Watch the video with Andrew Stotz’ interpretation of CFA Ethics and Standards of Professional Conduct or read a summary of it below.
CFA Standards of Professional Conduct
- Standard V-B: Communication with Clients and Prospective Clients
- Part 3. Distinguish between fact and opinion in the presentation of investment analysis and recommendations
Why you should separate fact from opinion
Avoid violating CFA Standards of Professional Conduct by differentiating fact from opinion. There are two common scenarios where financial professionals should separate fact from opinion:
- First, to make clear the value you add
- Second, is to clarify the uncertainty in your work
Separate fact from opinion to clarify the value you add
Suppose company management forecasts sales to grow an optimistic 20%, but you forecast a more realistic 12% growth. You should make sure the reader or listener understands that the management’s statement of 20% is a fact. Then make it clear that your 12% forecast is your opinion, based on your judgment. By being clear that your opinion (12%) differs from the fact (management’s 20%), you show the value you add through your research.
Financial professionals, and others for that matter, do not want to be blamed for being wrong, so they avoid separating fact from opinion in case things turn out different from their forecast. But remember, forecasting is a core function of a financial professional and that no one expects someone to be right all the time.
Separate fact from opinion, so readers understand that the future is uncertain
Forecasters like to add certainty verbs to their forecasts to lend an air of creditability. Certainty verbs like, will (“I expect profits will grow 30% for the next five years.”) convey a high level of confidence in your conclusions. But uninformed readers could interpret “will” to mean that there is more certainty in your forecast than reality. This perception could misguide clients to make more aggressive or dangerous allocation of their money.
Avoid this problem by replacing certainty verbs like “will” and “must”; with “would,” “could,” “should.”
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