How do CFA Standards require fair dealing in trade allocation, and what allocation methods satisfy the standard?

Standard III(B) - Fair Dealing requires that members and candidates treat all clients fairly when disseminating recommendations and taking investment actions. Fair dealing does not mean identical treatment, but it does mean no client is systematically disadvantaged.\n\nKey Principles:\n\n- All clients must receive recommendations at approximately the same time\n- Trade allocation must be equitable across accounts\n- No client should be systematically favored over others\n- Fair does not mean equal -- it means equitable and consistent\n\nAcceptable Allocation Methods:\n\n`mermaid\ngraph TD\n A[\"New Buy Recommendation
50,000 shares available\"] --> B{\"Allocation Method\"}\n B --> C[\"Pro-Rata
Each account gets proportional share\"]\n B --> D[\"Random Rotation
Order of priority rotates\"]\n B --> E[\"Tiered with Disclosure
Different service levels disclosed upfront\"]\n C --> F[\"Account A (40% AUM): 20,000 shares\"]\n C --> G[\"Account B (35% AUM): 17,500 shares\"]\n C --> H[\"Account C (25% AUM): 12,500 shares\"]\n D --> I[\"This month: C first, then A, then B\"]\n E --> J[\"Premium tier: fills first
Standard tier: fills second
Must be disclosed at account opening\"]\n`\n\nWorked Scenario:\n\nPortfolio manager Desmond at Ashford Wealth receives a buy recommendation for Willowmere Technologies at $28/share. He manages 12 discretionary accounts totaling $180M.\n\nDesmond places a block order for 60,000 shares. Only 45,000 fill at the limit price.\n\nCorrect approach (pro-rata):\nFill ratio = 45,000/60,000 = 75%. Each account receives 75% of its original allocation.\n\n| Account | Original Order | Pro-Rata Fill |\n|---|---|---|\n| Henderson Trust ($35M) | 12,000 | 9,000 |\n| Navarro Pension ($28M) | 9,500 | 7,125 |\n| Chin Family ($22M) | 7,500 | 5,625 |\n| ... (9 more) | ... | ... (each at 75%) |\n\nViolation examples:\n- Filling his personal account first, then client accounts (violates priority of transactions)\n- Allocating all shares to the Henderson Trust because they pay the highest fees\n- Giving the full allocation to accounts that complained about missing the last trade\n- Front-running: buying for his own account before executing client orders\n\nTiered Service Levels:\n\nFirms may offer premium and standard service levels (e.g., premium clients receive research 24 hours earlier) only if:\n- The different service levels are disclosed to all clients at account opening\n- Clients choose their service level\n- The same allocation procedures apply within each tier\n- Everyone receives fair treatment within their tier\n\nIPO Allocation:\nHot IPOs are especially scrutinized. You cannot allocate oversubscribed IPO shares to favored accounts. Pro-rata or random allocation within eligible accounts is required.\n\nPractice fair dealing scenarios in our CFA Ethics question bank.