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CFA Level II · CFA Level II Exam

Guidance for Standard III: Duties to Clients

Standard III sets out what you owe clients: loyalty, prudence and care (A), fair dealing (B), suitability (C), accurate performance presentation (D) and confidentiality (E). In an item set, find the facts, name the Standard breached or met, and pick the action that puts client interests first.

What this chapter covers

Standard III: Duties to Clients has five parts. III(A) Loyalty, Prudence, and Care covers acting in the client's best interest, fiduciary duty, voting proxies and soft commissions. III(B) Fair Dealing covers treating clients fairly when you distribute recommendations or take investment action. III(C) Suitability covers matching advice to a client's needs, objectives and constraints. III(D) Performance Presentation covers fair, accurate and complete performance reporting. III(E) Preservation of Confidentiality covers keeping client information private, with defined exceptions.

This chapter sits inside the Ethical and Professional Standards topic, which carries a topic weight of 10-15%. At Level II, questions come inside item sets. You read a vignette about an analyst, a firm or a client. Each item set has four questions, and each question has three answer options. They ask whether a Standard was violated, which one, and what the person should do.

The chapter links to other parts of the paper. Suitability ties to Portfolio Construction, where the investment policy statement sets client objectives and constraints. Performance Presentation ties to performance measurement and to the GIPS material. Loyalty and Fair Dealing often overlap with Standard VI on conflicts of interest, and Confidentiality overlaps with Standard I on legal compliance. You need to see which Standard fits best.

Ethics has a topic weight of 10-15%, and there is no minimum passing score per topic, so strong ethics marks can offset weaker areas when you aim for the 2600 Minimum Passing Score. Standard III is a large share of the Standards because client situations are where most vignettes are set. These questions reward careful reading and exact knowledge of each Standard, not calculation, so steady practice turns them into reliable marks.

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

  1. 1Loyalty, Prudence, and Care (Standard III(A))It sets the core idea of putting clients first, which every later Standard in this chapter builds on.
  2. 2Fair Dealing (Standard III(B))It extends client-first thinking to how you treat several clients at once, so it follows naturally after III(A).
  3. 3Suitability (Standard III(C))It needs the client-first base and links to the investment policy statement, so it comes once the duties are clear.
  4. 4Performance Presentation (Standard III(D))It is shorter and more rule-based, and it is easier to learn after you know the broader duties to clients.
  5. 5Preservation of Confidentiality (Standard III(E))It is a compact standard with a few exceptions, ideal to finish on and to contrast with the duties before it.

How to prepare Guidance for Standard III: Duties to Clients

Learn each Standard in the same structure, then train on vignettes. The goal is to name the Standard and the right action quickly.

  1. Read the text of each Standard in your own words. Write one line on what it requires and one line on what it does not.
  2. Learn the key conditions and exceptions: who the client is, when suitability must be reviewed, and when confidentiality may be broken.
  3. For each Standard, list three or four typical violations, such as favouring one client in a recommendation, or showing cherry-picked returns.
  4. Practise item sets. Underline the facts in the vignette first, then decide which Standard applies before you read the options.
  5. Check every wrong answer. Write down which Standard you should have named and which detail in the vignette pointed to it.
  6. Mix Standard III items with Standards I, II and VI so you learn to separate overlapping Standards.
  7. In the last week, review your one-line notes and redo only the item sets you got wrong.

Common mistakes in Guidance for Standard III: Duties to Clients

  • Naming the wrong Standard because several seem to fit.

    Fix: Ask what the core wrong is: ignoring client interest (III(A)), unequal treatment of clients (III(B)), or an undisclosed conflict (VI). Choose the closest fit.

  • Treating fair dealing as equal treatment.

    Fix: Remember that different service levels can be fine if disclosed and not unfairly disadvantaging others. The concern is unfair treatment, not unequal results.

  • Judging suitability on one security alone.

    Fix: Judge it against the client's whole portfolio, objectives, constraints and risk tolerance, and check that this information is up to date.

  • Breaking confidentiality too easily, or not at all.

    Fix: Learn the exceptions: client permission, legal requirement, or information concerning illegal activity by the client. Outside these, keep the information private.

  • Choosing an answer that is right in spirit but does not fix the breach.

    Fix: Pick the action the Standards actually require, such as correcting the record, disclosing, or updating the client's profile, and avoid vague options.

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

  • III(A): act for the benefit of clients and place their interests before your employer's and your own.
  • Duty of loyalty, prudence and care applies to the client's interests, and a fiduciary standard may apply under the relevant law.
  • Vote proxies and use client brokerage only in ways that benefit the client.
  • III(B): treat clients fairly when disseminating recommendations and when taking investment action.
  • Fair dealing does not mean equal results for all clients; it means no group is unfairly disadvantaged.
  • III(C): gather client objectives, constraints and circumstances before advising, and update them regularly.
  • Suitability applies to the client's whole portfolio, not only a single security.
  • III(D): present performance that is fair, accurate and complete.
  • III(E): keep client information confidential unless the information concerns illegal activity by the client, disclosure is required by law, or the client permits disclosure.
  • In every item set, name the Standard first, then choose the action that fixes the breach and protects the client.

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

How many Standards are in Standard III?

Five: III(A) Loyalty, Prudence, and Care, III(B) Fair Dealing, III(C) Suitability, III(D) Performance Presentation and III(E) Preservation of Confidentiality. Each covers a different duty owed to clients.

How is Standard III tested at Level II?

It appears in item sets. You read a vignette with a scenario and answer four questions, each with three answer options, usually about which Standard applies, whether it was violated, and what action is appropriate.

Is there a penalty for wrong answers in ethics questions?

No. There is no penalty for wrong answers, so answer every question. Use the vignette facts to eliminate options before you guess.

In what order should I study Standard III?

Start with Loyalty, Prudence, and Care, then Fair Dealing, Suitability, Performance Presentation and Confidentiality. This moves from the broad client-first duty to the narrower rules.