Put the Communication with Clients standard, V(B), into practice
The idea
Members must disclose to clients and prospective clients the nature of the services provided and information about the costs to the client of those services, a requirement added in the 12th edition. The costs include those arising through affiliates or third parties used to deliver the service, exact dollar amounts are not required where they cannot be known in advance, a client's sophistication is no reason to omit them, and the disclosure must be updated when services or costs change. Members must also disclose the basic format and general principles of the investment process, promptly disclose any material change to it, identify significant limitations and risks, and distinguish clearly between fact and opinion. A summary is permitted, but omitting a factor material to the conclusion is not. Leaving a significant known risk out of a recommendation breaches the Standard, and a general disclaimer does not cure it.
A practice question
What must members distinguish clearly in communications with clients?
- Domestic from foreign securitiesWhy not: A useful classification and not what the Standard requires be kept apart.
- Fact from opinion — correct
- Gross from net asset valueWhy not: Labelling returns gross or net of fees is a performance-presentation point under Standard III(D); the distinction this requirement names is between what is established and what is judgement.
Standard V(B) Communication with Clients requires fact and opinion to be clearly distinguished, so a reader knows which parts are established and which are judgement.
A harder one
A member condenses a long analysis into a one-page note. When does that breach the Standard?
- Whenever detail is omittedWhy not: Summarising necessarily omits detail, and the Standard expressly allows it.
- Only if the client asks for the full versionWhy not: Whether a client asks does not change whether the note they received was misleading.
- When a material factor is among what was left out — correct
Standard V(B) is breached when something material to the conclusion is among what was left out. Condensing is permitted; losing a material factor is not.
The hardest tier
A member recommends a strategy whose principal risk is disclosed only in a boilerplate disclaimer applied to all communications. Is this sufficient?
- No, a specific material risk must be named as such — correct
- Yes, provided the disclaimer is prominentWhy not: Prominence does not make a general statement specific, and a reader still cannot tell which risk attaches here.
- Yes, since the information was disclosed somewhereWhy not: Disclosure that the reader cannot connect to this recommendation does not inform the decision they are making.
Standard V(B) requires risks specific and material to this recommendation to be identified as such. A generic disclaimer applied to everything identifies nothing about this one.
In the app: 12 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
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