Tuesday, 26 May 2009

CFA much-coveted title despite market collapse

Robert Johnson says non-finance professionals boost demand

3 comments:

Guanyu said...

CFA much-coveted title despite market collapse

Robert Johnson says non-finance professionals boost demand

Enoch Yiu
25 May 2009

The “chartered financial analyst” designation has long been considered the gold standard in professional education.

Charter holders, as those who hold the distinction are called, must pass three gruelling six-hour examinations in securities regulation, financial statement analysis and securities underwriting.

Although the CFA Institute faces competition from other training programmes, it is still considered a passport into the world of investment banking.

Now, even with the collapse of many Wall Street investment houses and lay-offs at the survivors, CFA Institute senior managing director Robert Johnson said registrations increased globally this fiscal year by 14 per cent to almost 200,000.

The growth came as non-investment banking professionals, including many from private investment houses, signed up for the tests, Mr. Johnson said.

Although Hong Kong registrations have fallen 3 per cent, the city still ranks third in the world with 7,746 candidates signing up for next month’s CFA examination. This ranks Hong Kong just behind London at 8,098 and New York at 8,336.

The mainland has 19,700 registrants for this fiscal year’s examinations, up 25 per cent from last year, and Mr. Johnson believes the mainland will continue to be an even larger player in the future as its financial market expands and matures.

Mr. Johnson was awarded a CFA charter in September 1990. He has a doctorate in finance from the University of Nebraska and an MBA in finance from Creighton University. He joined the CFA Institute in 1996 as a vice-president and was promoted to his current position this year.

The institute believes financial markets need better regulation to prevent another financial crisis. In Hong Kong, Mr. Johnson said tighter regulations were needed to crack down on mis-selling of investment products, such as the Lehman Brothers minibonds.

About 48,000 investors in Hong Kong bought HK$20 billion worth of minibonds issued or guaranteed by Lehman Brothers. The products became worthless after the United States investment bank collapsed in September last year. Investors complained they had been misled by brokers and banks about the risk levels of the products.

“Investment professionals need to take the investment suitability of their clients extremely seriously,” Mr. Johnson said.

“The CFA Institute takes the integrity of our charter holders very seriously. If any of the CFA charter holders are proven to have sold products not suitable for their clients, we will take action against them.”

Guanyu said...

The CFA programme offers a self-study programme for investment professionals. But as many investment banks are so deeply troubled, do you find fewer people entering the programme now?

Actually, we have been seeing more people enrolling in the programme since the crisis began in the middle of last year. Globally, examination registrations have grown 14 per cent in the 2009 fiscal year. Hong Kong is down 3 per cent but China is up 25 per cent.

The CFA is a passport through to the investment market, so it doesn’t only attract Wall Street investment bankers. In recent years, we have seen that other non-Wall Street sectors are also interested in the programme. The biggest growth has come from the individual private wealth management industry. The CFA has gone beyond the boundaries of Wall Street.

Would you consider modifications in your programme as new regulations emerge and Wall Street changes its operating model?

Our programme is always changing to meet the practical needs of the real world. We have a panel formed by the employers, employees and the CFA Institute to discuss the changes needed for our programmes.

Many investment firms consider China to be the driving force behind economic growth. Will the CFA Institute also focus more on the mainland and Hong Kong markets?

We sure will focus more on China and Hong Kong. We have 4,200 CFA charter holders in Hong Kong and about 1,600 CFA charter holders on the mainland. In addition, there are another 900 pending. These are people who have passed all the examinations but still need to wait until they have completed four years of related financial working experience before they can become charter holders. This is interesting as in Hong Kong, it is usually the other way round that the persons have the relevant experience while taking the examinations.

Hong Kong has the fourth-largest concentration of CFA charter holders while the mainland has the seventh biggest. This is a great improvement as we had no CFA on the mainland 15 years ago.

What lessons do you think we must learn from the current global financial crisis and do you think the worst is over?

The crisis was due to financial innovation in which far too many highly leveraged products were launched in recent years. These products could only be understood by a few but they spread across the world. When these products have problems, the whole financial world has problems.

The lesson we all have to learn is to go back to basics and the necessity to do appropriate due diligence for any investment. We should not ignore risks before buying or selling any securities or investment products. The crisis ultimately will show who has the experience and knowledge to stay in the financial markets.

Many CFA charter holders are from other fields, including some unusual examples, such as a ballet dancer. Did they get attracted by the high pay of the investment industry?

Guanyu said...

There are many people whose interest in the financial markets has nothing to do with the high salary. They are, in fact, very successful in their own careers. We have CFA charter holders who were ballet dancers, pop stars, or are from the medical field. They go for the CFA charter not necessarily because they want to switch careers but because they want to have greater knowledge in handling their own investment so that they do not need to rely on other people’s expertise.

The CFA Institute also helps promote corporate governance and the integrity of the securities markets. What areas do you think we should improve to prevent the crisis from deepening?

Investment professionals need to take the investment suitability of their clients extremely seriously. In Hong Kong, the important lesson is from the Lehman minibond fiasco in which people sold risky products that were not suitable for investors. The CFA Institute takes the integrity of our charter holders very seriously. If any of the CFA charter holders are proven to have sold products that are not suitable for their clients, we will take action against them.

Do you think regulations should be tightened on executive bonuses after the outrage over top executives at American International Group getting huge bonuses even while accepting government bailouts?

I am not a believer in the government regulating what individuals in the private sector can earn. In the absence of the government bailout, I would say that there should be no restrictions on executive pay. However, once these financial firms receive government aid, I feel that the proper course of action by the firms would have been to dramatically reduce or eliminate these bonus payments. Bonuses should be a reward for a job well done. Firms that are experiencing significant financial problems and require government funding should not be paying out these funds to their executives.

You have a PhD. Why did you choose to be a CFA charter holder? And did you find it hard to pass the examination?

I already had a PhD in finance and I wanted to learn more about practical money management, so I went for the CFA charter. I then joined the CFA Institute, which was the best professional decision of my life.

I also met my wife at the CFA Institute, which is the best thing that ever happened to me.

Even with a PhD degree, I had to spend a lot of time studying to pass the examinations. One does not need to be a rocket scientist to pass the CFA examinations, but if the rocket scientist does not study, he will surely fail.

Do you find it hard to split your time between business and family?

It is very difficult and my job requires me to travel a good bit. I want to have more time for my family and watch my son play basketball, football and lacrosse. But then the travelling also allows me to meet with many financial professionals around the world, which is also interesting.

Do you want your son to be a CFA?

I want my son to find a vocation that he is passionate about. If he develops a passion for the investment industry, I would be very proud.

When I was a college professor, one of my roles was to counsel students on careers.

I always told them that you want to find something you really love to do because the majority of your time is spent working. If you love to do it, you will do it often and you will become good at it.

If you become good at it, odds are that people will be willing to pay you to do it. The passion for the occupation has to come first. The compensation will follow.