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Build Trust as Well as Portfolios, CFA Institute Executive Says

By Wisconsin School of Business

April 26, 2016

Two challenges await students who see themselves as future holders of the CFA (Chartered Financial Analyst) designation, says Paul Smith, CFA, president and CEO of CFA Institute.

The first is preparation for the rigorous testing to earn the charter. The second is to help improve the reputation of investment professionals by serving clients well and operating with a strong sense of ethics.

Paul Smith
Paul Smith, CFA, president and CEO of CFA Institute. PHOTO: PAUL L. NEWBY II

Both were at the heart of a discussion by the head of the global association of investment management professionals on his visit to the Hawk Center for Applied Security Analysis at the Wisconsin School of Business in April. Smith, speaking to students and faculty, says it is important for CFA Institute to connect people to the organization’s mission of using the skills of its professionals “for the ultimate benefit of society.”

“When people think of investment management, they have all sorts of strange associations going through their head, and Hollywood doesn’t help,” says Smith, citing recent movies such as The Big Short and The Wolf of Wall Street and pointing out that those films aren’t even about the financial services investment managers provide.

“What distinguishes a profession is that a professional puts their clients’ interests before their own interests,” Smith says. “That means renouncing the profit motive in order to serve your clients first and last. That’s what we take very much to heart at CFA Institute.”

CFA Institute has more than 135,000 members in more than 145 countries and territories and 147 local member societies. CFA Institute works to develop professionals, connecting them through networking and embedding a strong code of ethics. The CFA Program, the flagship educational program offered by CFA Institute along with the CIPM Program and the Claritas Program, sets a global standard for the investment management profession. The Wisconsin School of Business’ Hawk Center is a CFA Program Partner school.

Producing ethical financial leaders

Ethics have been a particular area of emphasis for CFA Institute since the 2008 financial crisis, Smith says, because that’s where CFA charterholders can distinguish themselves.

“We can only build a sustainable industry on the trust our clients have,” he says.

Pack Zhao
Pack Zhao (BBA ’16)

The combination of the financial crisis and Hollywood’s image-making hasn’t scared off students from pursuing investment management careers; it’s had the opposite effect.

“Finance to us isn’t a negative word, it’s a way for us to help you manage your money the way a doctor would help you with a health issue,” says Pack Zhao (BBA ’16). “We want to do something to help people, not just for the compensation.”

Joey Hoffmann (BBA ’18) said the economic downturn inspired him to become someone who helps bring trust to his chosen profession.

“Part of why I want to earn the CFA charter and go into wealth management is because a lot of the issues created in 2008,” he says. “If you’re analyzing companies or stocks, you can’t be making things up and making profits off people.”

Joey Hoffman
Joey Hoffmann (BBA ’18) listens as Paul Smith answers his question on managing hedge funds. PHOTO: PAUL L. NEWBY II

While Hollywood has helped feed cynicism of investment professionals, Smith says, people in the developing world are well aware of the need for a strong financial services industry. It’s also where the professions potential growth industry is.

“This piece of our mission is absolutely vital—to make people understand that without a properly functioning financial services world, and the investment services piece of that, societies don’t work very well,” Smith says. “They don’t provide their citizens with a decent standard of living, people don’t have retirement balances to live on, they can’t pay off their mortgage, or they can’t pay their kids’ school fees. We take this very seriously.”

There are practical ways professionals can help build that trust, Smith says. While people connect investment management with performance, he says, what clients really value are full disclosure and communication of fees, transparency, and reliable service.

“Investment returns are cyclical, so why as a profession do we always promote ourselves on the one thing that is always going to come back to bite us on the backside?” Smith asks. “It’s much better to focus on the things you can consistently deliver to your client.”

One step toward being able to deliver those things to clients is earning the CFA charter that, Smith says, helps develop a comprehensive investment perspective, a fluency in investment analysis, a commitment to ethics, and credibility with industry peers worldwide.

Eyes on the CFA credential prize among WSB students

Many who came to hear Smith speak plan to take the rigorous exam. The first level is offered twice a year, the other two levels are offered just once a year.

Kara Olsen
Kara Olsen (BBA ’17)

Smith estimates preparation for the six-hour exam involves approximately 3,000 pages of curriculum to study. The pass rate percentage for Level I ranges around the low 40s.

“You don’t really realize how much prep there is for the exam until someone tells you about it,” says Kara Olsen (BBA ’17), president of the WSB’s Finance and Investment Society.

Brandon Jankowski (MBA ’16) knows that first hand. He has already passed all three levels of the exam, and says the effort is worth it. After graduation, he’ll work in high-yield investment for Columbia Threadneedle Investments in Minneapolis and says most job postings he sees with an investment research component require at least one level of the CFA.

Brian Jankowski
Brandon Jankowski (MBA ’16)

“It’s almost a minimum requirement to have it or to be making progress toward it,” he says.

The Hawk Center actively supports Applied Security Analysis Program students in obtaining their CFA charter.

“The curriculum our ASAP students go through covers more than 70 percent of the material on all three levels of the CFA exams,” says Hawk Center Director Brian Hellmer. “We also provide subsidized study materials and a mock exam oppor
tunity to our students to help them prepare for the exam.”

Smith calls the CFA charter a “passport into the profession.” But, he says, it’s also no guarantee.

“It’s meant to be the entry ticket into the profession,” he says. “Whether you become a good investment manager depends on what you do with your career after that.”

Learn more about the Hawk Center for Applied Security Analysis.