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

Standard III(B) Fair Dealing for CFA Level III

Updated 8 October 2026 · Fact-checked

Standard III(B) requires you to deal fairly and objectively with all clients when you provide investment analysis, make recommendations, take investment action or engage in other professional activities. Fair does not mean equal. To solve questions, find who got different treatment and ask whether there was a legitimate, disclosed reason.

Understand Standard III(B): Fair Dealing

Standard III(B) says you must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities. The key word is fair. It does not mean every client gets identical results or identical service.

The standard has two main areas. The first is dissemination: how you share recommendations and changes in recommendations. If you change a recommendation, for example from buy to sell, clients who hold the security should not be disadvantaged because others heard first. The second is investment action: how you allocate trades, IPO shares and other opportunities across clients.

Different levels of service are allowed. A firm may offer premium clients more frequent reports or more access, if the service levels are disclosed and available to all clients who pay for them, and if they do not disadvantage other clients. What is not allowed is giving one client a better price, an earlier tip or a better allocation because they are bigger, more profitable to you, or a friend.

Fair dealing differs from loyalty, prudence and care under III(A). III(A) is about putting the client's interests first and acting in their best interest. III(B) is about how you treat clients relative to each other. Many exam cases test the second idea: two clients, one benefit, who gets it and why.

Good practice is to have written policies. Allocate trades by pre-set rules, before the trade is placed. Disclose how recommendations are distributed. Limit the number of people who know about a pending change in a recommendation before it is sent to everyone. Do not favour accounts that pay performance fees over accounts that pay fixed fees.

Key rules to remember

Core rule: Fair dealing = fair and objective treatment of all clients ≠ identical treatment; Different service levels are acceptable if disclosed and offered to all, and if no client is disadvantaged.
Dissemination: Recommendation or change → all affected clients get it in a fair, timely way; Do not let some clients act before others on a change in recommendation without a legitimate reason.
Trade allocation: Allocate by pre-set written policy, before the trade is executed (e.g. pro rata); Partial fills are shared pro rata or by a disclosed, fair method. No favouring accounts with higher fees or performance fees.
IPO allocation: Offer available shares to all eligible clients for whom the IPO is suitable; Do not allocate IPO shares to your own accounts or to favoured clients first. If oversubscribed, allocate pro rata.
Fair dealing vs loyalty: III(B): client vs client. III(A): client vs you or your firm; Use this split to choose the right standard in a case.

How to solve Standard III(B): Fair Dealing questions

Use this order for any Standard III(B) item set or essay question. Keep each answer to the fewest words that earn the points.

1Identify the action: is it dissemination of a recommendation, a change in a recommendation, a trade allocation, an IPO allocation, or a service level difference?
2List the clients involved and note any difference in treatment: timing, price, size, access or service.
3Ask whether there is a legitimate, disclosed reason for the difference, such as a published service tier, suitability, or a pre-set allocation policy.
4Check whether any client was disadvantaged because of the firm's or manager's interest, such as higher fees, a performance fee or a personal relationship.
5State whether the Standard was violated, using the command word asked (identify, determine, justify).
6Give the corrective action: pro rata allocation, simultaneous distribution, written policy, disclosure, or limiting those who know in advance.
7Add one line of reasoning that links the facts to the rule, then stop.

Quickest way: Same treatment test

When to use it: Use when time is short and the question asks whether a manager or analyst violated III(B).

Ask: did one client get something better than another, such as earlier information, a better fill or a bigger allocation?
If yes, ask: was the reason a disclosed policy, suitability or service tier? If no, it is a violation.
If the reason is the firm's gain (higher fees, performance fees, relationship), it is a violation.
If the question asks for a fix, answer pro rata allocation, written policy or simultaneous dissemination.

