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

CFA Institute

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® ProgrammeA 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.

CFA Institute

134 Member Societies, 55 Nations, 4 Offices, 86,000 members

AustriaBelgiumBulgariaCyprusCzech RepublicDenmarkFinlandFrance

PolandRomaniaRussiaSpainSwedenSwitzerlandTurkey United Kingdom

Australia (Sydney & Melbourne)Hong KongIndonesiaJapanKoreaMalaysiaNew ZealandPakistanPhilippines (Manila)SingaporeSri LankaThailand

Saudi ArabiaSouth AfricaUnited Arab Emirates

BahrainBermudaEgyptJordanLebanonMauritius

Argentina & UruguayBahamasBarbadosBrazilCayman IslandsMexicoTrinidad & Tobago

United States:70 Societies

Canada: 12 Societies

32 EMEA Societies

Offices in USA, UK (EMEA), Hong Kong (Asia)

GermanyHellenicHungaryIrelandItalyLuxembourgNetherlands

CFA Institute

Values:

Integrity Professional Excellence Volunteer Service Strength of Community & Cooperation

CFA Institute: Core Values

CFA Institute

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)

CFA Institute: Range of Activities

CFA Institute

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.

CFA Institute

CFA Centre Policy Groups

Research & Policy Formulation

Standardsof Practice--------------------------------------------------

•Code of Ethics & Standards of Conduct•Asset Manager Code•Soft Dollar Standards•Research Objectivity•Trade Management

InvestmentPerformance-----------------------------------------------

•AIMR-PPS®•Global Investment Performance Standards - GIPS®

Capital MarketsPolicy------------------------------------------------

•Market Regulation•Corporate Disclosure & Governance•Financial Accounting & Auditing Standards•Self-Regulatory Orgs

CFA Institute

CFA Centre Staff Structure

Research & Policy Formulation

Jonathan Boersma, CFADirector – Standards of Practice

Kurt Schacht, CFA – Managing Director

Alecia Licata Director – Investment

Performance Standards

Rebecca McEnally, CFA

Director – Capital Markets Policy

John Barrass Head – CFA Centre for Europe,

Middle East, & Africa

Lee Kha Loon, CFA Head – CFA Centre for Asia

Pacific

Bob Luck, CFA Director – Society & Member

Relations

Global Outreach & Advocacy

Society & Member Relations

CFA Institute

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

CFA Centre Advocacy

CFA Institute

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

CFA Centre: Professional Standards (a selection)

CFA Institute

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

CFA Institute

Standards for Our Members

CFA Institute

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.

CFA Institute

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.

CFA Institute

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.

CFA Institute

Short Termism Project

Blue Ribbon Panel MeetingsMeetings with corporate issuers, analysts, asset

managers, institutional investors led to recommendations in 5 areas:– Earnings Guidance Reform– Incentives– Leadership– Communications & Transparency– Education

CFA Institute

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

CFA Institute

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

CFA Institute

Pension Fund Trustee Code

Conduct of Pension Fund Trustees

Conflicts of interest

Competence

Due Diligence

Fiduciary Duty & Delegation

Personal Travel and Gifts

CFA Institute

Working Together

Cooperation Across Divisions at CFA Institute

P&PD = 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

CFA Institute

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

CHARTERED FINANCIAL ANALYST®: Key Features

CFA Institute

The CFA® Programme

EXAMINATIONS

CURRICULUM

BODY OF KNOWLEDGE

PRACTICE ANALYSIS

GRADING

MINIMUM PASSINGSCORE (MPS) -CFA INSTITUTE GOVERNORS

CCC

COE

Practitioners at every step of the process

EXAMINATIONADMINISTRATION

CFA Institute

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.

CFA Institute

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)

CFA Institute

Body of Knowledge

Portfolio Management and Performance Presentation

Investment Tools

Asset Valuation

Portfolio Management

Ethical and Professional Standards Quantitative Methods Economics Financial Statement Analysis Corporate Finance

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

CFA Institute

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.

CFA Institute

Curriculum

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

LEVEL I

50%

15%5%

30%

Professional StandardsInvestment ToolsAsset ValuationPortfolio Management

LEVEL II

40%

10%10%

40%

Professional StandardsInvestment ToolsAsset ValuationPortfolio Management

LEVEL III

50%

5%

35%

10%

Professional StandardsInvestment ToolsAsset ValuationPortfolio Management

CFA Institute

Curriculum

Each reading has learning outcome statements (LOS): “The candidate should be able to…”

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

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

CFA Institute

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

CFA Institute

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

CFA Institute

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 sets—100% Level III Portfolio Management Essays—50% Other topics Item sets—50%

CFA Institute

Examinations

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

Multiple choice: stand alone individual multiple choice questions; 1 question = 1.5 minutes, exam = 240 questions = 360 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

CFA Institute

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

CFA Institute

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 level’s MPS

CFA Institute

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.

CFA: Employers’ Attitudes

CFA Institute

Employers of Charterholders

CFA Institute

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.

CFA Institute

0.000.100.200.300.400.500.600.700.800.901.00

1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003

Year

Per

cen

t P

ass

Combined Pass Rates 1963-2005

CFA Institute

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

CFA Institute

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

CFA Institute

Estimated Basic Costs for Level I (all amounts GBP)

*Assumes Registration and Enrollment received by 16 February 2007

CFA® Programme Costs

•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

CFA Institute

Take your CFA Charter to theBank…

Non- charter holders

€140,000

€ 175,000

CFA Charter holders

The CFA Premium = € 35,000

Median Total Compensation for CFA Institute Members with 10+ Years Experience 2003 Compensation Survey

CFA Institute

Contact Information

Information Central, EuropeCFA Institute, 10th Floor, One Canada SquareCanary Wharf, London E14 5AB, United Kingdom

Telephone: +44 (0) 20 7531 0751Fax: +44 (0) 20 7531 0767

E-mail: infoeu@cfainstitute.org www.cfainstitute.orgClick on “CFA Program”

John BarrassTelephone: +44 (0) 20 7531 0761E-mail: john.barrass@cfainstitute.org

Ann Marie Wood CFA South AfricaP O Box 131, Ferndale2160 South AfricaTel: +27 011 791 0105Fax: +27 011 791 0107Email: info@cfa.ac.za