Standard III(B) – Fair Dealing

Standard III(B) – Fair Dealing

Members and candidates must treat all clients fairly and objectively when offering investment research, making investment recommendations, taking investment action, or engaging in other professional activities.

The Code and Standards permit CFA Institute members and candidates to provide more personalized, specialized, or in-depth service to clients who are willing to pay higher fees for premium services, if:

  1. these services do not disadvantage other clients who are not willing to pay higher fees,
  2. the different levels of service are disclosed to clients, and
  3. the offerings are made available to all.

Application 1: IPO Distribution

Adam McNarry is the CFO of Astra Capital Advisors (ACA). ACA specializes in corporate advisory and capital raising activities. His client, GreenFarm Ltd., is looking to go public. ACA receives an overwhelming amount of expression of interest from both retail and institutional investors. The new issue is twice oversubscribed. McNarry proceeds to remove all shares allocated to fee-paying family-member accounts. The shares are then prorated among all the clients.

Has McNarry violated Standard III(B) – Fair Dealing?

  1. No, because his exclusion of family-member accounts would increase the allocation to his other clients.
  2. Yes, because fee-paying family accounts should be treated the same way as other clients.
  3. No, because he was prioritizing his client’s accounts over his family member accounts.

Solution

The correct answer is B.

McNarry has violated Standard III(B) – Fair Dealing. McNarry should treat all his fee-paying clients equally. In this case, McNarry should not have removed his family members’ allocation in GreenFarm Ltd.

Application 2: Additional Services for Select Clients

Josephine Clark emails all her clients to inform them about a change in her investment recommendation of Nix Technologies. She then calls her two biggest clients to review her conclusions and respond to any queries.

Would Clark’s actions violate Standard III(B) – Fair Dealing?

  1. Yes, because she is giving greater consideration to her two biggest clients.
  2. No, because she informed all her clients about the change in her recommendation.
  3. Yes, because she has discriminated against some clients and favored others.

Solution

The correct answer is B.

Clark has not violated Standard III(B) – Fair Dealing. Clark disseminated her change in the recommendation to all her clients. Clark can offer personal services to clients that may have a significant amount of assets in the firm. Clark would violate if she failed to disseminate her recommendation to all her clients but a select few.

Application 3: Fair Dealig with Clients

Nicole Albert is an investment manager at Nobil Inc. Nicole has sent out a recommendation on security to her clients. Before sending out this information, Nicole informed all of her high-net-worth clients of the recommendation. Under the CFA Institute Code and Standards, Nicole’s action:

  1. violated the CFA Institute Code and Standards by informing the few high net worth clients.
  2. did not violate the CFA Institute Code and Standards because the recommendation was sent out to all clients.
  3. did not violate the CFA Institute Code and Standards because the high-net-worth individuals bring the firm a lot of money

Solution

The correct answer is A.

Nicole has violated the CFA Institute Code and Standards by giving the high-net-worth clients the recommendation before the other clients. According to Standard III(B) , members and candidates must treat all clients fairly and objectively. Premium services can be offered, but the different service levels are disclosed to all clients.

B is incorrect. Nicole sent the recommendation to all her high-net-worth clients and not all her clients. She violated Standard III(B).

C is incorrect. Despite the high-net-worth clients bringing more value to the firm, Nicole is still violating Standard III(B).

Shop CFA® Exam Prep

Offered by AnalystPrep

Featured Shop FRM® Exam Prep Learn with Us

    Subscribe to our newsletter and keep up with the latest and greatest tips for success
    Shop Actuarial Exams Prep Shop Graduate Admission Exam Prep


    Sergio Torrico
    Sergio Torrico
    2021-07-23
    Excelente para el FRM 2 Escribo esta revisión en español para los hispanohablantes, soy de Bolivia, y utilicé AnalystPrep para dudas y consultas sobre mi preparación para el FRM nivel 2 (lo tomé una sola vez y aprobé muy bien), siempre tuve un soporte claro, directo y rápido, el material sale rápido cuando hay cambios en el temario de GARP, y los ejercicios y exámenes son muy útiles para practicar.
    diana
    diana
    2021-07-17
    So helpful. I have been using the videos to prepare for the CFA Level II exam. The videos signpost the reading contents, explain the concepts and provide additional context for specific concepts. The fun light-hearted analogies are also a welcome break to some very dry content. I usually watch the videos before going into more in-depth reading and they are a good way to avoid being overwhelmed by the sheer volume of content when you look at the readings.
    Kriti Dhawan
    Kriti Dhawan
    2021-07-16
    A great curriculum provider. James sir explains the concept so well that rather than memorising it, you tend to intuitively understand and absorb them. Thank you ! Grateful I saw this at the right time for my CFA prep.
    nikhil kumar
    nikhil kumar
    2021-06-28
    Very well explained and gives a great insight about topics in a very short time. Glad to have found Professor Forjan's lectures.
    Marwan
    Marwan
    2021-06-22
    Great support throughout the course by the team, did not feel neglected
    Benjamin anonymous
    Benjamin anonymous
    2021-05-10
    I loved using AnalystPrep for FRM. QBank is huge, videos are great. Would recommend to a friend
    Daniel Glyn
    Daniel Glyn
    2021-03-24
    I have finished my FRM1 thanks to AnalystPrep. And now using AnalystPrep for my FRM2 preparation. Professor Forjan is brilliant. He gives such good explanations and analogies. And more than anything makes learning fun. A big thank you to Analystprep and Professor Forjan. 5 stars all the way!
    michael walshe
    michael walshe
    2021-03-18
    Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.