Level III Core · Code of Ethics and Standards of Professional Conduct

CFA Standard III: Duties to Clients Explained

Updated 9 October 2026 · Fact-checked

Standard III sets what you owe clients: act for their benefit (loyalty, prudence, care), treat all clients fairly, recommend only suitable investments, present performance fairly, and keep client information confidential. To solve a question, find the duty at stake, test the facts against it, then choose the action that protects the client.

Understand Duties to Clients (Standard III)

Standard III has five parts. Each covers a duty you owe the people whose money or trust you hold. Think of it as the client-facing half of the Code: the Standards of Professional Conduct require you to put the client first.

III(A) Loyalty, Prudence and Care. You owe clients a duty of loyalty and must act with the care and prudence a reasonable person would use. You place client interests before your employer's and your own. Where a fiduciary duty exists, you must follow it. You should determine whether voting proxies is in the client's best interests and weigh the cost of voting against the benefit. Where the cost outweighs the benefit, not voting can be justified. Client brokerage must be used only for goods and services that benefit clients, and you must disclose soft dollar practices to clients. Using client brokerage for the manager's own benefit is a violation.

III(B) Fair Dealing. You must deal fairly and objectively with all clients when giving investment analysis, making recommendations, taking action or engaging in other professional activities. Fair does not mean equal. Different service levels are allowed if disclosed and not disadvantaging others. In a limited offering, allocate fairly and pro rata, not to favoured clients.

III(C) Suitability. Before advising or acting, collect the client's objectives, constraints, risk tolerance and circumstances, and record them in an investment policy statement. Judge each investment in the context of the whole portfolio. Update the information regularly. For a mandate, follow it. If a client insists on something unsuitable, update the IPS and risk assessment, explain the risk, and document it. Act on the instruction only if it is consistent with the revised IPS and the mandate and firm policy permits it. Otherwise, decline.

III(D) Performance Presentation requires fair, accurate and complete presentation. III(E) Preservation of Confidentiality requires keeping client information confidential, including information about former clients. Disclosure is permitted only where the law requires it, the client permits it, or the information concerns illegal activity by the client. Where the information concerns illegal activity by the client, disclosure is permitted, not required, and is limited to the extent necessary. The exact legal wording varies by country, so follow the Code and the stated rule.

Key rules to remember

III(A) Loyalty, Prudence and Care: Client interests first > employer interests > own interests; Act with the care of a prudent person; fiduciary duty where it applies. Client brokerage only for goods and services that benefit clients.
III(B) Fair Dealing: Fair ≠ equal; disclose service levels; allocate limited offerings pro rata; Disseminate changes in recommendations to all clients fairly and in a timely way.
III(C) Suitability: Know client (IPS) → judge in portfolio context → update regularly; Gather objectives, constraints, risk tolerance; follow mandates.
III(D) Performance Presentation: Fair + accurate + complete; Do not misstate past performance or promise future results; GIPS compliance claims must follow GIPS.
III(E) Confidentiality exceptions: Disclosure permitted only if: law requires it, client permits it, or the information concerns illegal activity by the client (disclosure limited to what is necessary); Otherwise keep client information confidential, including former clients. Disclosure of illegal activity is permitted, not required.

How to solve Duties to Clients (Standard III) questions

Use this method for any Standard III vignette or essay.

1Read the question and mark the command word (identify, determine, justify, recommend).
2Identify the client relationship and who the clients are (individual, plan beneficiaries, fund investors).
3Match the facts to III(A) to III(E). Many cases touch more than one.
4Test the facts against the exact rule: whose interest was put first, who was treated differently, what was known about the client, was the information accurate, was there a permitted exception.
5Decide whether there is a violation and name the standard.
6State the corrective action: disclose, reallocate, update the IPS, correct the presentation, or stop disclosing.
7Justify in one or two sentences tied to the client's interest.

Quickest way: Five-trigger scan

When to use it: Use when time is short in an item set with four multiple-choice questions on Standard III.

Look for a trigger word: benefit/loyalty, same time/allocation, risk tolerance/IPS, returns/track record, private information.
Map it: loyalty or care to III(A), unequal treatment to III(B), client profile to III(C), numbers to III(D), secrecy to III(E).
Eliminate options that favour employer, self or one client group.
Choose the option that protects the client and follows the stated rule exactly.

