A trust officer routes every client trade to one broker because that broker fills her personal orders at better prices. Nothing she buys is unsuitable. She still violates the Code, because the duty in Standard III runs to the client's benefit, not the client's outcome.
Standard III has five sub-standards. Each one polices a different way a manager can put someone else's interest ahead of the client's.
Client interests are paramount, ahead of both your employer's and your own. Prudence means acting with the care, skill, and diligence a reasonable person in a like capacity would use. Care means avoiding harm to the client. This is a minimum benchmark that applies regardless of job title, local law, or whether a legal fiduciary duty attaches. It does not convert every member into a fiduciary, and it does not replace stricter legal or regulatory obligations.
- Identify the client first. A client is a person or entity for whom you perform a service usually provided for compensation.
- Fund and index mandates. When managing to a stated mandate, loyalty runs to the mandate itself. Individual fund investors are the responsibility of whoever advises them.
Common mistakes
- Reading "fairly" as "equally." Simultaneous identical treatment is impossible. Tiered service is fine if disclosed, available to all, and harmless to others.
- Naming the plan sponsor as the client. For pensions and trusts the client is the beneficiaries. Buying stock to help incumbent management repel a takeover fails III(A) even if the sponsor asked.
- Excluding a family account from an oversubscribed issue. A fee-paying relative is a client. Excluding that account to look clean disadvantages it. Only accounts outside the normal fee structure are excluded.
Bottom line
- III(A) Loyalty, prudence, care: client interests before employer's and your own; a minimum benchmark, not a universal fiduciary designation
- Client identity: for pensions and trusts, the client is the beneficiaries; for a fund, the mandate itself
- Best execution is required unless the client directs brokerage; directed brokerage is permitted with confirmation and disclosure
- Proxies carry economic value: vote informed, disclose the policy, cost/benefit may justify not voting all
Exam shortcut
Sort the vignette by the verb. "Recommended without asking about objectives" is III(C). "Told the big clients first" or "allocated after seeing the fill price" is III(B). "Paid for something with client commissions" or "voted with management" is III(A). "Reported a return" is III(D). "Told a third party" is III(E).
The full lesson (about 1,838 words, 12 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- standard III duties to clients
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