"morality" exercise:Ethics of the US Food and Drug Administration

C is correct because if recommendations are contained in capsule form (such as a recommended stock list), members and candidates should notify clients that additional information and analysis are available from the producer of the report as required by Standard V(B)–Communication with Clients and Prospective Clients. In this case, a clear statement on the website that more information is available upon request would be required. 

A is incorrect because Moab’s plans for the social media recommendations do not violate Standard V(B)–Communication with Clients and Prospective Clients, so it does not need to describe the investment system in detail. The recommendation outlines the basic process and logic of Red’s investment approach and is sufficient enough for clients to understand its limitations or inherent risks.

 B is incorrect because according to Standard V(B)–Communication with Clients and Prospective Clients, the member or candidate must keep clients and other interested parties informed on an ongoing basis about changes to the investment process, and an annual update may not be sufficient.

A is correct because composites must be defined according to similar investment objectives and/or strategies. Terminated portfolios must be included in the historical returns of appropriate composites while only fee-paying portfolios are to be included in composites. Non-discretionary portfolios must not be included in a firm’s composites.

 B is incorrect because only fee-paying portfolios are to be included in composites. 

C is incorrect because composites are required to be made up of portfolios with similar investment objectives and/or strategies.