Common mistakes in Duties to Clients (Standard III)

Treating fair dealing as equal treatment of every client.
The word 'fair' sounds like 'identical'.
Fix: Different service levels are allowed if disclosed and they do not disadvantage other clients. What is not allowed is favouring one client in distributing recommendations or allocations.
Judging suitability one security at a time.
Students check whether the stock is risky and stop.
Fix: Assess the investment within the whole portfolio against the IPS, including return objectives, risk and constraints.
Letting the employer's interest outrank the client's under III(A).
Loyalty to the employer is also taught under Standard IV.
Fix: Under the Code, client interests come before employer interests. Use Standard IV for the employer duties that remain.
Disclosing confidential information to a supervisor or colleague without need.
It feels harmless inside the firm.
Fix: Share client information only with those who need it for the service and keep it within the permitted exceptions.
Thinking illegal activity must always be reported to authorities.
The exception for illegal activity is read as a duty.
Fix: The Code permits disclosure of illegal activity by the client, limited to what is necessary. Follow applicable law, and consult compliance or counsel first.
Presenting only a flattering period of performance.
Candidates assume accuracy only means correct arithmetic.
Fix: III(D) needs fair, accurate and complete presentation, so omitting relevant periods or cherry-picking accounts misleads.

Worked examples

Example 1

A portfolio manager receives a limited allocation of shares in an oversubscribed new issue. Fifteen clients have asked for shares. The manager gives the whole allocation to two clients who generate the highest fees. Identify the Standard violated and the correct action.

Show the solution

Facts: limited offering, several clients with the same interest, allocation tilted by fee income.
Relevant duty: fair dealing, because clients must be treated fairly in actions taken.
Test: allocation by fee level favours some clients over others without a fair basis.
Correct action: determine each eligible client's suitability, and allocate pro rata, or by a disclosed and fair policy, to all clients for whom the issue is suitable.

Answer: The manager violated Standard III(B) Fair Dealing. The shares should be allocated fairly, pro rata among suitable clients, not by fee generation.

Example 2

An adviser has an investment policy statement showing that a retired client needs stable income and has low risk tolerance. The client asks to put 60% of the portfolio into a single highly volatile technology stock. The adviser's last IPS update was five years ago. What should the adviser do under the Code?

Show the solution

Identify the duty: suitability, III(C), with a link to III(A) for care.
Observe that the information is stale. The adviser must update the client's profile regularly and when circumstances change.
Compare the request with the known profile: a concentrated, volatile position conflicts with low risk tolerance and income need, judged in the context of the whole portfolio.
Note that this is a client-initiated request, not an adviser recommendation. The adviser must not recommend the position if it is unsuitable.
Act: update the IPS and risk assessment, explain the concentration risk to the client, and document the discussion.
Act on the instruction only if it is consistent with the revised IPS and the mandate and firm policy permits it. If it is not, decline.

Answer: The adviser should update the IPS and risk assessment, explain the concentration risk, and document it. The adviser should not recommend the position. The adviser may act on the client's instruction only if it is consistent with the revised IPS and the mandate and firm policy permits it. Otherwise, the adviser declines.

Exam tips

Name the exact sub-standard in constructed response answers, for example III(C), then give the action in one sentence.
When asked to 'justify', link the rule to the facts: the client's stated objective, who was favoured, or what was missing.
In item sets, wrong options often favour the employer or one client. Eliminate those first.
Remember that III(E) has exceptions. Do not answer 'never disclose' where the law requires it or the client permits it.
There is no penalty for wrong answers, so answer every item.

Duties to Clients (Standard III) in other exams

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

Duties to Clients (Standard III): frequently asked questions

What is the difference between loyalty, prudence and care under Standard III(A)?

Loyalty means putting client interests ahead of your own and your employer's. Prudence and care mean acting as a reasonable, careful person would when managing the client's affairs. In practice, you meet both by acting for the client's benefit and with competence.

What does Standard III(C) suitability require?

You must know the client's objectives, constraints and risk tolerance, record them in an IPS, and judge each investment in the context of the total portfolio. You should update this information regularly. Where a mandate exists, you follow it.

Can I give some clients better service under fair dealing III(B)?

Yes, if you disclose the different service levels and they do not disadvantage other clients. Fair dealing does not require identical treatment. It prohibits favouring clients in recommendations, trade allocations or information distribution.

What are the exceptions to confidentiality under III(E)?

You may disclose client information when the law requires it, when the client permits it, or when it concerns illegal activity by the client. Disclosure of illegal activity is permitted, not required, and is limited to what is necessary. Outside these cases, keep client information confidential, including after the relationship ends.