CFA Institute and CFA Centre: An Overview

1
CFA Institute and CFA Centre An Overview

• John Barrass
• Head, Europe, Middle East, and Africa
• CFA Centre for Financial Market Integrity
• CFA Institute
• South Africa, October 2006

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CFA Institute

• Who We Are Non-Profit Professional Association
  of 86,000 investment professionals worldwide.
• Ethical Leadership Code of Ethics and Standards
  of Professional Conduct
• Quality Education for Investment
  Professionals CFA
• Global Investment Performance Standards
  (GIPS)
• CFA Centre for Financial Market Integrity
• CFA Institute Mission To lead the investment
  profession globally by setting the highest
  standards of ethics, education, and professional
  excellence.
• CFA Centre Mission To be a leading voice for
  fairness, efficiency, and investor protection in
  global capital markets.
• The CFA Programme
• A self-study, distance learning-based programme
  that takes a generalist approach to security
  analysis and portfolio management and
  emphasises the highest ethical and professional
  standards.

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134 Member Societies, 55 Nations, 4 Offices,
86,000 members
Poland Romania Russia Spain Sweden Switzerland Tur
key United Kingdom
Germany Hellenic Hungary Ireland Italy Luxembourg
Netherlands
Austria Belgium Bulgaria Cyprus Czech
Republic Denmark Finland France
Canada 12 Societies

United States 70 Societies
Australia (Sydney Melbourne) Hong
Kong Indonesia Japan Korea Malaysia New
Zealand Pakistan Philippines (Manila) Singapore Sr
i Lanka Thailand
Argentina Uruguay Bahamas Barbados Brazil Cayman
Islands Mexico Trinidad Tobago
Bahrain Bermuda Egypt Jordan Lebanon Mauritius
Saudi Arabia South Africa United Arab Emirates
32 EMEA Societies Offices in USA, UK (EMEA), Hong
Kong (Asia)
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CFA Institute Core Values

• Values
• Integrity
• Professional Excellence
• Volunteer Service
• Strength of Community Cooperation

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CFA Institute Range of Activities

• Society, Member and Candidate Services
• CFA Centre for Financial Market Integrity
  Professional Standard Setting, Ethics and
  Standards of Professional Conduct, Advocacy
• CFA Educational Programme and Examination
• Educational Products, Events, Publications
• Continuing Professional Development Programme
  (voluntary)
• Public Relations/Media Awareness
• Employer and University Outreach University
  Partnerships
• Internal (Finance, Legal)

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CFA Institute Code of Ethics

• CFA Institute Members must
• Act with integrity, competence, diligence,
  respect, and in an ethical manner with the
  public, clients, prospective clients, employers,
  employees, colleagues in the investment
  profession, and other participants in the global
  capital markets.
• Place the integrity of the investment profession
  and the interests of clients above their own
  personal interests.
• Use reasonable care and exercise independent
  professional judgment when conducting investment
  analysis, making investment recommendations,
  taking investment actions, and engaging in other
  professional activities.
• Practice and encourage others to practice in a
  professional and ethical manner that will reflect
  credit on themselves and the profession.
• Promote the integrity of, and uphold the rules
  governing, capital markets.
• Maintain and improve their professional
  competence and strive to maintain and improve the
  competence of other investment professionals.

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CFA Centre Policy Groups
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CFA Centre Staff Structure
Kurt Schacht, CFA Managing Director
Research Policy Formulation
Global Outreach Advocacy
Jonathan Boersma, CFA Director Standards of
Practice
John Barrass Head CFA Centre for
Europe, Middle East, Africa
Alecia Licata Director Investment
Performance Standards
Lee Kha Loon, CFA Head CFA Centre
for Asia Pacific
Rebecca McEnally, CFA Director
Capital Markets Policy
Society Member Relations
Bob Luck, CFA Director Society
Member Relations
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CFA Centre Advocacy

