You are reading the 2026 curriculum (exams up to November 2026). Sitting in February 2027 or later? Go to the 2027 Ethical and Professional Standards guide.
Standard V(B): Communication with Clients and Prospective Clients
Tell clients and prospects what services you provide and what they cost the client, explain the basic format and principles of your investment process, promptly disclose material changes to it, outline significant risks and limitations, include the factors that matter, and always separate fact from opinion.
Before this: Standard V(A): Diligence and Reasonable Basis
On the exam
- Demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity
- Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct
- Identify conduct that conforms to the Code and Standards and conduct that violates the Code and Standards
Demonstrate V(B) and spot the missing disclosure. Expect process changes not disclosed, opinion stated as fact, and costs not disclosed. The deciding fact is which of the five duties the communication skipped.
How deeply to learn each part
- Know the idea
- Understand it in general. It frames other topics, but you will not calculate with it.
- Use it
- Understand it well enough to solve a question with it. Recognize when it applies.
- Memorize
- Learn it by heart. The exam will not give it to you.
You know this one. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still do.
You tested strong here. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still know it.
What does Standard V(B) require?
You must give clients and prospective clients the information they need to decide whether to hire you and to understand how you act for them. There are five duties. The first covers the nature of services and costs , and the rest cover the process, risks, important factors, and the line between fact and opinion.
Memorize
- Services and costs Memorize what you provide and what the client pays
- Nature of services including what is not provided
- Costs to the client including affiliates and third parties; no dollar figure needed
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- Investment process Memorize
- Basic format and general principles
- Material changes disclosed promptly
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- Risks and limitations Memorize
- Significant risks leverage, counterparty, country, credit
- Limitations liquidity and capacity
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- Report content Use it
- Important factors by reasonable judgment
- Fact vs opinion forecasts labeled as opinion
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The Standard mainly binds client-facing professionals. Team members who never deal with clients are not required to police the disclosures of others.
What must you say about services and costs?
Describe what you will do for the client and, just as important, what you will not do. Then describe the costs the client will pay for the services. Clients can then judge the value before they engage you.
Four points matter for the exam:
- The costs are those the client pays. You need not disclose the firm’s own costs of providing the service.
- You need not give an exact dollar figure. A fee based on assets under management cannot be stated in advance, but you give a reasonable amount of detail.
- Costs include charges that come from affiliates, related entities or third parties used to provide the service, not only your own fee.
- You cannot skip the disclosure because the client is sophisticated. You may tailor it to the client.
Best practice is to put services and costs in writing at the start of the relationship, and to update them promptly when they change.
What must you say about the investment process?
Explain the investment process disclosure : the basic format and general principles you use to analyze investments, select securities and build portfolios. This includes the factors that push a recommendation up or down. If you use outside advisers for part of the assets, tell clients which expertise they bring.
Then keep clients informed. You must promptly disclose material changes that might affect the process, especially newly identified significant risks or limitations. A switch from fundamental stock picking to a screening model is material. A change of junior analyst usually is not.
Which risks and limitations do you disclose?
Outline the significant risks and limitations of the process and of your recommendations. Use of leverage is generally significant. Other examples are counterparty, country, sector, security-specific and credit risk, and the risks of complex instruments.
Limitations include liquidity (the ability to sell on a timely basis at a reasonable cost) and capacity (the amount beyond which new money hurts returns).
Risk disclosure is judged on what you knew when you made it. A loss from a risk you did not know about does not breach V(B), though it may reveal a weakness in diligence under V(A).
How do you handle fact versus opinion in reports?
A report must include the factors that matter so the reader can follow and challenge its reasoning. You may emphasize some areas and skip others if you state the limits of the report’s scope.
You must also keep fact versus opinion apart. Past results are fact. Earnings estimates, dividend outlooks and future prices are opinions about circumstances yet to occur and must be labeled as such. For quantitative work, separate fact from statistical conjecture, state the limits of the projections and discuss the model’s assumptions with clients. Do not oversell a model’s accuracy, because its output is an estimate, not a certainty.
