Chartered Financial Analyst Society offers ethical training

Again and again, featuring heavily in conversations and correspondence, throughout video clips both introductory and advanced, on websites, in brochures and testimonials, the word that recurs is “ethics.”

More than a frequent refrain, “ethics” is almost a plea to the “outside world” from the insular, almost self-contained universe of financial advisers and specialists, that the public might hear, accept and trust the professional practice of investment advice.

Too frequently, the profession appears abstruse, disconnected and awash in jargon, and that too frequently serves as cover for the incompetent and the greedy. The hapless observer is reminded of the TV advertisement that opens in the offices of MUFG, one of the world’s leading financial groups with 1,100 offices in more than 40 countries.

A trim, man in a suit sits at a conference table with a series of three “clients,” discussing retirement investments as the “more traditional way to go,” but steers the conversation toward “asset allocation.”

The clients eagerly nod, declaring their confidence in his professionalism – until the big “reveal” – Our adviser is a fraud, a dreadlocked DJ who displays a video of his recent haircut and acquisition of a three-piece suit and proper shoes. When he starts to dance in the boardroom, his clients are visibly shocked – although their explicit comments go unrecorded for the hidden camera.

“You just never know,” goes the voice-over refrain, pitching an institute of professional training for financial advisers.

Another advertisement suggests a TV game show in which putative clients choose among three candidates, hidden behind doors, to provide financial advice. Each “adviser” recommends gold: “With the right investors there is a lot of money to be made.”

However, one of the candidates is revealed to be a charlatan. The client declares himself “done with you” as the faker protests: “But … I can … I can …” and the door slams in his face.

A globalized economy and legions of middle-class workers with a little spare cash – and dreams of hitting it big in the market – have sent the financial-advice industry into hyper-drive.

The Chartered Financial Analyst Institute, both globally and locally – perhaps especially in Cayman, which is known as the world’s fifth-largest financial center – seeks to counter that image of slippery fly-by-night advisers.

The institute offers educational programs, lectures, conferences, seminars, printed and video material – and official CFA designation – through its 90 branches in the Americas, nearly 20 more in Asia and another 40 in Europe, the Middle East and Africa, registering more than 142,000 members in 159 countries.

The nonprofit, headquartered in Charlottesville, Virginia, was founded in 1947, and throughout its network offers a Chartered Financial Analyst certificate and designations in Investment Performance Measurement and Claritas Investment.

The CFA certificate is a professional/graduate-level program aimed at portfolio and wealth managers, investment and research analysts, professionals involved in making decisions about investments, and finance students seeking work in investment management.

The Investment Performance Measurement program targets professionals charged with appraising and selecting portfolio managers, evaluating portfolio performance and communicating with clients.

Claritas, renamed the CFA Institute Investment Foundations program, is almost a “finance 101” review of industry imperatives, offering a snapshot of the roles and responsibilities of investment decision-makers, regulators, compliance officers, fund lawyers, fund administrators and back-office personnel. The certificate also indicates a grasp of the importance of ethical conduct.

The institute also operates the CFA Institute Research Challenge for university students and the Research Foundation of CFA Institute.

Locally, the CFA Society was created 20 years ago as a chapter of the Virginia institute. CFA president Monique Frederick says the 145-member Cayman branch “sets the standard for professional excellence and credentials,” championing ethical behavior and standing as a “respected source of knowledge in the global financial community,” while administering what she describes as “the gold standard of investment examinations,” the CFA exam.

The society’s 11-member volunteer board is comprised largely of those in the accounting and fund industries who are resident on island. Annual elections select executive committee members for one-year and others for two years.

Funding, Frederick says, is from membership dues, resources from the U.S.-based institute and corporate sponsorship for some of the larger events.

Among those events was May’s “Putting Investors First” initiative, part of the society’s “Future of Finance” program, which, says Frederick, “is about taking a leadership role to shape a trustworthy, forward-thinking financial industry that better serves society.

“It’s our way of furthering our financial literacy initiative while giving back to the broader community,” she says.

A 16-minute documentary from the “Putting Investors First” program featured a diverse group of local community members: students, CFA charterholders, financial professionals, government ministers and investors.

“We have also made available a series of investment guides which can be downloaded from our website,” Frederick says.

The website offers more information, recommendations overviews, testimonials, brochures, videos and advice than anyone can absorb in a single sitting.

The society’s flagship event is the annual half-day October Cayman Investment Forum, featuring prominent international speakers. The gathering is open to the public and typically attracts more than 200 attendees.

The next CFA event is the Jan. 19 annual Charter Award and Forecasting Dinner, “an opportunity to congratulate those who received their charter and celebrate their achievement,” Frederick said. Details of the gathering, also open to the public, will be published on CFA’s website.

Among CFA’s essential tools that help “motivate and empower the world of finance to become an environment where investor interests come first, markets function at their best and economies grow,” according to Frederick – is the 10-point “Statement of Investor Rights,” based on the institute’s Code of Conduct and Standards of Ethics.

