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Basic Question 1 of 3

John Smith, an investment manager at a large brokerage firm, is presenting his firm's credentials to a prospective client. The client asks John which portfolios John's firm includes in their composites and how fee-paying portfolios and discretionary portfolios are handled by the firm.

Which statement(s) is (are) incorrect?

I. Only portfolios that pay management fees will be included in the composite.
II. Non-fee-paying portfolios may be included in the composite but special disclosure is required.
III. Non-fee-paying portfolios may be included in the composite but prior permission from CFA Institute is required.
IV. Only portfolios which the firm has discretion over the management of may be included.
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User Contributed Comments 8

User Comment
katybo - Fee-paying
- Discretion
- Non fee-paying / special disclosure
danlan No permission from CFA institute.
stevelaz Correct answer is B?
wuyi The question is asking which statement is not correct!
mjwoulf I and II contradict each other...they can't be be correct.

That is, they can't both be correct.
To-be-CFA Only fee-paying/discretionary portfolios are included in the composite. No fee-paying/non-discretionary portfolios are included by a special disclosure.
raffrobb I was utterly confused until I saw comment pointing out which is INCORRECT!!!
cschulz316 Answer I could be incorrect because non-paying portfolios may be added via special disclosure.
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Learning Outcome Statements

explain the purpose of composites in performance reporting

CFA® 2024 Level I Curriculum, Volume 6, Module 4.