Re: Bloomberg Opinion Piece: “Wall Street’s CFA Program Is a Colossal Waste of Time”

Posted on August 29, 2021 by TheFinanceNerd

On 17th August 2021, Bloomberg published an opinion piece titled “Wall Street’s CFA Program Is a Colossal Waste of Time ” and this post is a response to that article. The CFA Charter has very often been regarded as the gold standard when it comes to qualifications in the financial industry and this article has undoubtedly ignited some discussions, with subreddit threads such as this one being just one of the few examples. Calling the CFA program a “Colossal Waste of Time” seems to be a pretty bold statement and given that in the article the author (Jared Dillian) mentions that he passed level I but never completed the qualification, a lot of readers were quick to dismiss his opinion. The author also expressed his view that he favours MBAs over the CFA program which caused a slight digression towards the comparison of the two qualifications. However, some readers were eager to identify elements of truth in the article as they possibly mull over their options following the decrease in pass rates for the latest sittings.

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May 2021 CFA Level I Results at Historical Low, only 25% Pass

Posted on August 28, 2021 by TheFinanceNerd

The May 2021 numbers for the level I exams have recently been made public, a result that saw only a quarter of test takers get a pass. This is an extremely low pass rate and to put this number into context, this is the lowest pass rate in the exam’s 58-year history. By looking at the historical pass rates published by CFAI, we can see that the percentage of candidates passing the exam is between 40-50%.

woman biting pencil while sitting on chair in front of computer during daytime

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OK, I got the CFA charter, what now?

Posted on July 25, 2021 by TheFinanceNerd

As someone who got the CFA charter six years ago, I recall that when I was studying the curriculum, I came across a lot of advice on forums where discussions were centred around passing the exams but after passing my level III exam, I felt that I needed more guidance on reaping the rewards of my hard work. If you passed the level III exam, chances are that you studied over 1000 hours (this is a rough calculation based on the study hours that CFA Institute estimate). Having had six years of experience as a professional with this designation and having changed jobs a number of times, I would like to share some thoughts that I am hoping newly qualified charterholders might find helpful.

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Japan Investment Conference 2019: The Multi-Stage Life and The Challenges Facing Financial Services

Posted on August 6, 2019 by TheFinanceNerd

This is an event that I attended a couple of weeks ago and the agenda can be found here:

Click to access JIC2019_agenda_EN.pdf

This was a special event as it was also an opportunity to commemorate CFA Japan’s 20 year anniversary. The topic which was chosen was also interestingly titled “The Multi-Stage Life and The Challenges Facing Financial Services”; this deviated from past topics that the society had chosen and there were a lot of people expressing their opinions that this was more aimed at individuals and wealth advisors rather than your traditional institutional investors. Nevertheless I thought the event was a success.

Out of the speakers, Dr. Andrew Scott from the London Business School was one of the main speakers and his presentation was based on his book “The 100-Year Life – Living and Working in an Age of Longevity”. Other presentations followed this theme regarding our longer life expectancies across countries and the need to prepare for a multi-stage retirement phase.

The ongoing debate regarding this trend up until now has been to consider working and retirement as a two stage process. You pretty much work all your life, put money on the side in terms of savings, state pensions and or private pensions. You reach 60 or 65 or whatever the retirement age is in your country and you tap into your pension pot and your assets during your retirement. Assuming a life expectancy of 85-90 that’s 20-25 years that your retirement pot needs to last. If you are looking at 30 years +, it simply isn’t feasible to to have such a large retirement pot. Governments need to get to grips with this reality. Financial service providers will undoubtably capitalise on this and more importantly, as individuals we need to be aware of this and plan accordingly.

Wealth as a Portfolio of Intangible Assets

This was a very important point that was brought up and changed the way I perceive the accumulation of wealth towards retirement. Up until now, I was only looking at retirement in terms of the cash inflows that you could get from your retirement pot (regardless of whether this is in the form of annuities or income from your portfolio). This could not be further from the truth; firstly, our health is a key asset that needs to be treasured, especially in retirement. A healthier life will also result in a reduction of medical bills. Another point worth noting is the earning ability which shouldn’t automatically go to 0 as we retire. As individuals are likely to lead a multi-stage retirement phase, we might see people in their 60s transitioning in other type of roles. For companies, it’s important to treasure this generation who will be abundant in the workforce. As individuals we need to keep aware of our earning abilities and ensure that our skillsets are still required in the current labour markets.

My Thoughts

Financial Institutions will inevitably need to perform a paradigm shift as we see this demographic change. From an asset allocation perspective, I am interested in seeing how individual portfolios will change to have slightly more aggressive allocations to meet long-term return requirements whilst addressing possible liquidity needs especially in retirement years. This is an area that I am very keen on and that I will be researching in the upcoming months. The solution might be that the level of risk might not be optimal for the individual. In such cases, we should look at longer working years to boost portfolio contributions. Overall I think the start is educating people and spreading awareness of this trend; we all need to be conscious that this is a change that we will see in our generation.

CFA Results Are Coming Out on 6th August 2019.

Posted on August 5, 2019 by TheFinanceNerd

So, if you took the June exam, tomorrow is the day that you have been waiting for. Level 1 and Level 2 candidates across the the world will be receiving their CFA scores. Level 3 candidates will have to wait a bit longer. After 9:00 AM E.T. you will get an email from the CFA institute titled “Your CFA Exam Results” . The contents of the email will look like this:

From the first line you can tell straight away if you failed and the email should start with “We regret to inform you….”.

