Reasonable basis
Under Standard V(A), the diligent, independent research and investigation a recommendation must rest on. How much is needed rises with how much depends on the analysis.
Where you will meet it
Reasonable basis appears in 8 learning outcomes on the CFA syllabus. A few of them:
- Put the Diligence and Reasonable Basis standard, V(A), into practice
“Members must exercise diligence, independence and thoroughness in analysing investments and making recommendations, and must have a reasonable and adequate basis, supported by appropriate research and investigation.”
- Explain what the Code and Standards expect of members ethically, covering every standard and its subsections
“Investment Analysis covers reasonable basis, communication and records, Conflicts of Interest covers avoiding or disclosing conflicts, priority of transactions and referral fees, and the seventh group is Responsibilities as a Member or Candidate.”
- Apply the CFA Institute Code and Standards to the conduct of people who choose external managers
“Standard III(A) Loyalty, Prudence, and Care requires acting for the fund's beneficiaries, and Standard V(A) Diligence and Reasonable Basis requires thorough due diligence before hiring.”
- Show firm command of the Code and Standards by applying them to professional integrity cases under Standard V, Investment Analysis, Recommendations, and Actions
“Standard V asks whether a portfolio decision rests on a reasonable and adequate basis and is communicated honestly.”
Practise it
Practise reasonable basis until it is automatic: questions that explain every wrong option.
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