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Level III Core · Guidance for Standard III: Duties to Clients

Standard III(A): Loyalty, Prudence, and Care Explained

Updated 8 October 2026 · Fact-checked

Standard III(A) requires you to act for the benefit of your clients and put their interests before your employer's and your own. You must also act with the prudence and care a reasonable person would use. To solve questions, identify the true client, then test every action against client benefit.

Understand Standard III(A): Loyalty, Prudence, and Care

Standard III(A) is the core duty you owe clients. It has three parts. Loyalty: you act for the client's benefit and put their interests ahead of your employer's and your own. Prudence: you act with the judgment a reasonable person would use in similar circumstances. Care: you exercise that judgment diligently and carefully when managing the client's assets and giving advice.

Members and candidates are often fiduciaries. A fiduciary holds a position of trust and must manage assets for someone else's benefit, not their own. Where a legal fiduciary duty exists, you follow it. The Standard applies even when the relationship is not formally a fiduciary one: you still act in the client's interest.

The first step in any question is to identify the client. It may not be the person you meet. For an individual account, the client is the individual. For an investment adviser to a pension plan, the client is usually the plan beneficiaries, not the sponsor's management who hired you. For a trust, it is the beneficiaries. For a fund, it is the fund and its investors, not the sponsoring firm or the manager. The answer changes whom you must be loyal to.

Several practices follow from the duty. Follow the client's written mandate (investment policy), which sets the client's objectives and constraints, and act within it. Vote proxies in the client's interest and keep a reasonable process for doing so. Keep client interests ahead when choosing brokers, so that you seek best execution. Use client brokerage (soft dollars) only for goods and services that benefit the client, and disclose the practice. Disclose conflicts and keep clients informed.

Do not confuse this with Standard I(B). Standard I(B) is about keeping your professional judgment independent and objective, especially from outside influence such as gifts or pressure from issuers. Standard III(A) is about whose interests you serve in your duties to a client. A conflict can breach both, but the question asked decides which rule you cite.

Key rules to remember

Three duties
Loyalty + Prudence + Care
Loyalty: client interests first. Prudence: reasonable-person judgment. Care: diligent, careful handling of the client's affairs.
Priority of interests
Client interests come first, ahead of both the employer's and the member's own interests.
Disclosure and consent help manage conflicts, but you may not harm the client.
Client identification
Client = the party to whom the duty is owed (e.g. beneficiaries, fund investors), not always the person who hired you
Decide this first. If unclear at the start, ask and document the client.
Fiduciary rule
Where a legal fiduciary duty applies, comply with it; the Standard applies in any case
Follow the stricter of the law and the Code and Standards.
III(A) vs I(B)
III(A): whose interests you serve. I(B): keeping your judgment independent and objective.
Cite the standard that matches the facts; some facts breach both.

How to solve Standard III(A): Loyalty, Prudence, and Care questions

Use the same sequence for every Standard III(A) item set or essay. It keeps your answer short and aimed at the points.

  1. 1Read the question command word first (identify, determine, justify, recommend) so you know what to write.
  2. 2Identify the true client: individual, beneficiaries, fund, or plan. Note who hired and who pays you.
  3. 3List the interests in play: client, employer, your own, and any third party.
  4. 4Check each action against client benefit, the mandate, and what a reasonable prudent person would do.
  5. 5Name the standard breached or met: III(A), and I(B) or VI(A) if conflict or independence is the real issue.
  6. 6State the correct action: put client first, follow the mandate, disclose conflicts, seek best execution.
  7. 7Write one short justification tied to the facts, not a general lecture.

Quickest way: Client-first test

When to use it: Use for multiple-choice items where options differ by whose interests are served.

  1. Find the client in the vignette.
  2. Eliminate options that favour the employer, you, or a third party over the client.
  3. Eliminate options that ignore the mandate or lack a reasonable process.
  4. Pick the option that serves the client and, where needed, discloses conflicts.

