Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

For analysts sending research recommendations to clients, what is a necessary compliance according to CFA Institute Standards?

1. They must keep records of all data and analysis used.

2. They need to disclose average performance of past recommendations.

3. They should not send recommendations without complete analysis.

4. Only send recommendations suitable for selected clients.

The correct answer is: They must keep records of all data and analysis used.

Keeping records of all data and analysis used in research recommendations is a fundamental compliance requirement according to the CFA Institute Standards. The necessity of maintaining these records ensures transparency and accountability for the recommendations made to clients. It allows analysts to support their recommendations with documented evidence, which is crucial for both ethical compliance and regulatory oversight. Having thorough documentation can also protect analysts and their firms in case of disputes regarding the quality or rationale behind their recommendations, as well as facilitate reviews and audits. This practice fosters trust between analysts and their clients, as clients can see the thought process and data that underpin the recommendations, enhancing overall credibility and professionalism in the field. Though the other choices present important considerations in delivering research, they do not capture this essential compliance aspect as comprehensively. For instance, disclosing average performance of past recommendations is valuable for context, but it does not encompass the broader requirement to maintain comprehensive records.