5. Review employee actions to ensure compliance and identify violators, initiating procedures once a violation has occurred. A supervisor should respond promptly to the violation by conducting a thorough investigation, and placing limitations on the wrongdoer until the investigation is complete.

　　2-IV.: Standards of Professional Conduct: IV. Relationships with and Responsibilities to Clients and Prospects

　　A.: The Investment Process

　　IV(A.1) Reasonable Basis and Representations. Members shall:

　　a. Exercise diligence and thoroughness in making investment recommendations or in taking investment actions.

　　b. Have a reasonable and adequate basis, supported by appropriate research and investigation, for such recommendations or actions.

　　c. Make reasonable and diligent efforts to avoid any material misrepresentation in any research report or investment recommendation.

　　d. Maintain appropriate records to support the reasonableness of such recommendations or actions.

　　Compliance:

　　1. Analyze the investment’s basic characteristics (records must show the characteristics of the investment and the basis for the recommendation).

　　2. Analyze the needs of the portfolio (includes the client’s needs, as well as the needs of the total portfolio).

　　3. Maintain files to support investment recommendations.

　　IV(A.2) Research Reports. Members shall:

　　a. Use reasonable judgment regarding the inclusion or exclusion of relevant factors in research reports.

　　b. Distinguish between facts and opinions in research reports.

　　c. Indicate the basic characteristics of the investment involved when preparing for public distribution a research report that is not directly related to a specific portfolio or client.

　　Compliance: Members should consider including the following information in research reports:

　　1. Expected annual rates of return, calculated on a total return basis.

　　2. Annual income expectations.

　　3. Current rate of return or yield.

　　4. The degree of uncertainty associated with the cash flows, and other risk factors.

　　5. The investment’s marketability or liquidity.