Common mistakes in Standard III(A): Loyalty, Prudence, and Care

  • Treating the person who hired you as the client

    The contact person pays the fee or gives the instructions, so they seem to be the client.

    Fix: Ask who the duty is owed to. For a plan, trust or fund, it is the beneficiaries or investors.

  • Thinking disclosure alone cures a conflict that harms the client

    Students link conflicts with disclosure under VI(A).

    Fix: Disclosure is needed, but you still cannot place your or the employer's interest above the client's.

  • Mixing up III(A) and I(B)

    Both involve conflicts and pressure.

    Fix: Use III(A) for duty to serve client interests; use I(B) for independence and objectivity of judgment.

  • Following a client instruction that breaches the law or hurts the client without comment

    Students believe loyalty means obeying every instruction.

    Fix: Act within the client's written mandate, but explain risks and do not act unlawfully. Document the discussion.

  • Ignoring best execution and client brokerage

    Students see trading as outside ethics.

    Fix: Choose brokers to benefit the client. Use client brokerage (soft dollars) only for goods and services that benefit the client, and disclose the practice.

  • Writing long general answers

    Students want to show all they know.

    Fix: State the standard, the client, and the action in two or three sentences.

Worked examples

Example 1

An adviser manages a corporate pension plan. The plan sponsor's CFO asks the adviser to buy shares of one of the sponsor's suppliers mainly to help that supplier. The purchase would reduce the plan's diversification. Whom must the adviser serve, and what should the adviser do?

Show the solution
  1. Identify the client: the plan beneficiaries, not the CFO or the sponsor's management.
  2. Check the request: its main purpose is to benefit a third party, and it reduces diversification, so it conflicts with the beneficiaries' interests.
  3. Apply III(A): loyalty and prudence require acting for the beneficiaries.
  4. Action: decline the request unless the purchase is independently prudent and consistent with the investment policy statement; document the request and the reasons.

Answer: The client is the plan beneficiaries. Decline the purchase unless it is independently prudent and consistent with the IPS, as Standard III(A) requires.

Example 2

A portfolio manager can trade through Broker A, which charges higher commissions but gives the manager's firm free research that benefits only the firm, or Broker B, which offers best execution. Which should the manager use, and under which standard?

Show the solution
  1. Identify the client: the account holder whose commissions pay for the trades.
  2. Compare benefits: the research from Broker A benefits the firm, not the client.
  3. Apply III(A): client brokerage must be used for the client's benefit and seek best execution.
  4. Decide: use Broker B unless the research clearly benefits the client and execution is still best.

Answer: Use Broker B. Standard III(A) requires putting the client's interests first, including best execution.

Exam tips

  • Always name the client before anything else; many wrong options fail on this.
  • In essays, give the standard, the client, and the action in few words, matching the command word.
  • If two standards fit, choose the one that matches the facts most directly and mention the other only if asked.
  • Do not assume disclosure or client consent excuses every conflict; check whether the client is still put first.
  • Watch for trap options that follow the employer or a sponsor over the beneficiaries.

Standard III(A): Loyalty, Prudence, and Care in other exams

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

Standard III(A): Loyalty, Prudence, and Care: frequently asked questions

What is fiduciary duty under the CFA Standards?

A fiduciary manages assets for someone else's benefit, not their own. Under Standard III(A), you act in the client's best interest with prudence and care. Where law imposes a fiduciary duty, you comply with it.

How do I identify the client in an ethics question?

Ask to whom the duty is owed. For a pension plan it is the beneficiaries, for a trust the beneficiaries, and for a fund the fund and its investors. The person who hired you may not be the client.

What is the difference between Standard III(A) and Standard I(B)?

Standard III(A) is about placing client interests first and acting prudently and carefully. Standard I(B) is about keeping your professional judgment independent and objective. One conflict can breach both.

Does client consent allow me to put my interests first?

No. Disclosure and consent help manage conflicts, but they do not allow you to harm the client or put your interests ahead of theirs.