B) is clearly not being violated but why would the analyst include info on a stock on its fixed income investors report?