The CFA Charter: A Standard of Excellence for Investment Professionals
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By John Alexander Adam
The CFA charter is the gold standard for investment professionals and is governed by The CFA Institute, a Charlottesville, USA-based NGO. Every year tens of thousands of hopefuls (172,682 candidates from 183 countries in 2016) sit one of the three bands of CFA exams designed to demonstrate their competence in the knowledge and skill set required for them to manage investment portfolios for a living.
An Accreditation Standard with History
The history of CFA charter stretches right the way back to 1947, when the Financial Analysts Federation (FAF), forefather of the CFA, was founded as a service organization for investment professionals. Originally members qualified exclusively on the basis of their work experience within the investment industry before the 1963 establishment of an examination process. In 1990, the FAF merged with the Association for Investment Management and Research (ICFA), and the Institute of Chartered Financial Analysts (ICFA), to create the present day CFA Institute.
What the CFA charter Means
The premise of CFA program for investment industry professionals is that they not only possess the knowledge and skills base necessary to be trustworthy guardians and managers of investment funds but also conduct their activities within a framework of high ethical standards. The ethical principles of the CFA charter process is designed to instill in successful candidates to the charter what are considered as a necessary compliment to the regulatory framework, providing trust and confidence in financial and investment markets.
The three bands of CFA exams cover a curriculum that encompasses:
- Ethics and Professional Standards
- Standards of Practice
- Quantitative Methods of Analysis
- Economics, Business Cycles, and Market Forces
- Currencies and Exchange Rates
- Monetary and Fiscal Policy
- Financial Reporting and Analysis
- Financial Ratios, Debt, and Taxation
- Corporate Finance, Mergers, and Acquisitions
- Individual Security Analysis
- Portfolio Analysis and Management
While levels I to III all cover a broad range of knowledge on the above topics, the focus of the questions set builds up from a more theoretical knowledge requirement of professional and ethical standards in Level I. Level II moves on to the practical application of those standards in real life scenarios investment professionals are likely to encounter, while Level III further crystalizes their application within the context of portfolio management and compliance.
A Standard of Excellence
Passing the three levels of CFA program is no mean feat with pass rates marking out holders of the qualification as adhering to a true standard of professional quality. The pass rate for Level I in 2016 has been 43% of all candidates, roughly similar to pass rates over the previous two years. Level II’s pass rate this year was 46%, identical to the previous two years and in 2015 (2016 Level III results have not yet been released) 53% of Level III candidates passed the exam, similar to 2014’s 54% success rate.
The gradually improving pass rates through the three Levels demonstrates the effectiveness of the system in ‘separating the wheat from the chaff’. Less able or hard working candidates fail to make the grade at either Level I or Level II, improving the quality of the pool of candidates sitting the exam for the subsequent Level. This can be seen to lead to a gradually improving pass ratio.
However, the weighted average completion rate of all candidates initially enrolling to sit the Level I exam who ultimately successfully progressed to passing Level III between 2004 and 2013 was only 12.5%. As such, holders of the CFA charter can both be immensely proud of their own achievement as well as having demonstrated that they are deserving of the trust placed in them in their professional activities.
CFA Accreditation in the Middle East
Within the global context, the pass rate of candidates from the Middle East over all three levels of the CFA exams is relatively low, around 10% less than the overall international average. This is generally attributed to the fact that all CFA exams and curriculum course work are in English, making study and answering the exam questions a greater challenge for individuals with a less thorough command of English. Investment professionals from the Middle East in possession of the CFA charter, or who are successfully working their way through the three exams, can therefore be particularly proud of their achievement.