Standards III(D) And III(E)

• III(D) Performance Presentation. When communicating investment performance information, Members or Candidates must make reasonable efforts to ensure that it is fair, accurate, and complete.

Guidance

Members must avoid misstating performance or misleading clients/prospects about investment performance of themselves or their firms, should not misrepresent past performance or reasonably expected performance, and should not state or imply the ability to achieve a rate of return similar to that achieved in the past. For brief presentations, members must make detailed information available on request and indicate that the presentation has offered limited information.

Recommended Procedures for Compliance Encourage firms to adhere to Global Investment Performance Standards. Obligations under this Standard may also be met by:

• Considering the sophistication of the audience to whom a performance presentation is addressed. Presenting performance of weighted composite of similar portfolios rather than a single account.
• Including terminated accounts as part of historical performance and clearly stating when they were terminated.
• Including all appropriate disclosures to fully explain results (e.g., model results included, gross or net of fees, etc.).
• Maintaining data and records used to calculate the performance being presented.

Application of Standard III(D) Performance Presentation Example 1:

A member puts simulated results of an investment strategy in a sales brochure without disclosing that the results are not actual performance numbers.

Comment:

The member has violated the Standard.

Example 2:

In materials for prospective clients, a member uses performance figures for a large cap growth composite she has created by choosing accounts that have done relatively well and including some accounts with significant mid cap exposure.

Comment:

This is a violation of the Standard as the member has attempted to mislead clients and has misrepresented her performance.

Example 3:

A member changes his firm’s performance attribution method to one he believes is more consistent with the strategies used by the firm’s investment managers.

Comment:

To avoid a violation of the Standard, the member must disclose this change to existing and new clients. He should explain the reasons for changing the method and report the managers’ performance attribution using both the old and new methods so that clients may compare them.

• III(E) Preservation of Confidentiality. Members and Candidates must keep information about current, former, and prospective clients confidential unless:

1. The information concerns illegal activities on the part of the client or prospective client,

2. Disclosure is required by law, or 3. The client or prospective client permits disclosure of the information.

Guidance

If illegal activities by a client are involved, members may have an obligation to report the activities to authorities. The confidentiality Standard extends to former clients as well.

The requirements of this Standard are not intended to prevent Members and Candidates from cooperating with a CFA Institute Professional Conduct Program (PCP) investigation.

Recommended Procedures for Compliance

Members should avoid disclosing information received from a client except to authorized co workers who are also working for the client. Members should follow firm procedures for storage of electronic data and recommend adoption of such procedures if they are not in place.

Application of Standard III(E) Preservation of Confidentiality

Example 1:

A member has learned from his client that one of his goals is to give more of his portfolio income to charity. The member tells this to a friend who is on the board of a worthy charity and suggests that he should contact the client about a donation.

Comment:

The member has violated the Standard by disclosing information he has learned from the client in the course of their business relationship.

Example 2:

A member learns that a pension account client is violating the law with respect to charges to the pension fund.

Comment:

The member must bring this to the attention of her supervisor and try to end the illegal activity. Failing this, the member should seek legal advice about any disclosure she should make to legal or regulatory authorities and dissociate herself from any continuing association with the pension account.