What does 'fair dealing' actually mean when disseminating investment recommendations?

Standard III(B) — Fair Dealing requires that members deal fairly and objectively with all clients when providing investment analysis, recommendations, or taking investment action. The key word is 'fairly' — not 'equally.'

Fair vs. Equal:

The standard does not require simultaneous dissemination to every client at the exact same millisecond. That would be impractical. Instead, it requires a systematic and reasonable process that does not systematically advantage one group over another.

Acceptable Practices:

• Establishing a dissemination protocol where institutional and retail clients receive recommendations through their respective channels at approximately the same time
• Using a rotation system so no single client always receives information first
• Sending a blast email to all clients on the coverage list simultaneously

Violations:

• Calling your three largest hedge fund clients with a rating change before publishing the research note to all clients
• Giving preferred clients advance notice of an upcoming IPO allocation before other eligible clients
• Systematically executing trades for fee-based accounts before commission-based accounts

Practical Example:

Crestline Research employs 12 analysts covering 200 stocks. When analyst Marcus Chen upgrades Pinnacle Logistics from Hold to Buy, the firm's protocol requires:

1. The report goes to compliance for review
2. Once approved, it is simultaneously posted to the firm's research portal
3. A blast notification is sent to all subscribed clients
4. The trading desk begins executing in a rotation that alternates starting points each day

If Marcus instead called three of his favorite portfolio managers 30 minutes before the report hit the portal, that would violate Standard III(B) even if Marcus had no financial incentive to do so.

Investment Action vs. Recommendations:

Fair dealing applies to both. When executing a block trade for multiple accounts, the firm should use a pro-rata allocation rather than filling the largest account first.

Exam tip: Watch for scenarios where an analyst provides 'extra service' to top clients under the guise of client relationship management. If that extra service includes early access to recommendations, it violates Standard III(B).

Explore more Ethics scenarios in our CFA Level I course on AcadiFi.