If methodology changes, highlight the change.
Does it matter how you communicate?
No. The Standard applies to every one of the forms of communication : a printed report, a phone call, a broadcast, an email or a social media post. Short formats are allowed, from a one-word “buy” to a stock list, but tell clients that more information and analysis are available. With social media, take reasonable steps so that all clients are treated fairly.
The report presentation itself should keep a record of the research behind it and be ready to supply the omitted factors on request.
Try this 0 of 3
- Fix the whole letter right first time
- Spot the change that needs no notice first time
- Get every case right first time
Case 1 of 4 The quarterly letter
Background: since March, Kestrel Mill Asset Management has picked every stock in its Core Equity strategy with a quantitative screen bought from a data vendor; before that, its analysts chose stocks after visiting the companies. Clients pay Kestrel Mill's 0.85% a year fee plus 0.40% a year in running costs of the in-house funds the strategy holds. Its quarterly letter to clients says: (1) "We manage your portfolio at our discretion and report to you every quarter." (2) "Your total cost is our 0.85% annual fee." (3) "Our process is unchanged: our analysts visit every company before we buy." (4) "Halden Foods' new plant will double its profits next year." (5) "In our view, interest rates are likely to fall later this year. This is a forecast, not a promise." (6) "Up to 15% of the portfolio is in smaller companies whose shares can take several days to sell, which can deepen losses in a falling market."
Step 1 of 8 What does this sentence need?
(1) "We manage your portfolio at our discretion and report to you every quarter."
Read the case, then answer each step. 4 cases.
Where do the lines fall?
| Situation | Verdict |
|---|---|
| A manager switches from fundamental stock picking to a quantitative model without telling clients | Violation (material process change) |
| A report says “earnings will grow 15% next year” without labeling it a forecast | Violation (fact vs opinion) |
| An adviser’s fee schedule omits fund-level charges the client also pays | Violation (costs of services) |
| A fund starts using leverage and says so in a client letter before it does | Consistent |
| A short social media post links to the full report with its risks and assumptions | Acceptable |
| A firm hires a new junior analyst and does not announce it | No violation (not a material process change) |
Exam tip Match each flaw in the vignette to its duty. “Unlabeled forecast” is fact vs opinion, “new method” is process change, “missing fee” is costs.
Which procedures help?
- Written descriptions of services and full cost information, given at the start and updated on change.
- Written process descriptions and prompt notices of material changes.
- Standard risk disclosures, including leverage, liquidity and capacity.
- A review step that checks that reports separate fact from opinion.
- Records of the research behind each report (see Standard V(C)), so factors left out can be supplied later.
- If a firm’s own disclosures fall short, supplement them, and if that fails, document your objection and dissociate.
Go deeper Why cost disclosure was added
Clients cannot judge the value of a service without knowing what it costs. Fees buried in funds, affiliates or third-party platforms can reduce returns while staying invisible in the headline fee. The Standard now makes the member responsible for putting those costs in front of the client, whether or not the client asks. It still keeps the load reasonable: no exact dollar figure, and no duty to reveal the firm’s own cost of delivering the service.
Go deeper How much detail counts as basic format and general principles?
Enough for the client to understand how decisions are made and what could go wrong, not enough to reveal proprietary formulas. If a client would be surprised by a change, for example a move from stock selection to a model, or the new use of leverage, it is material and calls for prompt disclosure. Use the client’s knowledge to tailor the language, but never to skip content.