• Volunteer Committees
• Global in scope
• Regional rather than national focus when
  commenting
• Mainly USA and Europe (Washington, Brussels)
• Wide range of subjects, depending on region and
  members interests
• Corporate Disclosure issues, especially
  international accounting standards, a speciality
  historically
• Capital Markets issues the other high priority,
  including performance measurement

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CFA Centre Professional Standards (a selection)

• Standards of Practice Handbook
• Code of Ethics and Standards of Professional
  Conduct
• Soft Dollar Standards (1999) (will be revised)
• Trade Management Guidelines (2002)
• Research Objectivity Standards (for equity
  analysts)
• Global Investment Performance Standards (GIPS
  25 countries, of which 18 are in EMEA)
• Asset Manager Code (2005)
• IFRSs CFA Centre involvement in work of IASB
• Analyst/Corporate Relations Guidelines (with
  NIRI)
• Corporate Governance Manual for Investors (2005)
• Comprehensive Business Reporting Model (2006)
• Short-Termism Report 2006

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Speaking Out on Issues

• The CFA Centre Comments in Asia, EMEA,
• North America On
• -Analyst Retaliation -Option Expensing
• -Financial Reporting -Corporate Governance
• -Soft / Soft Commissions -Hedge Fund
  Regulations
• -Sarbanes Oxley -Asset Manager Code of
  Conduct
• -Analyst Standards -Majority Director Voting
• -Financial Market Regulation -Investor
  Protection
• -Investment Performance Stds

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Standards for Our Members
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Standards for the World

• Global Investment Performance Standards (GIPS)
• Convergence of many national standards including
  AIMR-PPS into one global standard.
• Providing consistent performance measurement and
  reporting for investors worldwide.
• An alliance of experts from a variety of fields
  within the global investment industry.

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Educating Investors

• Reasons for the Manual
• Corporate governance scandals have resulted in
  huge investor losses.
• Studies show that returns are linked to
  governance.
• Investors needed a guide to help them
• Recognize the risks,
• Understand their implications, and
• Know where to find relevant information.

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Thought Leadership

• Twelve Principles Including
• Reporting from Investor Perspective.
• Reflect Fair Value, Not Historic Cost.
• All Changes in Net Assets on One New Statement.
• Require Direct Method Cash Flow.

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Short Termism Project

• Blue Ribbon Panel Meetings
• Meetings with corporate issuers, analysts, asset
  managers, institutional investors led to
  recommendations in 5 areas
• Earnings Guidance Reform
• Incentives
• Leadership
• Communications Transparency
• Education

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Financial Market Integrity Index

• Index of Member Sentiment
• Focus on trends in member sentiment over time
• Aggregate opinions of CFA members worldwide
• Major Financial markets covered
• Questions measured on five point scale
• Twice yearly survey resulting in comparative
  scores
• Twice yearly reports with comments behind scores
• Members will rate ethical behaviour of
• Buyside, sellside, corporate boards, management,
  investment bankers, hedge fund and private equity
  professionals
• Members will also assess
• Corporate Governance, legal protection of
  shareholders, financial transparency

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Self Regulatory Organisations

• Regulation and Roles of Self-Regulation
• Optimum role of government in market regulation
• Conflicts between markets and regulators
• Continued Viability of SROs
• Characteristics of successful regulatory systems
• Duplicative rules regs, overlapping
  jurisdictions sectors
• Risk of regulatory arbitrage race to the
  bottom.
• Globalisation and Consolidation of Markets
• Movement towards global market/regulator
• Cross-border mergers conflicts between
  regulators
• Demutualisation of Markets
• Primary conflicts between for-profit exchanges
  regulators
• Implications for shareholders vs. investor
  interests

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Pension Fund Trustee Code

• Conduct of Pension Fund Trustees
• Conflicts of interest
• Competence
• Due Diligence
• Fiduciary Duty Delegation
• Personal Travel and Gifts

