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CFA Level III · Level III Core

Guidance for Standard III: Duties to Clients

Standard III sets out what you owe clients: loyalty, prudence and care, fair dealing, suitability, accurate performance presentation and confidentiality. To solve a question, find the client relationship, name the standard that applies, test the facts against its recommended procedures, and choose the action that puts the client first.

What this chapter covers

Standard III is the part of the CFA Institute Code and Standards that deals with your duties to clients. It has five parts: III(A) Loyalty, Prudence, and Care, III(B) Fair Dealing, III(C) Suitability, III(D) Performance Presentation and III(E) Preservation of Confidentiality. Each part has a core duty, guidance on how it applies, and recommended procedures for compliance.

The common thread is that the client comes first. You must act for the client's benefit, treat all clients fairly, give advice that fits each client's circumstances, report results honestly and protect client information. Most questions are short cases. A member or firm does something, and you decide whether a standard is breached and why.

This chapter links to the rest of the paper in two ways. Ethics is a core topic with its own weight, and Standard III cases often sit beside other standards in the same vignette. Suitability also connects to the portfolio management chapters, where you build an investment policy statement from a client's objectives and constraints. If you understand why a recommendation is unsuitable, you understand why the IPS matters.

Ethical and Professional Standards is a core topic with a meaningful share of the Level III topic weight, and Standard III is one of the most frequently applied sets of standards in cases. The questions reward precise reasoning rather than memory alone, so the effort pays off steadily. Ethics can appear in item sets, and an essay may ask you to identify a violation and justify it. There is no penalty for wrong answers, but a clear method lets you earn the 3 points on each item and the constructed response points reliably. The skills carry over to client-focused questions in other topics.

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

  1. 1Standard III(A): Loyalty, Prudence, and CareIt is the base duty. Fair dealing, suitability and confidentiality all build on putting the client first.
  2. 2Standard III(C): SuitabilityIt is heavily tested and links directly to the IPS, so it is worth learning early while the client-first idea is fresh.
  3. 3Standard III(B): Fair DealingOnce you know the duty to each client, you learn how to treat several clients fairly, especially in recommendations and trade allocation.
  4. 4Standard III(E): Preservation of ConfidentialityIt is short and rule-based. Focus on the three exceptions: the information concerns illegal activity by the client, disclosure is required by law, or the client permits disclosure.
  5. 5Standard III(D): Performance PresentationIt is best studied last, because it sits close to GIPS and rewards a careful read of fair, accurate and complete.

How to prepare Guidance for Standard III: Duties to Clients

Treat this chapter as a skill of applying rules to short cases, not as a list to memorise.

  1. Read each standard and write its core duty in one sentence of your own words.
  2. List the recommended procedures under each standard. Cases often test whether a firm's action matches them.
  3. Learn who the client is in each case: an individual, an employer, a fund or a plan beneficiary. The duty changes with the answer.
  4. Practise cases by asking: which standard applies, what did the member do, is there a breach, and what should the member have done.
  5. Write short answers for constructed response practice. Name the standard, state the facts that breach it and give the corrective action.
  6. Mix standards in practice sets. Real vignettes often combine Standard III with other standards, so do not assume only one applies.
  7. Revisit missed cases after a few days and explain the reasoning aloud before you check the answer.

Common mistakes in Guidance for Standard III: Duties to Clients

  • Treating fair dealing as equal treatment of every client

    Fix: Remember that you may offer different service levels if they are disclosed and do not disadvantage other clients. What is banned is unfair preference.

  • Judging suitability on a single security

    Fix: Judge the fit within the whole portfolio and against the IPS objectives and constraints.

  • Naming the wrong client

    Fix: Identify the client first, such as an individual, a trust or a fund, because the duty is owed to that client.

  • Breaking confidentiality too freely, or never

    Fix: Learn all three exceptions together: the information concerns illegal activity by the client, disclosure is required by law, or the client permits it.

  • Choosing a vague answer in essays

    Fix: Answer the command word exactly. Name the standard, give the breaching fact and state the corrective step in as few words as earn the points.

  • Ignoring other standards in the same case

    Fix: Scan the vignette for conflicts of interest, misrepresentation or material nonpublic information, and address every breach asked for.

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

  • Clients come first: act for their benefit, ahead of your employer's and your own interests.
  • Loyalty, prudence and care means acting with the care a prudent person would use, and placing client interests first.
  • Fiduciary duty is not limited to asset management. In each client relationship (for example trustee, adviser or manager), work out whether a legal fiduciary duty exists, and act in the client's best interest. Follow the mandate and the governing documents.
  • Fair dealing means treating clients fairly, not identically. Different service levels are fine if disclosed and not unfair.
  • Disseminate recommendation changes fairly and allocate trades by pre-set, fair procedures.
  • Suitability: gather client objectives and constraints, put them in an IPS, and update them regularly.
  • Check that each recommendation fits the client's whole portfolio, not only the single security.
  • Performance presentation must be fair, accurate and complete. Do not misstate or cherry-pick results.
  • Confidentiality covers client information. Disclose only when the information concerns illegal activity by the client, when disclosure is required by law, or when the client permits it.
  • If you are unsure, pick the answer that protects the client and follows firm procedures.
  • Read who the client is before choosing the standard.

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 what you owe your clients.

How is Standard III tested at Level III?

It appears in ethics item sets and may appear in essay sets. You read a short case, identify whether a standard is violated, and give the reason or the correct action. Each multiple-choice item is worth 3 points.

Is fair dealing the same as treating all clients equally?

No. Fair dealing means you do not favour some clients over others unfairly. You can offer different levels of service if you disclose them and they do not harm other clients.

When may I disclose confidential client information?

You may disclose it when the information concerns illegal activity by the client, when the law requires disclosure, or when the client gives permission. Outside these three cases, you should keep client information confidential.

How does suitability connect to the rest of Level III?

Suitability relies on the client's objectives and constraints, which are the same elements you use to build an investment policy statement. Strong IPS skills in portfolio management help you reason about suitability cases.