Lessons learnt
If you want to get ahead in financial services, what letters should you fish out of your alphabet soup? Historically everyone wanted to do an MBA. Today most people agree that business schools are fantastic if you want to climb the greasy pole at Unilever or General Electric. But I’m not sure they help much for entrepreneurs setting up a chain of dry cleaners. And, unfortunately, MBA students are taught to assassinate the English language with all those paradigms and narratives.
MBAS have their place, but they aren’t ideally suited to executives embedded in the investment management food chain. They should rather look at those Siamese twins, the chartered financial analyst (CFA) and the certified financial planner (CFP).
The CFP is by all accounts the less labour intensive of the two, but it plays a pivotal role in the personal development of financial advisers. Just as tadpoles become frogs, what used to be insurance salesmen are turned into financial planners. Time spent studying for a CFP is like rehab — a 12-step programme for recovering policy peddlers.
I am still not sure what is so shameful about sales, which will always form part of the financial adviser’s tasks. But it is relevant for a dyed-in-the-wool salesman to learn more about planning.
According to David Ferguson, who runs the Nucleus platform in the UK, the financial planning business has survived the onslaught from regulation and technology such as robo-advice much better than expected. Out of the 1.83% paid for investments on a typical UK platform, 0.81% is paid to advisers, and the trend is upwards. But fund management, which used to command more than 0.8%, is now down to 0.53%.
Strong objections
Ironically, the ambitious are flocking to the CFA exam. Until CFA, a charterholder was someone with a royal patent to explore and plunder what we now call emerging markets. Now, just about all spreadsheet jockeys on the buy and sell side are charterholders, the rather grandiose term for people who have passed their CFA exam. In fact, the British government objected strongly, as charterholder historically referred to Cecil John Rhodes and his ilk, who had been given charters by the queen.
Active management must be in longterm decline as more portfolios move to index trackers — which, of course, employ far fewer people. It won’t be long before writing the CFA exam will make as much sense as Brits writing the Indian civil service exam in 1946, just before independence.
Wells Fargo Asset Management president Nico Marais doesn’t think it is a good thing that so many people write the CFA (it is expected to be more than 250,000 people this year). He believes the process encourages people to view markets the same way, and doesn’t leave much room for mavericks. The most successful asset managers I’ve come across have diverse educational backgrounds. Engineers often make particularly good portfolio managers.
CFA is supposed to be international, yet all the exams are taken in American English using the multiple choice system little used elsewhere. Unlike the CFP exam, papers are not adapted to take account of local laws and market conditions. It does, however, have a following among South Africans, who make up the third- or fourth-largest contingent at the annual junkets. You can spot them — they are the ones who aspire to be “thought leaders”.
Ploughing through the CFA syllabus may be beneficial for analysts and fund managers. But from what I have seen, a lot of it is stuff that should have been learnt on the job.
Ploughing through the CFA syllabus may be beneficial, but a lot of it is stuff that should have been learnt on the job