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Working Together

• Cooperation Across Divisions at CFA Institute
• PPD Publications Conferences
• Society Services Society Presentations
  Programmes
• CFA CIPM Programs Curriculum Content
• Marketing Communications Employer Outreach,
  Public Awareness, Media Relations
• All Other Divisions Key Support and Services

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CHARTERED FINANCIAL ANALYST Key Features

• Rigorous Self-Study Programme flexible hours,
  no compulsory course attendance
• Practical and relevant learning tied to current
  work requirements (questionnaires, job analysis,
  CCC)
• Wide ranging body of knowledge degree before
  starting 3 levels
• Global passport same exam and language
  everywhere (COE)
• Universal, tightly controlled, marking and
  grading (600 charterholders)
• Difficult to pass (low percentages) Europe has
  best average results for Level III
• Full charter requirements include work
  experience, annual professional conduct
  statement, membership (of local society) as well
  as CFA at all 3 levels
• Affordable price

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The CFA Programme
COE
CCC
EXAMINATIONS
EXAMINATION ADMINISTRATION
CURRICULUM
GRADING
BODY OF KNOWLEDGE?
Practitioners at every step of the process
MINIMUM PASSING SCORE (MPS) - CFA INSTITUTE
GOVERNORS
PRACTICE ANALYSIS
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Practice Analysis What and Why?

• Most respected authorities in education, testing
  and certification recommend or require periodic
  practice analysis studies
• Focuses on the critical tasks performed by
  competent people working in the profession
• Establishes content validity curriculum and
  exams must be linked to the knowledge and skills
  needed by practitioners
• Results in new CBOK the blueprint for
  curriculum and exam content
• The only way a topic gets into the CFA Programme
  (and eventually tested) is if practitioners
  throughout the world deem it important.

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Locations of Practice Analysis Panels

• New York
• Boston
• Chicago
• San Francisco
• Los Angeles
• Washington, D.C.
• Toronto
• Montreal

• London
• Zurich
• Milan
• Frankfurt
• Tokyo
• Hong Kong
• Shanghai
• Singapore
• Sydney
• Melbourne

Note Members of Brazil and South Africa CFA
Institute Societies were also asked to
review/comment on CBOK (via email)
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Body of Knowledge
Ethical and Professional Standards

• Quantitative Methods
• Economics
• Financial Statement Analysis
• Corporate Finance

Investment Tools

• Analysis of Equity Investments
• Analysis of Debt Investments
• Analysis of Derivatives
• Analysis of Alternative Investments

Asset Valuation

• Portfolio Management and
• Performance Presentation

Portfolio Management
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Curriculum
Developed by Candidate Curriculum Committee
(CCC) 150 people involved from all over the
world extensive review each level 17 to 20
study sessions in CFA Institute-produced study
guides
Study Guide Topic Focus Learning Focus
Level I Investment Knowledge

Tools and Ethical Stds.
Level II Asset Application

Valuation and Ethical Stds.
Level III Portfolio Synthesis and

Management Ethical Stds.
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Curriculum
Percentages are approximations of the actual
topic weights for exam purposes. Actual content
of future exams may vary.
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Curriculum

• Each study session is designed for flexible,
  self-directed study

• Readings are drawn from a variety of materials,
  both CFA Institute and other

• Each reading has learning outcome statements
  (LOS) The candidate should be able to

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Curriculum

• Each LOS has one or more command words, which
  indicate type of learning expected discuss,
  calculate, contrast

• LOS are NOT an exact proxy for examination
  questions, but mastering LOS is the best study
  approach

• CFA Institute increasingly developing and
  publishing own curriculum to meet unique needs

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Preparatory Courses and Materials

• Candidates should only use preparatory courses
  and materials as supplements to the CFA Institute
  prescribed curriculum
• CFA Institute does not review or warrant the
  accuracy of any preparatory materials
• Preparation is the key to success on the
  examinations there are no shortcuts to success

