Alexandra Smirnov, CFA, recommends Springwell Pension Fund hire Newday Managers based on meetings, and declines an introduction fee. Which CFA Institute Standard did Smirnov most likely violate?

• A. Referral Fees
• B. Loyalty
• C. Diligence and Reasonable Basis
• D. Disclosure of Conflicts

Answer: (C)

The key idea is that recommendations must rest on a diligent, reasonable basis supported by appropriate analysis. If Smirnov recommends Springwell Pension Fund hire Newday Managers primarily on meetings, with no solid, documented evaluation of the manager’s investment process, track record, risks, fees, and fit with the client’s objectives, there isn’t a sound basis for the advice. Meetings can provide useful qualitative impressions, but they don’t substitute for thorough due diligence and evidence-based judgment. The Standard requires that investment recommendations be grounded in rigorous analysis and verifiable information, not just favorable impressions or convenience.

Declining an introduction fee removes a potential conflict of interest, but it does not excuse the need for proper analysis. Even without per-transaction compensation or referral fees, the adviser must still have a reasonable, well-supported basis for recommending a specific manager.