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Answer: a weighted composite for all similar discretionary portfolios.
## Explanation According to the CFA Institute Standards of Professional Conduct, specifically Standard III(D) - Performance Presentation, investment professionals must make reasonable efforts to ensure that performance information is fair, accurate, and complete. The key requirements include: 1. **Composite Performance**: Performance must be presented for **all similar discretionary portfolios** as a composite, not just a single representative account. This ensures that the performance is not cherry-picked and represents the firm's overall performance for that strategy. 2. **Fee Disclosure**: Performance can be presented either gross or net of fees, but must be clearly disclosed which method is used. The fact that the firm deducts fees and taxes is acceptable as long as it's properly disclosed. 3. **Actual vs. Simulated Results**: While actual results are preferred, simulated results can be used if clearly identified as such and if the simulation methodology is disclosed. However, this is not the most critical issue in this scenario. **Analysis of Options**: - **Option A (gross of fee basis)**: While fee disclosure is important, the firm's current practice of deducting fees is acceptable if properly disclosed. This is not the most critical issue. - **Option B (actual not simulated results)**: While actual results are generally preferred, simulated results can be used with proper disclosure. This is not the most serious violation. - **Option C (weighted composite for all similar discretionary portfolios)**: This is the most critical issue. Using a single representative account violates the requirement to present composite performance for all similar discretionary portfolios. This could allow cherry-picking of the best-performing account, which is misleading. **Conclusion**: The most serious violation and therefore the most appropriate recommendation is to use a weighted composite for all similar discretionary portfolios, as this addresses the fundamental requirement of fair and representative performance presentation.
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Sisse Brimberg, CFA, is responsible for performance presentations at her investment firm. The presentation that Sisse uses states that when making performance presentations her firm:
Based only on this information, which of the following is the most appropriate recommendation to help Brimberg meet the CFA Institute Standards of Professional Conduct in her performance presentations? She should present performance based on:
A
a gross of fee basis.
B
actual not simulated results.
C
a weighted composite for all similar discretionary portfolios.