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A money manager is meeting with a prospect. She gives the client a list of stocks and says, “These are the winners I picked this past year for my clients. Their double-digit returns indicate the type of returns I can earn for you.” The list includes stocks the manager had picked for her clients, and each stock has listed with it an accurately measured return that exceeds 10%. Is this a violation of Standard III(D), Performance Presentation?

A)	Yes, unless the positions listed constitute a complete presentation (i.e., there were no stocks omitted that did not perform in the double digits).

B)	No, because the manager had the historical information in writing.

C)	Yes, because the manager cannot reveal historical returns of recent stock picks.

Standard III(D) requires fair representations concerning past and potential future performance. Unless the list of the “winners” includes all the positions that the firm held, the manager is misrepresenting past performance. The following statement is questionable: “Their double-digit returns indicate the type of returns I can earn for you,” but the action of submitting a partial list is clearly a violation. The manager should have information on past performance in writing.

While it would be customary to report both five-year and ten-year performance data, Seminole Equity Partners has been in existence for only eight years. Because of this, Kurt Dambach does not report ten-year data but reports for both five years and since the inception of the fund. This he notes in a footnote at the bottom of the information sheet. This action is:

A)	in accordance with the Code and Standards since he has indicated the basis in a footnote.

B)	a violation of the Standard concerning prohibition against misrepresentation.

C)	a violation of the Standard concerning performance presentation.

Members who communicate performance information must ensure that the information is fair, accurate, and complete. Seminole Equity’s presentation meets this standard.

A money management firm has created a new junk-bond fund. When the firm advertised the new fund at its issuance, they used care to accurately compute the returns from the past 10 years for all assets in the fund. The firm used the current portfolio weights to determine an average annual historical return equal to 18% and claim an 18% annual historical return in their advertising literature. With respect to Standard III(D), Performance Presentation, this is:

A)	a violation because the advertisement implies the firm generated this return.

B)	in compliance.

C)	a violation because the Standard prohibits computing historical returns on risky assets like junk bonds.

Reporting the historical returns of all assets now in the fund introduces a survivorship bias. Also, the advertisement is misleading because the fund just came into existence and has no historical record. Thus, the firm has misled the public as to their performance history.

Nancy Korthauer, CFA, has launched a new hedge fund called the Korthauer Tautology Fund and is actively soliciting clients from competitor’s firms. Client presentations are necessarily brief and often take place with the prospective client’s current investment advisor in the room. The Code and Standards require that:

A)	a prospective client’s current investment advisor not participate in meetings.

B)	member or candidate provide (on request) additional detail information which supports the abbreviated presentation.

C)	all client presentations provide a thorough review of all elements of the investment management process. Abbreviated presentations are forbidden.

See Standard III(D). When presentations are brief, additional detail which supports the abbreviated presentation information must be provided on request. Best practice dictates that the member or candidate should make reference to the abbreviated nature of the presentation.