Common mistakes in Standard III(B): Fair Dealing

Thinking fair dealing means every client must get exactly the same result.
The word 'fair' is read as 'equal'.
Fix: Remember that the standard allows different service levels and different suitability-based decisions. It bans unfair or undisclosed favouritism.
Confusing III(B) with III(A) Loyalty, Prudence and Care.
Both standards protect clients, so the cases look alike.
Fix: Use the split: III(B) compares clients with each other. III(A) concerns acting in a client's best interest versus your own.
Saying it is acceptable to give a larger IPO allocation to a client who pays higher fees.
Candidates think of commercial reality rather than the Standard.
Fix: Allocate to all suitable clients by a fair method, such as pro rata. Fee level is not a valid basis.
Treating a change in recommendation as private once it is made.
Candidates focus on the first recommendation only.
Fix: A change in recommendation must also be disseminated fairly so clients who hold the security can act without being disadvantaged.
Forgetting that allocation policies must be set before the trade.
Allocation after the fill seems efficient.
Fix: Decide the allocation method in advance and document it. Allocating after seeing results invites favouritism.
Writing long answers that restate the whole standard.
Fear of losing points for missing detail.
Fix: Answer the command word, give the fact that triggers the rule, then the action. Two or three sentences are usually enough.

Worked examples

Example 1

A portfolio manager places a buy order for 10,000 shares on behalf of three client accounts: Account A for 6,000 shares, Account B for 3,000 shares and Account C for 1,000 shares. Only 5,000 shares are filled. The manager fills Account C's order in full because it pays a performance fee, gives Account A 2,500 shares and Account B 1,500 shares. The firm has no pre-set allocation policy. Did the manager violate Standard III(B)? If a fair pro rata method had been used, how many shares would Account A receive?

Show the solution

Identify the action: trade allocation of a partial fill.
Account C received 100% of its order, while Account A received about 42% (2,500 ÷ 6,000) and Account B received 50% (1,500 ÷ 3,000).
The reason for the difference is the performance fee, not a disclosed policy or suitability. That favours the firm's interest over other clients.
Pro rata: total ordered = 6,000 + 3,000 + 1,000 = 10,000. Fill ratio = 5,000 ÷ 10,000 = 50%.
Account A would receive 50% × 6,000 = 3,000 shares. B would receive 1,500 and C would receive 500.

Answer: Yes, the manager violated Standard III(B) by favouring the performance-fee account. Under pro rata allocation, Account A would receive 3,000 shares.

Example 2

An analyst at a firm with both institutional and individual clients changes a recommendation on a stock from buy to sell. She first emails the institutional clients and posts the change to individual clients on the firm's website two days later. The firm has no policy on distribution. Evaluate under Standard III(B) and state what the firm should do.

Show the solution

Identify the action: dissemination of a change in recommendation.
Clients in both groups may hold the stock. Institutional clients can sell two days earlier at better prices, which disadvantages individual clients.
No legitimate, disclosed reason supports the delay, and no policy exists.
The Standard requires fair dissemination, so this is a violation.
Fix: adopt a written policy to distribute changes to all affected clients at the same time, or in a way that gives all a fair chance to act, and limit who knows before release.

Answer: This violates Standard III(B) because individual clients were disadvantaged by late notice of a change in recommendation. The firm should distribute changes to all clients fairly and at the same time under a written policy.

Exam tips

For short questions, find the one client who got a better deal and ask why. If the reason is fees or a relationship, the answer is a violation.
Know the standard fixes by heart: pro rata allocation, pre-set written policy, simultaneous dissemination and disclosure of service tiers.
If a question compares III(A) and III(B), say III(B) is about fairness between clients and III(A) is about acting in the client's best interest.
In essays, show any pro rata calculation step by step. A correct number typed alone earns full credit, but working helps if you are unsure of the method.
Do not answer more than the command word asks. If it says 'identify', name the violation. If it says 'justify', add one line of reason.

Standard III(B): Fair Dealing 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(B): Fair Dealing: frequently asked questions

What is Standard III(B) Fair Dealing in the CFA Code and Standards?

It requires members and candidates to deal fairly and objectively with all clients when providing investment analysis, making recommendations, taking investment action or engaging in other professional activities. It covers how information is shared and how trades and IPO shares are allocated.

What is the difference between fair dealing and loyalty?

Fair dealing, III(B), is about treating clients fairly relative to each other. Loyalty, prudence and care, III(A), is about putting a client's interests ahead of your own and your employer's. A case about two clients competing for the same benefit usually points to III(B).

Can a firm offer different service levels to different clients?

Yes. Premium services are acceptable if they are disclosed, are available to all clients who pay for them, and do not disadvantage other clients. Hidden or undisclosed favouritism is not allowed.

How should trades be allocated across client accounts?

Use a written policy set before the trade is placed, commonly pro rata by order size. Do not favour accounts with higher fees, performance fees, or personal ties, and do not allocate after seeing the results.