In today’s sophisticated investment world, it’s easy to forget both how much the investment industry has changed in our lifetimes, and how those changes have come about. It’s equally easy to assume that the industry has reached an optimum state, and needs little further change to fulfil its purpose in our economy and society. But change is still very much needed, and very much in progress. Recently, the chair of CFA Society Toronto reminded members of this history in a letter, which stated that the mission of CFA Society Toronto is to create opportunities for its members to raise standards and to make high-quality contributions toward an ever more trustworthy financial community.

An awareness of the history of any field of knowledge provides a valuable perspective on the existing state of affairs. With this in mind, it’s useful to reflect on the role CFA Institute has played in developing and promulgating its body of knowledge, professional standards, and ethics—and in transforming what was once a freewheeling business into a global profession.

“Ethics is knowing the difference between what you have a right to do and what is right to do.”
– U.S. Supreme Court Justice, Potter Stewart

U.S. Supreme Court Justice Potter Stewart once remarked that ethics is knowing the difference between what you have a right to do and what is right to do. It’s amazing to recall that insider trading was legal in most of Europe and Asia (where it was regarded as a prerogative of management and directors) in the late 1960s, when today’s retiring baby boomers were entering the investment industry. Fixed trading and mutual fund commissions provided an umbrella under which a wide range of benefits was effectively rebated (“kicked back,” to put it less kindly) to investment managers and securities salesmen.

The concept of independent investment research was vague and little recognized. Quarterly reporting was confined to the U.S., accounting and financial disclosure standards were low and varied widely by country, and investment management was a relationship-based activity lacking the discipline of rigorous analysis. Research analysts were few in number, and largely engaged in compiling statistics that were hard to come by in an age completely dominated by printed paper records. Computers (even word processors), analyst/investor conference calls, and detailed management discussions and analyses in financial reports were all either non-existent or embryonic in the extreme.

“Nothing in the history of ideas can compare with such a cascade of ideas in such a short period of time.”
– Peter Bernstein, investor, author, and philosopher

Integrity, it’s said, is doing the right thing, even if nobody is watching. And, in this environment of sparse knowledge and poorly defined professional ethics, the primary objective of the newly formed CFA Institute was to create a body of knowledge and ethical and professional standards as well as a related examination program leading to the designation of chartered financial analyst. Out of this initiative came a profession—that of investment analysis and portfolio management—where, previously, there had existed only loosely defined business relationships and a wide variety of practices.

Peter Bernstein, the legendary investor, author, and philosopher of the investing process, remarked that, in the period from 1952 to 1973, an entire body of knowledge and code of ethics were created essentially from scratch, with only a few scattered roots in the past. Nothing in the history of ideas, he observed, could compare with such a cascade of ideas in such a short period of time. From the formation in 1952 of a special committee of the National Federation of Financial Analysts’ Societies in the U.S. (a predecessor to CFA Institute) to “consider the feasibility of creating a certification system for investment managers and analysts on a national basis,” this 21-year period saw the creation of modern portfolio theory. By comparison, he noted, economic theory saw 160 years come between Adam Smith and John Maynard Keynes; in physics, centuries came between Euclid, Newton, and Einstein.

In 1954, the Financial Analysts Journal was established as an organ for sharing investment ideas and theories. The period 1959 to 1963 saw the development of the CFA program with its body of knowledge, code of ethics, and standards of practice. The exploration of the use of computers in financial analysis began in 1966, and the ICFA Research Foundation was formed in 1967. The comprehensive revision of the code of ethics and standards of practice (and the creation of a committee for updates) began in 1967. The addition of quantitative techniques to the CFA body of knowledge occurred in 1971. Throughout those two seminal decades, special committees comprising practising investment managers, analysts, and academics (the synthesis of practitioner and academic knowledge has always been CFA Institute’s unique strength) were formed to establish and update the CFA curriculum and examinations. They also met with and/or testified to the U.S. Securities and Exchange Commission, the U.S. Accounting Principles Board, and other regulators on reporting, disclosure, and professional conduct issues.

But those unprecedented gifts to the investment industry, which served to jump-start a global profession, were not one-time in nature. Over the years, the slogan “the gift that keeps on giving” has been used to describe everyday things, from household appliances to cameras. But, despite the wear of many years, the slogan still seems particularly apt for describing CFA Institute’s work. That’s because today, the knowledge, ethics, and standards that were created decades ago are still continually being enhanced and expanded by the Institute’s volunteers and staff for the edification of the investment profession.

Since 1973, the growth of this body of knowledge has continued at a rapid pace. (Today’s study materials, for example, are more than twice the length and far more complex than those of the early 1970s.) The expansion in the geographic scope of CFA Institute has also been expansive. The Institute has grown from under 2,000 members in the early 1970s—almost all in the U.S. and Canada—to more than 150,000 members today—not including 250,000 candidates in the CFA program—in 140 countries, with more than half outside North America.

Education has always been the cornerstone of CFA Institute’s work in progress. Advocacy—the act of publicly proposing or supporting ideas or ways of doing things—has always been at the leading edge of the Institute’s efforts to educate and improve ethics and standards in the investment profession. From its small beginnings in the U.S. and Canada decades ago, when many regulators and others feared CFA Institute might be just another lobby group for investment industry interests, our advocacy initiatives have evolved into numerous global and local committees of specialists whose first-hand experience and insights into the investment industry enable CFA Institute to guide the investment profession as it advances into the future. CFA Institute’s Future of Finance project has as its goal the motivation and empowerment of the world of finance to become an environment in which investor interests come first, markets function at their best, and economies grow. Our committees have played leading roles of late in the public debate of such vitally important issues as fiduciary duty, systemic risk, high-frequency trading, dark pools, the “Volker Rule,” securities commissions jurisdictions and funding, small and medium-sized enterprise finance, and crowdfunding. CFA Institute and its larger societies across the globe have advocacy committees that make recommendations for change, and comment on proposals for change to securities regulators, accounting standards setting boards, and other government and quasi-government bodies that are involved in organizing and regulating all aspects of investment management and research.

CFA Institute and its societies continually welcome participation by members in their education and advocacy committees, and in communications from members on specific issues, with a view to continuing to improve fairness and trust in capital markets. The complexity and influence of capital markets today make the importance of effective education and advocacy greater than it has ever been. In light of the massive changes in types and trading of financial instruments, the scale of globalization, and the proliferation of investment products and investment strategies available in the marketplace, CFA Institute has said that it regards the investment profession as being at an inflection point at which old models and maxims cannot be blindly relied upon. In other words, the work of the founders and first practitioners of the investment profession, far from being completed, is actually entering a new and even more demanding phase. The challenge to take our profession forward has never been greater.

“Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.”
– Margaret Mead, cultural anthropologist

The famous cultural anthropologist Margaret Mead once said, “Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.” Every CFA Society Toronto member today should view those words as an invitation to become more involved in our Society’s advocacy and educational activities (a quick visit to our website will show you how). To evoke a classic movie’s final line*, it could be the beginning of a beautiful friendship—one that will really help to make our investment world a better place.

* Casablanca (Warner Bros.,1942)