CFA Level I Exam · Guidance for Standard III: Duties to Clients

Fair Dealing Under Standard III(B) for CFA Level I

Updated 7 October 2026 · Fact-checked

Standard III(B) Fair Dealing requires you to deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities. Fair does not mean equal. You must not disadvantage clients through timing, allocation or selective disclosure. Disclose and follow consistent, documented policies.

Understand Fair Dealing

The official text of Standard III(B) reads: "Members and Candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities."

The key idea is fairness, not identical treatment. Clients differ in size, mandate, constraints and the service level they pay for. You may offer different levels of service if you disclose them and make them available to all clients at the stated terms. What you cannot do is favour one client at the expense of another, for example by giving a favoured client the best fills or an early look at a change in view.

The standard covers two main areas, and its guidance also expects firms to disclose their policies to clients. First, investment recommendations: when you issue a recommendation or change one, you should make clients aware of it at about the same time. Do not let some clients act on new information while others are kept waiting. Distribute broadly, and consider separate communication for clients whose holdings or portfolios are affected by the change, while still disseminating to all at about the same time. Firms should limit who sees a recommendation before release and use fair distribution procedures.

Second, investment action: when you trade for several accounts, allocate fairly. Trades should be allocated by a written, consistent policy, such as pro rata by order size, not by performance of the account or the fee it pays. For oversubscribed new issues (IPOs), allocate on a fair basis across suitable clients, and do not give shares to favoured accounts or your own account first. For block trades, document the intended allocation before the order is placed. Any later change must be fair to all clients, and you should not reallocate after you see how the price moves.

Other points: you may treat accounts differently where the mandate requires (for example, a client with a restriction), and a fee-based account and a commission account may get different service if disclosed. Firms should disclose their recommendation dissemination and trade allocation policies to clients. Fair dealing is about a fair, documented, consistent process rather than identical outcomes.

Key formulas to remember

Standard III(B) wording: Deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities; Fair and objective, not identical. The exam tests whether an action disadvantages some clients.
Recommendation rule: Disseminate recommendations and changes to all clients at about the same time; Avoid selective early access. Limit pre-release circulation and document distribution.
Trade allocation rule: Allocate by a written, consistent policy (e.g. pro rata) decided before the trade; Do not allocate based on account performance, fees or favouritism, and do not reallocate after seeing results.
Differing service: Different service levels are acceptable if disclosed and available to all at the stated terms; Disclosure and equal availability separate legitimate tiers from preferential treatment.

How to solve Fair Dealing questions

Use this sequence for any fair dealing question.

1Identify the activity: recommendation, change in recommendation, trade allocation, IPO allocation, or service level.
2Ask who benefits and who is disadvantaged. Are some clients getting information or fills earlier or better than others?
3Check for a written, consistent, disclosed policy that was set before the event.
4Look for improper drivers: fee size, account performance, personal relationship, or the member's own interest.
5Decide whether differences are justified by mandate, constraints or disclosed service tiers.
6Pick the option that treats clients fairly through a consistent process, or that corrects the unfair practice (for example, notifying all clients), and name III(B).

Quickest way: Same time, same rules, set in advance

When to use it: Use when a three-option question describes a manager or analyst dealing with several clients and you have about 90 seconds.

Spot the trigger words: allocate, IPO, block trade, changed recommendation, favoured client.
Eliminate any option that gives a client early access or better allocation because of fees, performance or relationship.
Eliminate any option that ignores a client with a relevant interest in the change.
Choose the option with a consistent, pre-set, disclosed process, or broad simultaneous communication.

Common mistakes in Fair Dealing

Thinking fair dealing means treating all clients identically.
The word fair is read as equal.
Fix: Remember that differing mandates and disclosed service tiers are allowed. What is banned is disadvantaging clients unfairly.
Allocating a hot IPO to the largest fee-paying or best-performing accounts.
It feels like rewarding good clients.
Fix: Allocate on a fair, pre-set basis across suitable accounts, such as pro rata. Do not use fees or performance.
Phoning key clients first with a changed recommendation.
Relationship management seems harmless.
Fix: Distribute the change to all clients at about the same time, using a broad channel.
Deciding block trade allocations after seeing how the price moved.
Candidates overlook timing.
Fix: Allocation should follow a policy set before or at the time of the order, not be chosen after the result is known.
Confusing III(B) with III(C) Suitability or II(A) MNPI.
Several client-related standards share facts.
Fix: If the issue is comparing treatment between clients, choose III(B). Suitability concerns one client's profile; II(A) concerns material nonpublic information.

Worked examples

Example 1

An investment manager changes her rating on a stock from Buy to Sell. She emails her three largest clients immediately and plans to post the change to all other clients the next week. Does she violate Standard III(B)?

Show the solution

The activity is a change in a recommendation.
Standard III(B) requires dealing fairly with all clients, which includes giving them the change at about the same time.
Her largest clients can act on the change a week before others, which disadvantages the other clients.
The size of the clients does not justify delayed notice.

Answer: Yes. She violated III(B) by giving some clients earlier access to the change. She should disseminate it to all clients at about the same time.

Example 2

A manager receives 10,000 shares of an oversubscribed IPO to allocate among six suitable client accounts. Account A requested 16,000 shares and pays the highest fee. The other five accounts requested a combined 24,000 shares, so total requests were 40,000 shares. What allocation to Account A is consistent with Standard III(B) using a pro rata policy set in advance?

Show the solution

Pro rata means each account receives shares in proportion to the shares it requested.
Total requests = 16,000 + 24,000 = 40,000 shares.
Allocation ratio = 10,000 ÷ 40,000 = 25%.
Account A receives 16,000 × 25% = 4,000 shares.
Fee level plays no part in the allocation.

Answer: Account A receives 4,000 shares. Giving it more because of its fee would breach III(B).

Exam tips

Look for the unfair driver: fees, performance, relationship, or the manager's own account.
Remember that disclosed, available service tiers and mandate-driven differences are acceptable.
For recommendations, the best answer usually spreads information broadly at about the same time.
Prefer answers that mention a written allocation policy, pro rata where relevant.
Check the question does not instead test III(C), II(A) or VI(B) before you commit.

Practice questions from Guidance for Standard III: Duties to Clients

Fair Dealing in other exams

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

Fair Dealing: frequently asked questions

What does Standard III(B) Fair Dealing require?

You must deal fairly and objectively with all clients when providing analysis, making recommendations, taking investment action or engaging in other professional activities. You should not favour some clients over others. Policies should be consistent and documented.

Is fair dealing the same as preferential treatment?

No. Preferential treatment disadvantages some clients, for example by early access or better allocation. Different service levels are allowed if they are disclosed and available to all clients at the stated terms.

How should trades be allocated across client accounts?

Use a written policy decided before the trade, such as pro rata by order size. Do not allocate based on fees, account performance or personal ties, and do not decide after seeing price moves.

Does fair dealing apply to IPO allocations?

Yes. Oversubscribed new issues should be allocated fairly among suitable clients. Do not favour the firm's own account or certain clients.