Standard V(C) Record Retention
Updated April 2024
CFA Institute
The Standard
Members and candidates must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients.
Guidance
Members and candidates must retain records that substantiate the scope of their research and reasons for their actions or conclusions. The retention requirement applies to decisions to buy or sell a security as well as reviews undertaken that do not lead to a change in position. Which records are required to support recommendations or investment actions depends on the role of the member or candidate in the investment decision-making process.
The following are examples of supporting documentation that assists the member or candidate in meeting the requirements for record retention:
- personal notes from meetings with the covered company,
- press releases or presentations issued by the covered company,
- computer-based model outputs and analyses,
- computer-based model input parameters,
- risk analyses of securities’ impacts on a portfolio,
- selection criteria for external advisers,
- notes from meetings with clients, and
- outside research reports.
Electronic and online formats for gathering and sharing information create challenges in maintaining the appropriate records and files. The nature or format of the information does not remove members’ and candidates’ responsibility to maintain a record of information used in their analysis or communicated to clients.
Examples of electronic or digital formats for records that must be retained include but are not limited to,
- emails,
- text messages,
- blog posts, and
- social media posts.
Records are Property of the Firm
As a general matter, records created as part of members’ and candidates’ professional activity on behalf of their employer are the property of the firm. When members and candidates leave a firm to seek other employment, they cannot take the property of the firm, including original forms or copies of supporting records of their work, to the new employer without the express consent of the previous employer.
Members and candidates must not use historical recommendations or research reports created at a previous firm if the supporting documentation is unavailable. For future use of any work from a previous firm for a new employer, members and candidates must recreate the supporting records at the new firm. However, these new records cannot be recreated from sources obtained at a previous employer without that employer’s permission.
Firm and Regulatory Requirements
Members and candidates must be aware of and understand employer policies and regulatory rules relating to record retention. However, these policies and regulations may lag behind the advent of new communication methods, which places a greater responsibility on the individual for retaining all relevant records.
Local regulators often impose requirements on members, candidates, and their firms related to record retention time frames that members and candidates must follow. Firms may also implement policies detailing the applicable time frame for retaining research and client communication records. Fulfilling such regulatory and firm requirements satisfies the requirements of Standard V(C). In the absence of regulatory guidance or firm policies, CFA Institute recommends maintaining records for at least seven years.
Compliance Practices
The responsibility to maintain records that support investment action generally rests with the firm rather than individuals. Members and candidates should, however, archive research notes and other documents, either electronically or in hard copy, that support their current investment-related communications even if it is not required by the firm. Doing so will assist their firms in complying with requirements for preservation of internal or external records.
Application of the Standard
One of Lindstrom’s clients is upset by the negative investment returns of his equity portfolio. The investment policy statement (IPS) for the client requires that the portfolio manager follow a benchmark-oriented approach. The benchmark for the client includes a 35% investment allocation to the technology sector. The client acknowledges that this allocation was appropriate, but over the past three years, technology stocks have suffered severe losses. The client complains to the investment manager for allocating so much money to this sector.
Outcome: For Lindstrom, having appropriate records is important to show that over the past three years, the portion of technology stocks in the benchmark index was 35%, as called for in the client’s IPS. To comply with Standard V(C), Lindstrom would have been required to retain the client’s IPS stating that the benchmark was appropriate for the client’s investment objectives. He would also have had to keep records indicating that the investment process was explained appropriately to the client and that the IPS was updated on a regular basis. By taking these actions, Lindstrom would have been in compliance with Standard V(C).
Young is a research analyst who writes numerous reports rating companies in the luxury retail industry. His reports are based on a variety of sources, including interviews with company managers, manufacturers, and economists; on-site company visits; customer surveys; and secondary research from analysts covering related industries.
Outcome: Young must document and keep copies of all the information that goes into his reports, including the secondary or third-party research of other analysts. Failure to maintain such files would violate Standard V(C).
Blank develops an analytical model while he is employed by Buku Investment Management, LLP. While at the firm, he systematically documents the assumptions that make up the model and his reasoning behind the assumptions. As a result of the success of his model, Blank is hired as the head of the research department of one of Buku’s competitors. Blank takes copies of the records supporting his model to his new firm.
Outcome: The records created by Blank supporting the research model he developed at Buku are the records of Buku. Taking the documents with him to his new employer without Buku’s permission violates Standard V(C). To use the model in the future, Blank must recreate the records supporting his model at the new firm.
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