Since 1959, financial analysts wanting to impress clients and employers with their professional expertise have written the letters CFA after their names.
Since 1963, the Chartered Financial Analysts qualification has been awarded on passing a series of exams. The very first paper, available to download from the CFA Institute website, asked candidates to advise on hypothetical stock porfolios, choose between corporate bonds and explain their decisions, show understanding of the investment objectives of various investors such as banks, pension funds and insurance companies.
The final question of the 1963 paper is oddly familiar in the current economic climate, featuring as it does a paragraph saying the stimulus is unlikely to lead to inflation but when full employment and growth return, monetary policy must be use to curb any such inflation. Prospective financial analysts are asked to examine the underlying assumptions and suggest what monetary policy might be able to do.
Such a simple question would be unlikely to appear on today’s exam, which is a great deal more demanding. In part, this is because we have accumulated a lot more knowledge about investments – or rather the range of possible investments has become a great deal larger and more complicated – and in part it is because it has become a competitive industry with thousands of candidates each year attempting to win their spurs.
The exams are now a three year, three stage process, requiring would-be CFAs to spend some 300 hours preparing for each six hour paper and covering some 7,000 pages of curriculum. The tests take place in 280 exam centres in 80 countries around the world.
Candidates must have a bachelor’s degree or its equivalent (which can consist of four years or more of professional experience). Many start the course not long after beginning their first job in financial services. Around half of existing charter holders are on the buy-side, working for asset managers or asset owners, with approximately half of these reporting the assets they are involved in managing to be pension fund assets.
The first two papers are multiple choice, with only the third involving more complex tasks such as essays. This is a boon to candidates for whom English is not a first language, giving them time to improve their command of the only language in which they can sit the tests.
Until 2004, the awarding body was called the Association for Investment Management and Research and was seen as being somewhat too US-oriented for useful international application. Since then a new name has accompanied an overhaul of the curriculum in order to provide country-specific material in many jurisdictions.
Since the fastest growing region, in this as so many other areas, is the emerging markets of Asia, this has given the CFA Institute an opportunity to work with the regulators in these countries as they develop frameworks for nascent financial services industries.
Being close to the regulators and being seen to support their work is important to the CFA Institute, which has established a programme of scholarships for the employees of regulators, many of whom would otherwise have to pay for qualifications out of their own pockets.
Since most candidates in the private sector would expect their employers to stump up at least some of the $3,300 required for the whole exam process, the fact that taxpayer-funded regulators are not able to pay for their employees’ qualifications could put them at a significant disadvantage in building well-educated teams.
Asia-Pacific is the fastest growing region for the CFA Institute, accounting for 40 per cent of the 139,900 candidates entered for June’s exams, 12 per cent more than a year earlier.
John Rogers, CFA, president and chief executive of the CFA Institute, says: “At this time of global economic instability, we believe it is especially important for the investment industry to be led by professionals who put investors’ interests first. Finance markets cannot function effectively without ethical behavior, and transparency and CFA charterholders are integral to this.”