Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

Which best describes the CFA Institute Standard III(B), Fair Dealing?

1. It mandates dealing equally for all clients.

2. It allows for different levels of service for fair dealing.

3. It requires equal treatment for all clients regardless of service levels.

4. It stipulates that fairness applies equally to all transactions.

The correct answer is: It allows for different levels of service for fair dealing.

The best description of CFA Institute Standard III(B), Fair Dealing, is found in the requirement that all clients be treated fairly and impartially. This means that the standard emphasizes the need for investment professionals to ensure that their recommendations and actions do not advantage one client over another. While it acknowledges that different clients might receive different levels of service based on their specific needs or situations, the core principle is the equitable treatment of clients concerning the strategies and opportunities presented to them. In this context, the standard's intent is to protect the interests of all clients rather than to dictate a one-size-fits-all approach. It recognizes that varying circumstances might justify different levels of service, provided that the overall treatment remains fair. This nuanced understanding of fairness enables investment professionals to cater effectively to the diverse needs of their clients while upholding ethical standards. The other perspectives may imply a rigid application of fairness that does not consider the practical realities of client relationships. Therefore, understanding Fair Dealing requires recognizing both the principle of equitable treatment and the allowance for customized service based on client requirements.