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Question:
William Rex, CFA, has a one-man firm that manages investment portfolios. In his marketing materials, Rex presents the asset-weighted returns for accounts he has managed over the last five years and does not disclose that the first two years of his performance history were achieved at a previous firm. He also includes simulated results of a stock selection model he employs and indicates that they are from a simulation. Has Rex violated any CFA Institute Standards of Professional Conduct?
A
Yes, failing to disclose that two years of his performance results were with a previous employer is a violation, but including the simulated results is acceptable.
explanation
Under Standard III(D) Performance Presentation, members and candidates must make reasonable efforts to ensure that investment performance information is fair, accurate, and complete. Rex has misled his potential clients by not disclosing that the first two years of his performance record were achieved at another firm. There is no prohibition against presenting simulated results as long as the fact that the results are simulated, rather than actual, is disclosed.
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