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CFA Level I · CFA Level I Exam

Guidance for Standard III: Duties to Clients

Standard III sets out what you owe clients: III(A) Loyalty, Prudence, and Care; III(B) Fair Dealing; III(C) Suitability; III(D) Performance Presentation; and III(E) Preservation of Confidentiality. To solve questions, find whose interest is at stake, name the Standard, then pick the action that puts the client first.

What this chapter covers

This chapter covers the five parts of Standard III. Each part describes a duty to clients and prospective clients. Loyalty, Prudence, and Care asks you to act for the client's benefit and to put client interests before your employer's and your own. Fair Dealing asks you to treat all clients fairly when you share recommendations or take investment action. Suitability asks you to match advice to the client's needs and circumstances. Performance Presentation asks for fair, accurate and complete performance reports. Preservation of Confidentiality asks you to protect client information, with a few limited exceptions.

The chapter sits inside Ethical and Professional Standards, a topic that CFA Institute weights at 10-15% of the Level I exam. Standard III links closely to Standard I (Professionalism), Standard V (Investment Analysis, Recommendations, and Actions) and Standard VI (Conflicts of Interest). A single question often touches two Standards, so you need to see how they overlap.

The chapter also connects to Portfolio Construction, where the investment policy statement (IPS) records client objectives, constraints and risk tolerance. That is the document behind Suitability. The reasoning here is applied judgment, not memorized numbers. Every question is a standalone three-option item, so you must choose the best action among three.

Ethics is one of the heaviest topics on the exam, and Standard III is the part that deals with clients, which is where most case-style situations occur. The questions need no calculator, so they are a good place to gain marks with careful reading. There is no penalty for a wrong answer, so you should always answer, and good Standards knowledge lets you remove two options quickly and save time for numerical topics. Because the same ethical reasoning also helps with Standards I, V and VI, time spent here pays off across the whole topic.

Guidance for Standard III: Duties to Clients: topics in the order to study them

  1. 1Loyalty, Prudence, and CareIt is the base duty. Fiduciary thinking, client-first behavior and the care standard run through the other four Standards.
  2. 2Fair DealingIt builds on loyalty by asking how to treat many clients equally when you issue recommendations or trade.
  3. 3SuitabilityIt is practical and often applied in scenarios, so study it once you understand duty and fairness. It links to the IPS.
  4. 4Performance PresentationIt is narrower and rule-based, so it is easier to learn after the client-duty Standards. The theme is fair, accurate and complete reporting.
  5. 5Preservation of ConfidentialityIt ends the chapter because the idea is simple, but the exceptions (illegal activity by the client, legal requirement, client permission) need careful recall.

How to prepare Guidance for Standard III: Duties to Clients

Standard III is tested through short scenarios, so you need to learn the wording of each Standard and then practise applying it. Work in this order.

  1. Read the text of each Standard in the official Code and Standards and note its main duty in one line.
  2. Read the Guidance for each Standard and note the recommended compliance actions. Many correct answers come from these.
  3. For each Standard, write two examples of a violation and two of correct conduct, in your own words.
  4. Make a short comparison of look-alike pairs: Fair Dealing versus Suitability, Loyalty versus Conflicts of Interest, and Standard III(E) Preservation of Confidentiality versus Standard I(A) Knowledge of the Law.
  5. Do scenario questions in blocks of 10 to 15. For each, name the Standard before you look at the options.
  6. After each block, review the wrong answers and write why the other two options fail. Keep a list of the traps you fall for.
  7. In the last week, reread your one-line notes and redo only the questions you missed.

Common mistakes in Guidance for Standard III: Duties to Clients

  • Treating Fair Dealing as equal treatment of every client in every way

    Fix: Remember that the aim is no unfair disadvantage. Different service levels are allowed if they are disclosed and offered to all on the same terms.

  • Judging suitability by the risk of one security

    Fix: Judge the effect on the whole portfolio, and check it against the client's objectives, constraints and IPS.

  • Breaching confidentiality when you suspect wrongdoing

    Fix: Check which exception actually applies. If the law requires disclosure, you must comply. If the information concerns illegal activities by the client or prospective client, disclosure is permitted, not required, and only where the law allows, to the appropriate authorities and as far as needed. Disclosure is also allowed if the client or prospective client permits it. Suspicion alone is not enough.

  • Mixing up the Standards when a scenario covers two

    Fix: Name the main duty at stake first: a duty to a client points to III, disclosure of a conflict points to VI. Then choose the action that satisfies both.

  • Picking an answer that is merely legal

    Fix: Remember that the Code requires you to follow the stricter of the law and the Code. The best answer is often the stricter action.

  • Accepting performance claims that sound good but omit detail

    Fix: Look for omitted periods, selected accounts or guarantees. The Standard needs reporting that is fair, accurate and complete.

Last-day revision: Guidance for Standard III: Duties to Clients

  • III(A) Loyalty, Prudence, and Care: act for the benefit of clients and place their interests before your employer's or your own.
  • Use reasonable care and prudent judgment, and act in the client's best interest when you manage assets for them.
  • Identify who the client is. In trusts and plans the duty is often owed to the beneficiaries, not just the person who hired you.
  • III(B) Fair Dealing: treat all clients fairly when giving investment advice, making recommendations, taking investment action or in other professional activities.
  • Fair does not mean identical. Different service levels are fine if they are disclosed and do not disadvantage other clients.
  • III(C) Suitability: collect client information, and consider needs and circumstances, objectives and constraints before advice or action.
  • Review the IPS regularly and update client information. Judge suitability for the whole portfolio, not one security in isolation.
  • III(D) Performance Presentation: make reasonable efforts to ensure performance information is fair, accurate and complete.
  • Do not promise or guarantee returns, and do not cherry-pick the best periods or accounts.
  • III(E) Confidentiality: keep information about current, former and prospective clients confidential unless an exception applies.
  • Confidentiality exceptions: (1) the information concerns illegal activities by the client or prospective client, (2) disclosure is required by law, or (3) the client or prospective client permits disclosure.
  • If the law requires disclosure, you must comply. For illegal activities by the client, you may (not must) disclose, where the law permits, to the appropriate authorities and only as far as needed. With client permission, you may disclose what the client has allowed.
  • When two options look similar, choose the one that is client-first and documented.

Guidance for Standard III: Duties to Clients practice questions

Guidance for Standard III: Duties to Clients in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Guidance for Standard III: Duties to Clients: frequently asked questions

What are the five parts of Standard III?

They are III(A) Loyalty, Prudence, and Care, III(B) Fair Dealing, III(C) Suitability, III(D) Performance Presentation and III(E) Preservation of Confidentiality. Together they describe your duties to clients and prospective clients.

Do I need to memorize the exact wording of each Standard?

You should know the wording well enough to recognise it and name the Standard in a scenario. Exact recall is less useful than knowing the duty and its conditions. Read the official text a few times until the key phrases are familiar.

How is Standard III different from Standard VI on conflicts of interest?

Standard III covers what you owe your clients, such as loyalty, fairness and suitability. Standard VI covers disclosure and management of conflicts that could affect your independence. A scenario can involve both, so decide which duty is the main one.

Are there calculations in this chapter?

No. The questions are scenario-based and need no calculator. You are choosing the best action among three options, so practice reading the stem carefully and removing options that break a Standard.