Many articles written about the CFA qualification focus on the benefit to the individual pursuing or holding the charter. In June 2014, The Analyst covered this topic by asking a panel of recruiters to weigh in on whether employers preferred the CFA or MBA designation. However, charterholders themselves aren’t the only beneficiaries of the insight provided from the designation. Here, we speak with three investment professionals to understand whether the CFA designation has had an impact on their investment recommendations, and how it’s perceived by the clients they work with.

CONTRIBUTORS
AUGUST CRUIKSHANKS
Director of research, Eckler Ltd.

LORI LIVINGSTONE
Portfolio manager, BMO Nesbitt Burns

JASON PEREIRA
Senior financial consultant, Woodgate & IPC Investment Corp.

When selecting and reviewing investment strategies, do you intentionally seek out portfolio managers (PMs) who are CFA charterholders?

August Cruikshanks: We don’t explicitly screen for [a] specific criterion like this, but we certainly take notice of whether or not the investment professionals we’re evaluating are charterholders. A team that has a higher proportion of charterholders certainly counts as a positive in our qualitative evaluation of a firm and/or strategy.

Jason Pereira: I don’t recall ever looking at any asset manager that didn’t have a team of CFA charterholders working there, so explicit screening for it would be moot. While I’m sure there are successful PMs who are not CFA charterholders, to not have the designation would be a hit to credibility in my eyes.

Lori Livingstone: The majority of PMs who are OSC-licensed are CFA charterholders. Even back in 1989, when I received my CFA designation, it was pretty much a necessity to have one in order to work as a PM to manage institutional money.

Looking beyond PMs, do your views on the CFA qualification extend to other business areas or the firm overall?

LL: The more CFAs in a firm can only be a good thing. The knowledge learned in the course and through continuing education goes beyond portfolio management. For example, areas like Operations can benefit from the knowledge around performance reporting, and the ethics content is certainly relevant for anyone in the industry. Plus, most teams don’t work in silos, so it’s good to have a common knowledge base.

JP: I agree. The curriculum content has made me a better independent business owner, as I can apply the same knowledge that I apply to analyzing other companies to my own business and when advising clients who are business owners.

AC: One of the recent developments in our industry is the increased availability of data through tools like the eVestment database, which show us, for example, the total number of CFA charterholders employed at a given firm and descriptions of their responsibilities. To the extent we see individuals who are charterholders in, for example, Compliance or other areas at the firm would likely be a positive.

Which other designations or credentials do you or your clients value?

AC: It depends on the context. We expect to see more people with advanced degrees in areas like math involved in quantitatively driven strategies, or professionals with actuarial backgrounds managing liability-driven fixed income strategies. However, if we change the context to a smaller fundamental equity team where everyone is a generalist, we can compare the relative value of the CFA designation versus, say, an MBA. In that situation, I think the value of a CFA would be easier to assess because there is a standardized body of knowledge we can all relate to.

JP: Yes, but having an MBA helps broaden one’s knowledge of business dynamics and operations, which can also contribute to making someone a better investment professional. I find the CFA designation is generally perceived by clients to be more challenging, given the self-study format, volume and breadth of content, and single exam per level testing. Clients like to see they’re dealing with people who have furthered their education. In the private client space, the Certified Financial Planner (CFP) is quickly becoming a minimum standard for financial planners and is becoming more recognized by the public, while the Trust and Estate Practitioner (TEP) designation is becoming more widely recognized but more so among other professionals.

LL: The designations that August and Jason mention are certainly valued by some clients I work with—particularly the CFP. I have a team member who is a CFP; having that expertise allows us to provide detailed financial planning for clients. Having a financial plan provides the best outcomes for clients.

How does the CFA designation, or the standards associated with the CFA Institute, come up in conversations with clients?

JP: When shopping around for an advisor, prospects are comparing qualifications more than ever, and the CFA designation often comes up as a point of differentiation.

LL: I always bring up my CFA designation when I meet with potential clients. In addition to the rigour of the course, I talk about the ethical standards and the emphasis on continuing education. I also explain what it means to be a fiduciary. The demands on everyone managing money for individuals are rising—and so is the scrutiny. The advice industry needs to be better regulated and more professional; this is where the standards and ethics associated with the CFA designation can play a role.

AC: The Institute’s standards are not really emphasized less in client discussions, but they’re very important to our due diligence efforts. In addition to charterholders’ ethical standards, the big three are Global Investment Performance Standards (GIPS), Soft Dollar Standards, and Asset Manager Code of Professional Conduct. GIPS is almost a requirement we have for most of the firms we deal with. When a firm can’t claim compliance, that definitely raises questions from us. The Soft Dollar Standards and Asset Manager Code are also important, but compliance with these is less common. As a result, we have conversations with firms about their reasons for not claiming compliance: which, frankly, often aren’t satisfactory.

Are there any misconceptions about the CFA designation that need to be addressed?

LL: I think the issue is awareness. Clients should know they have choices. CFA Institute has really stepped up its effort to improve this and has an excellent article—“Why You Should Hire a CFA Charterholder”—about this. While having a CFA designation is no guarantee a client will have an ideal experience, they’ll know the person managing their money had the desire and ability to pass the very rigorous exams.

JP: On rare occasions, I’ll hear “You don’t need a CFA to be an advisor” or insinuations that the designation is overkill. I take exception to that because financial advisors are the go-between between clients and PMs. Advisors should be able to fully understand what PMs do and, more importantly, the tools they use. Sure, you can be an advisor without a CFA, but [the designation] can go a long way to making you a better one.

AC: Where I see room for improvement goes back to the Soft Dollar Standards and Asset Manager Code. These are important benchmarks for the asset manager community and I think— especially in the case of the code—they don’t get the attention they deserve. We could have fuller discussions on each of these, but I’ll just highlight one example. About half of the firms in eVestment’s Canadian equity and fixed income universes don’t claim compliance with the Asset Manager Code. Our investment manager community could do a lot better.