Like the consumer bill of rights or the American Hospital Association’s patient bill of rights, CFA’s “investors bill of rights” advocates a more active role for participants in their financial activities.

“While engaging the services of financial professionals and organizations,” the list begins, “I have the right to … honest, competent and ethical conduct; independent and objective advice; my financial interests taking precedence; fair treatment; disclosure of any existing or potential conflicts of interest; an understanding of my circumstances; clear, accurate, complete and timely communications; an explanation of all fees and costs charged to me; confidentiality of my information; and appropriate and complete records.”

Finance executives are not obliged to be CFA members or hold CFA certificates, but, says Frederick, “most developed financial markets require that those who trade in specific financial instruments – i.e. stocks, bonds, derivatives, mutual funds – obtain the requisite licenses to sell these products. There are a myriad of courses, diplomas and designations within the investment industry, all designed to educate those seeking a career in the industry.”

While Cayman has no minimum standards for practicing as an investment adviser or manager, she says, “Most well-established investment firms recruit professionals with the necessary skills and qualifications.”

Myriad courses are available globally, but, says the society president, “the CFA designation is a global qualification recognized worldwide demonstrating a mastery of knowledge of investment management, and earns lasting respect from peers, employers and clients.”

The chief reason CFA charterholders are in demand is “the high ethical standards and respect for compliance prominently featured throughout the program,” Frederick says.

“Not all financial advisers are members of the CFA Institute, and not all financial advisers are Chartered Financial Analysts. We definitely encourage Cayman regulators to consider implementing minimum qualifications for those practicing in the industry,” she says, adding, “We try to make the investing public aware of the designation and what it represents.

Put simply, Frederick says, “The CFA charter is: knowledge plus ethics equals a CFA charterholder. This is what investors should look for in an investment professional.”

More than 97 percent of CFA members are charterholders, she says, adding that affiliate membership is open to investment professionals who are unlikely to participate in the CFA program or who have not yet qualified for regular membership. Associate membership is for professionals and students who have completed the Investment Foundations Program.

Gaining a full charter, however, requires three levels of exams, four years of relevant professional investment experience and a commitment to a code of ethics. Frederick – and the society – are uncompromising: “The curriculum covers academic theory, current industry practice and ethical and professional standards to provide a strong foundation of advanced investment analysis and real-world portfolio-management skills.”

The society, as the forum for investment professionals in the Cayman Islands, means creating a series of initiatives engaging all “stakeholders,” which includes society members, future investment professionals, educators, government, the media, employers, investors and the general public.

“We offer a world-class suite of educational offerings to students, working professionals and regulators who are shaping the future of finance,” she says. “Through the institute’s formal educational programs and our speaker events we aim to deepen financial expertise to the benefit of investors in Cayman and beyond.

“For CFA candidates we offer exam preparation assistance in the form of mock exams, three-day review courses and discounts on exam-preparation materials. More importantly is the availability of needs-based scholarships offered by the CFA Institute.

“We host several networking and social events throughout the year, including an after-exam social, an exam results social, an annual charter award and forecasting dinner, and a summer social.

“We also conduct CFA program information sessions aimed at anyone interested in learning more about the program.”

Finally, a network of local relationships not only helps sustain the society, but also keeps the industry apprised of developments.

“The society believes it’s important to build strong relationships with all participants in the investment community including regulators and legislators,” she says, “The society was instrumental in connecting CIMA, the Department of Labour and Pensions and the Department of Commerce and Investment with the CFA Institute’s Scholarship Department.”

The society offers regulator and media scholarships, which, Frederick says, promote top ethics, education and professional standards. The program has proved so popular that within the last two years several government departments and CIMA have become scholarship participants.

“The society has also worked closely with the Department of Labour and Pensions to provide a seminar to pension trustees on ethical decision making,” she says, and consultation is regularly offered on proposed legislation pertaining to the investment industry.

“We have worked with the University College of the Cayman Islands [in] the last three years to compete in the CFA Research Challenge,” an annual global competition providing university students with “hands-on mentoring and intensive training in financial analysis,” Frederick says. “This year we are incredibly excited to have two teams competing – one from UCCI and a second from the International College of the Cayman Islands.”

The society has responded to the need for greater financial literacy by creating a twice-monthly 30-minute Radio Cayman show, “Money Sense,” attracting speakers from government, the financial industry and investment professionals, Frederick said.

“Cayman Finance is another important body we have aligned ourselves with,” she says. “We have also been fortunate to have representatives from the different financial services sub-sectors join us on the radio show.”

Globally, CFA charterholders, she says, “are employed as portfolio managers, research analysts, risk managers, financial advisers and other roles,” but the designation does not limit professionals to a particular role or a particular industry, and gaining it requires at least four years in the investment decision-making process.

“Some charterholders pursued the designation for future career advancement or with the objective of changing roles in the future,” Frederick says. “The skills acquired are relevant for managing both private client and institutional portfolios.”