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Examinations
Developed by Council of Examiners (COE),
consultants, staff driven by LOS over 80 people
involved from all over the world extensive
reviews each exam 6 hours in length
Exam Topics Format
Level I All topics Multiple
choice
Level II All topics Item sets100

Level III Portfolio Management ? Essays50
Other topics? Item sets50

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Examinations

• Multiple choice stand alone individual multiple
  choice questions 1 question 1.5 minutes, exam
  240 questions 360 points

• Essay discussion-type and problem solving
  questions ½ exam typically 10-18 questions
  with variable minutes 180 points

• Item set vignette with set of accompanying
  related multiple choice questions (items) 1
  question 3 minutes, 1 item set 6 questions, ½
  exam 10 item sets 180 points

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Examination Development

• CFA Institute offers on-line sample examinations
  for Level I, Level II and Level III (item set
  only)
• Length reflective of live examination (3 hours)
• Timed, with immediate feedback
• Developed utilizing same process as live
  examination
• Modest fee of 50

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Minimum Passing Score

• MPS for each level established by CFA Institute
  Board of Governors

• Multiple inputs (standard setting, candidate
  performance statistics, quality of candidate
  responses, etc.) used to set the MPS

• Passing rate for each level is a residual
  determined by each levels MPS

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CFA Employers Attitudes

• An increasing number of employers worldwide are
  requiring the CFA charter (or at least
  participation in the programme) for hiring and
  promotion.
• An increasing number of employers worldwide are
  substituting the CFA charter for graduate degrees
  when establishing job specifications.

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Employers of Charterholders
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CFA Charterholders and Candidates
There are currently about 10,000 active
charterholders in EMEA (13,000 CFA Institute
members) and 71,000 active charterholders
worldwide. The EMEA charterholder numbers are
increasing at over 1,500 a year.
In the academic year 2005/06, approaching 20,000
CFA candidates enrolled in EMEA for the CFA
examinations, and over 116,000 candidates
worldwide. December results for 2006/07 imply
that this figure could be exceeded this year.
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Combined Pass Rates 1963-2005
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June 2006 Exams

• Over 84,000 candidates enrolled from 145
  countries/territories
• 1,235 in South Africa
• 186 exam sites in 86 countries/territories
  worldwide
• Pass rates 2005
• 36 at Level I
• 56 at Level II
• 55 at Level III
• Combined (weighted average) pass rate was 48
• Better this year
• Results are available online and by mail
• Level I Late July and Early January
• Level II and III Mid-August

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CFA Charter Requirements

• Sequentially pass Level I, II, and III exams

• Have 4 years of professional experience

• Provide professional references (Level III)

• Submit professional conduct statement

• Apply for membership in CFA Institute and a local
  analysts society

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CFA Programme Costs
Estimated Basic Costs for Level I (all amounts
GBP)

• Registration Fee to Enter CFA Programme 215
• Enrollment Fee for Level I Examination 255
  Required Fees 470

• Study Materials for Level I
• Modular Curriculum Package 245

Approximate Total Costs for Level I 715
Assumes Registration and Enrollment received by
16 February 2007
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Take your CFA Charter to theBank
The CFA Premium 35,000
175,000
140,000
Non- charter holders
Median Total Compensation for CFA Institute
Members with 10 Years Experience 2003
Compensation Survey
CFA Charter holders
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Contact Information

• Information Central, Europe
• CFA Institute, 10th Floor, One Canada Square
• Canary Wharf, London E14 5AB, United Kingdom
• Telephone [phone]
• Fax [phone]
• E-mail infoeu_at_cfainstitute.org www.cfainstitute
  .org
• Click on CFA Program
• John Barrass
• Telephone [phone]
• E-mail john.barrass_at_cfainstitute.org
• Ann Marie Wood
• CFA South Africa
• P O Box 131, Ferndale
• 2160 South Africa
• Tel [phone]