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June 20, 2011 2:17 am

Investment management: Greater professionalism is required

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Nitin Mehta, a former fund manager, recalls his time in the investment management industry, in the 1990s, with unconcealed amusement.

Soon after joining one of the UK’s best-known fund houses, a bemused Mr Mehta raised the issue of training with his chief investment officer. He did not get quite the answer he was hoping for.

“I went into the his office and said: ‘No one around here has any formal education in finance and investment’. I had an MBA at the time and I was just appalled,” recalls Mr Mehta.

“I was chased out of his office. He said: ‘My two best fund managers left school at 16 and had no other formal education’. Back then the only training was to sit by your boss and pick up what you could.”

But Mr Mehta, now managing director, EMEA, for the CFA Institute, the US-based association of fund managers that administers the Chartered Financial Analyst exam, can claim the last laugh. That same gruff chief investment officer apparently now insists all his managers have formal qualifications.

The CFA Institute is at the forefront of this change. Globally, 200,000 people a year enrol for its three-part chartered financial analyst programme, with Asia now fielding more candidates than North America, thanks to double-digit growth in recent years.

However, the gruelling nature of the exam, which must be backed by four years’ relevant work experience, means those who do reach much vaunted Level 3 status are typically 30 years of age.

“It’s fiendishly difficult to pass, roughly one in five people who start the programme gain the qualification. Compared with a masters in finance, where it is hard to get in, but almost everyone passes, it’s a real test. What’s more, anyone can enter,” says Mr Mehta.

The CFA qualification, which is generally held to be equivalent to a masters in finance or investment, is not required by any national regulators, although holders may be exempt from some regulatory criteria, as in the US.

Yet increasingly, asset managers are pushing younger employees, especially those earmarked for portfolio management roles, towards the programme.

“Most of the larger, better employers now ensure that their trainees go through a formal process of getting financial education, such as CFA or a masters degree,” says Mr Mehta. “Trainees are usually invited to enrol for a CFA programme. Those who haven’t are invited into the chief investment officer’s office to explain why they have not done so.

“There are a lot of things you can pick up [from colleagues], but you need to acquire some form of theoretical grounding. It gives you some structured thought. Just as if you were building a nuclear plant or a satellite, you can’t just learn it from watching someone.”

Industry professionals confirm this picture. Gareth Jones, formerly head of learning and development at M&G Investments, and now head of human resources, says it is compulsory for recruits to take the investment management certificate, a lower level qualification provided by the CFA Society in the UK, or, for those destined for middle or back office roles, the Investment Administration Qualification, provided by the Chartered Institute for Securities & Investment.

However, the CFA route is “encouraged and supported” for those aiming for portfolio management roles.

In common with most large groups, M&G also has in-house training schemes and assigns mentors to those on its senior investment programme.

“I think there has been a strong trend towards more bespoke training, as the regulatory focus has increased and the number of asset classes has increased and become more complex,” says Mr Jones.

“There has probably been a move away from relying on generic industry training. There has been a big trend in the industry to raise the bar.”

But does all this training necessarily result in high levels of professionalism across the industry?

Roger Steare is visiting professor in organisational ethics and corporate philosopher in residence at Cass Business School in London, where he teaches ethics and corporate sustainability. He has worked with a number of financial services companies and is not convinced.

Admittedly, he does rank institutional asset management as one of the better segments of the financial services industry for professional integrity (the more sales-driven private wealth management scores far worse), but financial services as whole has less integrity than business in general, Mr Steare believes.

“Professional integrity is woefully inadequate. The leaders of these organisations are guilty of negligence,” he says.

“It tends to be box-ticking exercises. They can say: ‘We have put our people through this training’, but most of them don’t check to see if there is any change in attitude and whether improved decision-making has become embedded. With a few noble exceptions we are back to business as usual.

“Professional qualifications are a help, but once people get into the workplace, they tend to think of themselves as employees first and professionals second. The CFA teaches people what looks good, but doesn’t teach them how to apply things in real life situations.”

Others disagree. Mr Jones says M&G’s in-house training involves a process of constant repetition and case studies. “It’s making it really relevant and using examples that brings it to life,” he says.

Mr Mehta says the CFA has a “substantial element related to ethics and professional conduct”, and its charter holders have to abide by the Institute’s code of ethics.

“We do sometimes strip people of the designation. There are a number of cases every year,” says Mr Mehta, “but, by and large, I have been very impressed by the investment professionals I have come across and worked with. Most people are ethical.”

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