Standard I(C): Misrepresentation

What does Standard I(C) require?

Misrepresentation is any knowing false or misleading statement about your analysis, recommendations, actions, qualifications or services. The Standard covers written, oral and electronic messages, including social media , and also what you leave out.

Memorize

• Do not make statements you know are false or misleading, or that you should know are.
• Do not omit a fact that makes the message misleading (an omission ).
• Do not guarantee returns on investments that are inherently uncertain (a guarantee of performance ). You may describe a product with a real guarantee accurately: say who guarantees what.
• Do not present others’ work as your own (plagiarism ).
• Using your firm’s research under the firm’s name is fine.

Misrepresentationany knowing false or misleading message

• False or misleading statements Memorize any form, including social media
  • About analysis and recommendations certainty that is not there
  • About qualifications and services experience, degrees, services no longer offered
• Omissions Memorize leaving out a fact that misleads
• Investment performance Use it comparable benchmark, consistent pricing, no cherry-picking, no implied past returns
• Communication quality Use it every message and model
  • Accurate, timely, complete and in plain language
  • Models broad range of assumptions, not one rosy case
  • Third-party information your responsibility once incorporated
• Guarantees Memorize banned on uncertain returns; real guarantees may be described accurately
• Plagiarism Memorize presenting others' work as your own
  • Copied or lightly reworded text credit it
  • Unsourced charts, forecasts, quotes name the source
  • Others' spreadsheets or models get permission
  • Allowed without credit common data, and the firm's own work

How should you communicate, model and report performance?

The Handbook sets a standard for the messages themselves. Each one should be:

• accurate: the facts and figures are correct;
• timely: current, not out of date;
• complete: no material fact left out;
• in plain language : clear to the reader it is aimed at.

Four more points:

• Models. Use a broad range of assumptions, from very positive to extremely negative, not a single favorable case.
• Third-party information . Once you incorporate it into your work, it becomes your responsibility.
• Past returns. Do not state or imply that clients will achieve a past rate of return.
• Investment performance. Cherry-picking accounts, showing only the best ones, misrepresents the performance history.

Where are the lines?

Situation	Verdict
A brochure says a bond fund “cannot lose money”	Violation: a guarantee on an uncertain return
An analyst pastes a broker’s industry analysis into a report without credit	Violation: plagiarism
An analyst cites a well-known economist’s forecast and names the source	Fine
A firm presents a former employee’s model, under the firm’s name, with updates	Fine: work for the employer
A website lists services the firm no longer offers	Violation unless updated; keep web pages current
A manager’s bio overstates years of experience	Violation
A social media post implies a forecast is a certainty	Violation
Marketing material contains an unintentional error, and the firm stops using it and tells recipients	Not a violation; correct it
A manager switches the pricing source for an illiquid bond only because the new source shows a higher value	Violation: shopping for values misstates worth and can inflate fees
A firm describes an outside manager’s strategy as its own process	Violation: disclose the use of external managers
A model’s projected return is shown as a fact, with key inputs left out	Violation: model outputs are expectations, not facts
Returns are shown against a benchmark that does not match the strategy, with no explanation	Misleading; pick a comparable benchmark or explain the reference index used

Exam tip Ask whether a reasonable reader would be misled about what you did, what you know or what you can promise. If yes, it is I(C).

How do you avoid plagiarism?

Attribute anything that is not recognized, common data. That includes direct quotations, paraphrases and summaries, projections, tables, charts, statistics, model ideas and methods prepared by others. You may use and redistribute third-party research, but you must not represent yourself as its author, and you should say where it came from, so clients know who did the work. Use of attribution is the fix: name the source and keep a copy of it.

Work completed for employer is the exception. Research and models built while employed are the firm’s property. The firm may keep using them and issue them without crediting the analyst who left. A member cannot, however, take a previously released firm report and reissue it solely under his or her own name.

Compliance practices

• Factual presentations. Understand the limits of what you and your firm can do. Firms should list available services and the firm’s qualifications, and say who may speak for the firm.
• Qualification summary . Prepare a written summary of your own qualifications and experience, and of the services you can perform.
• Verify outside information. Check third-party material you pass to clients, because once you incorporate it, its accuracy is your responsibility.
• Keep web pages current. Review posted material regularly so it is accurate and secure.
• Plagiarism policy. Keep copies of sources, attribute quotations, and attribute summaries.
• Monitor online content. Review what you and your firm post online, social media included, so that it stays accurate and current.

Go deeper Omissions can mislead as much as lies

A statement can be true word by word and still mislead. Suppose a pitch book shows the returns of the five best accounts a manager runs in a strategy and leaves out the other twelve. Every figure is accurate, yet the reader comes away with a false picture of the manager’s skill. That is cherry-picking, and the composite rules in III(D) exist to stop it. The same goes for a screening model run with an awkward input quietly dropped: the output looks precise but rests on a gap the reader cannot see. The question to ask of any message is what a reasonable reader would conclude from it, including from what is missing.

Go deeper Errors, third-party data and models

If you discover that something you issued was wrong, and the error was unintentional, you did not violate I(C) by making it, but you must stop distributing it and correct it with the people who received it. If you keep using material you should have known was wrong, for example a biography that overstates your degree, you are no longer making an innocent mistake. The same care applies to models and data you borrow: verify them before relying on them, which links to V(A) Diligence and Reasonable Basis.