Level III Core · Asset Manager Code of Professional Conduct

Asset Manager Code Disclosures for CFA Level III

Updated 8 October 2026 · Fact-checked

The Asset Manager Code requires managers to give clients and prospects clear, accurate, timely and complete information. This covers fees and compensation, conflicts of interest, the investment process and its risks, and performance and valuation. To solve a question, find the missing or misleading disclosure and name the principle it breaches.

Understand Disclosures: Recommendations and Guidance

The Asset Manager Code of Professional Conduct sets out how a firm should treat clients. Its disclosure provisions rest on one idea: clients cannot decide well, or judge the manager, unless they know the facts that matter. The manager must not hide, blur or delay those facts.

Think of disclosure in four groups. First, who and how: the firm's fees, how it is paid, and any conflicts of interest. Second, what and why: the investment process, strategy, and the risks the client carries. Third, results: performance and how assets are valued. Fourth, ongoing contact: regular and timely communication, including telling clients about material changes and problems.

These four groups are a study aid. They are not the Code's own headings, and the labels used in this guide are our own organisation. Check the Code's own wording in your curriculum text.

Two quality tests apply to every disclosure. It must be accurate and complete, meaning no material fact is left out and nothing is misleading. It must also be understandable, meaning clear to the client in plain language, not buried in legal text. A disclosure that is technically present but unreadable is weak.

Read the vignette for what the manager actually did and test it against the relevant provision. Exam answers usually ask you to spot the breach and say what the manager ought to have disclosed, and to whom.

The Code is a voluntary global standard that sits alongside local law. Managers must comply with applicable law and regulation, and the Code supplements them. Always check the exact wording in your official curriculum text, because the exam tests that wording.

Key rules to remember

Quality test for any disclosure: Truthful + Accurate + Complete + Understandable; Fail any one and the disclosure is deficient, even if some information was given.
Fees and compensation: Disclose how the manager and the firm are paid; Includes fee structure and any performance-based pay. Hidden or unclear charges are a red flag.
Conflicts of interest: Identify, then disclose (or avoid) any conflict that could affect advice or dealing; Disclosure supports informed consent. It does not replace putting the client first.
Investment process and risk: Describe strategy, process and material risks, and any material change; Clients need this to judge suitability and to see if the manager drifts from the mandate.
Performance and valuation: Present performance fairly, with the facts needed to interpret it, and explain valuation methods; Do not cherry-pick periods or omit material facts. GIPS applies where the firm claims compliance with it.
Communication timing: Regular and timely, not only when results are good; Bad news and material breaches are disclosed as promptly as good news.

How to solve Disclosures: Recommendations and Guidance questions

Use this method for any vignette or essay about what a manager should tell clients or prospects.

1Read the question's command word first. 'Identify', 'state' and 'justify' ask for different amounts of writing.
2Find the audience: current client, prospect, or both. The disclosure may differ for each.
3List what the manager actually said or did in the vignette. Mark anything missing, vague, late or one-sided.
4Sort each gap into a group: fees and pay, conflicts, strategy and risk, performance and valuation, or communication.
5Name the breached principle in a few words, such as 'omitted material fact' or 'conflict not disclosed'.
6State the fix: what should be disclosed, to whom, and how (clearly and in time).
7Keep the answer short. Give exactly the number of points asked, in the order asked.

Quickest way: Four-bucket scan

When to use it: Use it on multiple-choice items in an item set when you have under two minutes per question.

Scan the vignette for money, conflict, strategy or results. Each points to one bucket.
Ask: would a reasonable client want to know this before deciding? If yes, it should be disclosed.
Remove options that say disclosure is unnecessary because the client did not ask or because it is legal.
Remove options that disclose only the good news.
If two options remain, choose the one that is more complete, timely and client-protective, then move on.

Common mistakes in Disclosures: Recommendations and Guidance

Treating disclosure as a substitute for acting in the client's interest
Students think a disclosed conflict is automatically fine.
Fix: Disclosure informs the client. The manager must still put client interests first and manage or avoid the conflict.
Disclosing only favourable performance
Marketing habits make selective presentation feel normal.
Fix: Performance must be fair and include material facts. Omitting weak periods or risks is misleading.
Ignoring understandability
Students check only whether information was provided.
Fix: Ask whether the client could understand it. Dense or buried disclosure is deficient.
Disclosing fees but not other pay or conflicts
Fees feel like the only money issue.
Fix: Check for performance-based pay, referral arrangements, soft dollar use and related-party dealings as well.
Saying disclosure is needed only at account opening
Students forget the ongoing duty.
Fix: Communication must be regular and timely. Material changes in strategy, risks or conflicts must be reported as they arise.

Worked examples

Example 1

A manager markets an equity fund to a prospect using a brochure that shows five years of strong returns. The fund's strategy has since shifted from large caps to concentrated small caps, and the brochure does not mention this. Fees are stated in a footnote in small print. Identify two disclosure deficiencies under the Asset Manager Code.

Show the solution

Scan for gaps. The strategy change is missing, and the fee note is hard to read.
Sort the first gap into strategy and risk. A material change in process and its extra risk has not been disclosed, so past returns may mislead the prospect.
Sort the second gap into fees and understandability. Fees are present but not presented clearly.
State the fix for each: disclose the strategy change and its risks, and show fees prominently in plain language.

Answer: (1) Failure to disclose a material change in strategy and its risks, which makes the performance presentation misleading. (2) Fees disclosed in a way that is not clear or understandable. The manager should state the new strategy and risks and present fees prominently.

Example 2

A manager receives a referral arrangement under which a broker sends clients to the firm and the firm routes trades to that broker. The manager tells no client. Which statement is most accurate? A. No disclosure is needed because the trades are executed at market prices. B. The manager should disclose the arrangement because it is a conflict that could affect client interests. C. Disclosure is needed only if a client asks. D. Disclosure is needed only if the arrangement is illegal locally.

Show the solution

Identify the bucket: conflicts of interest. The manager has a reason to favour the broker.
Reject A. Market-price execution does not remove the conflict.
Reject C. Disclosure is not conditional on a client request.
Reject D. The Code applies in addition to local law, so legality is not the test.
Select B. The arrangement could affect trade routing and client interests, so it must be disclosed and managed.

Answer: B. The arrangement is a conflict of interest that should be disclosed to clients, and the manager must still act in clients' interests.

Exam tips

For essay sets, give the breach, then the fix, in one or two lines each. Do not retell the vignette.
Watch the command word. 'Identify' needs a short list. 'Justify' needs a reason tied to the facts.
In item sets, wrong options often say disclosure is optional or can wait. Eliminate those first.
Use the exact wording of the official text where you remember it, but do not invent provisions.
Tie each disclosure back to the client's ability to make an informed decision. That reason earns marks.

Disclosures: Recommendations and Guidance: frequently asked questions

What must asset managers disclose to clients under the Asset Manager Code?

They must disclose material facts about fees and compensation, conflicts of interest, the investment process and risks, and performance and valuation. Information must be clear, accurate, complete and timely. Check the official curriculum text for the exact wording.

Is disclosing a conflict of interest enough?

No. Disclosure lets the client make an informed decision, but the manager must still put client interests first. Where a conflict cannot be managed fairly, avoiding it may be the right step.

Do disclosure duties apply to prospects as well as clients?

Yes. Marketing and presentations to prospects must not mislead. Prospects need accurate information on strategy, risk, fees and performance before they decide.

How is this topic tested at Level III?

Usually as an item set or short essay with a vignette. You spot the missing or misleading disclosure, name the principle, and state what the manager should disclose.