Build a reasonable basis and preserve the research trail

Learning goals

• Which action best addresses the central case issues?
• Explain why an assumption-dependent opinion, distinct from established fact applies to this case.
• Identify the case-specific assumption or failure mode before taking action.

Draft · approximately 30 minutes, excluding further revision.

Shared case and decision context

An analyst recommends a structured product using an untested vendor model. The model omits early-redemption terms. A report labels a scenario forecast as an established fact and the analyst deletes inputs after sending the recommendation.

Economic or professional mechanism

A reasonable basis requires diligence proportionate to the investment, including understanding external research and model limitations. Delegating calculation to a vendor does not delegate professional judgment. Communications should distinguish fact from opinion and explain material assumptions and risks in a form clients can understand.

Apply, challenge and communicate

Pause the recommendation, independently assess payoff terms and validate the model before relying on its outputs. Correct the fact/opinion distinction and preserve supporting records under applicable retention requirements and firm policy. No universal seven-year rule can be assumed to override stricter applicable requirements.

Formula and assumptions

Reasonable basis → model and term validation → clear communication → retained support

Case analysis with explicit assumptions

1. An analyst recommends a structured product using an untested vendor model. The model omits early-redemption terms. A report labels a scenario forecast as an established fact and the analyst deletes inputs after sending the recommendation.
2. Method: Reasonable basis → model and term validation → clear communication → retained support
3. Case result: Validate contractual terms and model before relying on the recommendation. Pause the recommendation, independently assess payoff terms and validate the model before relying on its outputs. Correct the fact/opinion distinction and preserve supporting records under applicable retention requirements and firm policy. No universal seven-year rule can be assumed to override stricter applicable requirements.

Errors to catch

• Do not replace the stated assumptions with an unstated shortcut. Reconcile units, timing and the claim being valued or duty being assessed.
• Only slide aesthetics is not a defensible conclusion for these case facts.

Original knowledge check

Answer every question before checking. Review explanations after submitting; retry starts a new attempt.

Sources and coverage status

These original lessons are drafts. Public outlines are used to check scope; the official learning-outcome text and proprietary question banks are not reproduced here. Follow the source for exam-year requirements and updates.

• Reference · www.cfainstitute.org
• Reference · www.cfainstitute.org