Memorize this
MemorizeStandard V(B): the five duties
| # | Duty | Key detail |
|---|---|---|
| 1 | Services and costs | What you will do (and not do) and the costs the client pays, including affiliates and third parties. No dollar amounts or firm costs needed |
| 2 | Investment process | Basic format and general principles; promptly disclose changes that might materially affect it |
| 3 | Risks and limitations | Significant ones known at the time, such as leverage, liquidity, capacity |
| 4 | Important factors | Use reasonable judgment; include what matters so readers can follow and challenge the reasoning |
| 5 | Fact vs opinion | Label forecasts and estimates as opinion; state model limits |
Memory hook S-P-R-F-F: Services and costs, Process, Risks, Factors, Fact vs opinion. Say what you do, how you do it, what could go wrong, what matters, and what is only a view.
Know it cold Applies to every form of communication, written or spoken. Disclosure is ongoing. A short post is fine if fuller information is available.
- Services and costs Memorize what you provide and what the client pays
- Nature of services including what is not provided
- Costs to the client including affiliates and third parties; no dollar figure needed
-
- Investment process Memorize
- Basic format and general principles
- Material changes disclosed promptly
-
- Risks and limitations Memorize
- Significant risks leverage, counterparty, country, credit
- Limitations liquidity and capacity
-
- Report content Use it
- Important factors by reasonable judgment
- Fact vs opinion forecasts labeled as opinion
-
How it is asked
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Silent process change
A fundamental stock picker moves all selection to a quantitative screen and tells no client. Violation?
Yes, V(B). A material change to the process. Trap: "the fund goal is unchanged".
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Opinion stated as fact
A report says "the new plant will double profits" with no qualification. Which duty is breached?
Distinguish fact from opinion.
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Costs not disclosed
An adviser's fee schedule omits fund-level charges the client also pays. Violation?
Yes, V(B). Costs of services include third-party and fund-level charges.
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Short-form communication
A brief post links to the full report with its risks. Acceptable?
Yes, if fuller information is available. Trap: "short formats are banned".
Exam traps
- Disclosing every personnel change. Only changes that might materially affect the investment process need prompt disclosure.
- Thinking short-form communication is banned. Capsule formats are fine if fuller information is available and clients are told so.
- Forgetting that costs of services must now be disclosed, including those charged by affiliates or third parties.
- Assuming sophisticated clients need less. Disclosure may be tailored to the client, but it cannot be skipped.
- Blaming V(B) when a disclosed risk later causes a loss. Risk disclosure is judged on what was known at the time.
Checkpoint
4 exam-style questions. About 90 seconds each.
1A fund manager who has always chosen stocks through fundamental analysis begins using a third-party quantitative screening model for all selections but does not tell clients. Did the manager violate the Standards?
2An analyst writes, "The company's new plant will double its profits," as a statement of fact in a research report. This most likely violates the requirement to:
3Under Standard V(B), members must disclose to clients and prospective clients:
4An investment adviser's fee letter lists her firm's management fee but not the fees of the funds she places clients in, which clients also pay. Did the adviser violate the Standards?
Key takeaways
- Five duties: services and costs, process and material changes, risks and limitations, important factors, fact vs opinion.
- Disclose costs the client pays, including affiliate and third-party charges. No dollar figure is needed.
- Disclosure is ongoing and covers every form of communication.
- Label forecasts and estimates as opinion, and state a model's limits.
Questions about this lesson?
Where this comes back
- Standard V(C): Record Retention Guidance for Standards I–VII
Questions candidates ask
What does Standard V(B) require members to disclose?
The nature of the services and their cost to the client, the basic format and principles of the investment process and any material change to it, significant risks and limitations, and the important factors behind recommendations. Members must also separate fact from opinion.
What changed in Standard V(B) in the latest revision?
Members must now disclose the nature of the services they provide and the costs to the client of those services, so clients can decide whether to engage them. This covers third-party and affiliate charges, but not the firm's own costs or exact dollar amounts.
Do I need to distinguish fact from opinion in research?
Yes. Earnings estimates, dividend outlooks and price targets are opinions about the future, and reports must say so. For quantitative work, separate fact from statistical conjecture and state the limits of the projections.
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