Which option best reflects the proper allocation of an oversubscribed new issue when family-member accounts are part of the same strategy as other clients?

• A. Allocate only after non-family accounts have received their shares.
• B. Allocate on a prorated basis across all developing growth accounts, including family-member accounts.
• C. Allocate on a prorated basis excluding family-member accounts.
• D. Allocate on a first-come, first-served basis for all accounts.

Answer: (B)

The key idea here is fairness in the allocation of an oversubscribed issue. When a family-member account is part of the same investment strategy as other clients, it should not receive special treatment or be excluded from the allocation. The proper approach is to allocate on a pro rata basis across all eligible accounts, including family-member accounts, so every client’s demand is treated proportionally and consistently. This aligns with the obligation to deal fairly with all clients and to avoid preferential access for related parties.

Allocating only after non-family accounts have received shares introduces bias against family accounts. Excluding family-member accounts would similarly discriminate. Allocating on a first-come, first-served basis ignores proportional demand and is not consistent with fair-dealing standards.