An analyst has found an investment with what appears to be a great return-to-risk ratio. The analyst double-checks the data for accuracy, keeps careful records, and is careful to not make any misrepresentations as he simultaneously sends an e-mail to all his clients with a “buy” recommendation. According to Standard V(A), Diligence and Reasonable Basis, the analyst has: A) violated the Standard if he does not verify whether the investment is appropriate for all the clients. B) fulfilled all obligations. C) violated the Standard by communicating the recommendation via e-mail.
Answer: B If the analyst had been an investment manager, it would have been inappropriate for him to make a blanket recommendation for all of his clients without considering the unique needs of each. However, the analyst is merely stating that given the qualities of the investment, it is an attractive buy. He has kept adequate records, and made fair disclosure of his rating decision
One look at the question and we know that he violated the standard because it might not be appropriate for all his clients…but why…why >
I agree- it is a tricky question and I guessed B as well. Looking closer I would imagine the answer lies in the last sentence: ‘According to Standard V(A), Diligence and Reasonable Basis, the analyst has:’ A blanket buy recommendation would be a violation of standard III(B)- Suitability, but not a violation of diligent or reasonable basis.
I went w/ B… The way I approached the question is… the analyst is simply making a recommendation/creating a rec list. If he were to have full discretion over the client’s account, he would need to judge the stock in the cotext of their total portfolio/Asset Allocation.
glad someone else had trouble with that too. I just posted a bunch of tricky questions last night, including this one.
Answer is clearly A, based on standard III©. You cannot make blanket recommendations to clients that may be in conflict with there goals/objectives/portfolio construction etc. Just remember that each client must have recommendations tailored to their own individual characteristics. Although a stock may be undervalued/a good buy, it’s risk/reward factor may be unsuitable.
According to Schweser the answer is not A, but B. See the answer in the link: http://www.analystforum.com/phorums/read.php?11,967039