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Answer: Evaluate the independence of the third-party recommendations
## Explanation According to the CFA Institute Standards of Professional Conduct, particularly Standard V(A) - Diligence and Reasonable Basis, investment professionals must exercise diligence, independence, and thoroughness in analyzing investments and making investment recommendations. ### Key Points: 1. **Third-Party Research Evaluation**: When using third-party research, CFA charterholders must evaluate the objectivity and independence of the research. This includes assessing whether the research provider has any conflicts of interest that might compromise the independence of their recommendations. 2. **Kertz's Current Actions**: Kertz has already assessed: - The assumptions used in the reports - The rigor of the analysis - The reports' published dates 3. **Missing Element**: What Kertz has NOT yet evaluated is the independence of the third-party recommendations. This is a critical component under Standard V(A) because biased or conflicted research cannot provide a reasonable basis for investment decisions. 4. **Why Not Other Options**: - **Option A**: The validity of trading liquidity data is important, but Kertz has already noted the improvement based on published exchange data. This would have been part of his initial due diligence before even obtaining the research reports. - **Option C**: While determining if an analyst's opinion reflects their firm's recommendation might be relevant, it's less critical than evaluating the independence of the recommendations themselves. An analyst's opinion could align with their firm's view but still be biased due to conflicts of interest. ### CFA Standards Reference**: - **Standard V(A) - Diligence and Reasonable Basis**: Members must exercise diligence, independence, and thoroughness in analyzing investments and making investment recommendations. - **Guidance**: When relying on third-party research, members must make reasonable and diligent efforts to determine whether such research is sound. Therefore, evaluating the independence of third-party recommendations is the most appropriate next step for Kertz to meet the Standards.
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David Kertz, CFA, a portfolio manager, is considering investing in a small cap firm he stopped following three years ago due to poor trading liquidity. Based on published stock exchange data, the company's trading liquidity has improved considerably. Kertz arranges to obtain some third-party research reports on the firm. He assesses the assumptions used, determines the rigor of the analysis, and the reports' published dates. Which of the following additional actions should Kertz most likely undertake next to meet the Standards?
A
Consider the validity of the published trading liquidity data
B
Evaluate the independence of the third-party recommendations
C
Determine if each third party analyst's opinion reflects their firm's recommendation
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