Myths regarding the timing when you receive your email.

The CFA institute says that you will receive your email after 9:00 AM E.T. and some candidates can expect to wait hours before they receive the email. When I was waiting for my exam results, constantly refreshing my inbox and reading forums, people were speculating that candidates who received their emails first had passed and candidates who received their emails later had failed. Over the years I have reached the conclusion that this is utter nonsense and that the order is irrelevant. I have come across both passing and failing candidates who received emails relatively early.

How to interpret the scores?

Unfortunately you will not get told the questions that you got wrong so you will have to look at how strongly you scored in the three bands (<=50%, 51%-70% >70%). Needless to say, if you have many <=50% chances are that you failed. However as I am sure that you are aware, not all topics are weighted equally so if you scored well in highly weighted topics such as equity and financial reporting that might have been enough to offset poor results in other areas. If you failed marginally, the important thing to do now is to identify your weaknesses and to focus on those areas when re-taking the exam, whilst retaining what you learned for other topics.

If you have failed on most topics, don’t despair. In that case, in addition to spending more time in preparing, I strongly advise you to review your study techniques. Exam taking strategies play a key role in the CFA exams so speak with friends who passed and see what worked for them.

I disagree with the marking.

Yes, if you failed marginally and you are confident that you should have passed, you can ask the institute to remark the exam. This will set you back $100 and chances are that things won’t work in your favour, although I have come across a few online posts where candidates were boasting of having had a fail result changed to a pass after asking for their papers to be remarked.

Preparing for the next level.

If you are thrilled that you passed and you want to leverage this positive momentum to get started in your preparation for your next exam, I recommend that you read the following articles where I provide some study tips for levels 1, 2 and 3. I will never get tired of saying this, although all levels share common themes and topics, the type of questions and skill sets required to succeed in each level differ a lot.

I would like to conclude this post by congratulating all candidates regardless of their results. These are not easy exams and only the people who have undergone the preparation and took the exam can understand the effort that it takes in passing. Having had the charter for roughly 3 years now, I am confident that you will reap the rewards of your hard work, so good luck with your journey.

The Time Value of Money

Posted on May 15, 2019 by TheFinanceNerd

The Time Value of Money is a core concept in finance. If you are in the early stages of your studies in the field of finance then this is a concept that you want to ensure that you understand well. In your Finance 101 class your professor might have asked you, “Would you prefer $1.00 today or would you prefer a dollar tomorrow?”. This is when students shout out “A $1.00 today is more valuable assuming no negative rates”.

They would be absolutely correct as a dollar today could be immediately deposited in a bank account to earn interest. Just to avoid adding unnecessary complications we are assuming that any payments in the future are guaranteed so there is no element of uncertainty in the expected payment; both payments are guaranteed so the only differentiator here between a dollar today and a dollar tomorrow is the opportunity cost of losing out in interest payments. So, when you are presented with this question, remember to think of what you could be doing with the money in hand. Interest earned from a bank account was just an example but what if you have a valuable project that you could invest in today to double your cash?

The Relationship Between Future Value and Present Value

So how about $0.97 today or a $1.00 in a year, which would you prefer? Now the answer to this question isn’t as obvious. We first need to make a very important remark as $0.97 and $1.00 are not two quantities that we can compare. We need to compare apples to apples. We can do this in two ways: (1) find what $0.97 would be in terms of Future Value or (2) We can find out how much $1.00 is expressed in Present Value terms. The second method is more common, especially if we think of projects which require immediate cash outlays. I call the option of getting $0.97 today Option A and the option of getting $1.00 in a year Option B.

Assuming you get 3% interest rate for depositing your cash in a bank account, you can calculate how much you would end up with in a year’s time.

FV = Deposit + Interest or 0.97 + (0.97 * 0.03) = 0.9991

A more generic way of calculating future value is:

FV = (1+r)^n * PV

where, r is the interest rate and n is the compounding frequency, in this case 1 year so n = 1. Via the above formula you can calculate the Present Value of your $1 in a year’s time.

FV = PV/(1+r)^n

therefore, 1.00/(1+0.03)^1 = 0.97087

Now we can compare like for like, for Present Value we can summarise our findings in the below table:

	Present Value	Future Value
Option A	0.97	0.9991
Option B	0.97087	1

We can see that both in Present Value Terms and Future Value Terms Option B, or getting $1.00 in a year, results in us being better off.

Time Value of Money is a very powerful concept that comes up everywhere in finance. Whether it is in the form of evaluating companies and projects or finding the fair value of a complex derivative trade, we must always take into account the Time Value of Money in our models.

My Thoughts on the CFA Programme

Posted on May 5, 2019 by TheFinanceNerd

CFA

The CFA (Chartered Financial Analyst) curriculum consists of three exams which test candidates on various topics relating to portfolio management, economics and accounting. Exams are offered twice a year for Level 1 (June and December) and once a year for Levels 2 and 3. Each exam has a morning and an afternoon session which summed together results in a gruelling 6 hour exam experience. I am sure that there are various reasons why people decide to pursue this designation but having spoken to numerous candidates, I believe that they can be summarised in the below bullet points:

Higher Salary: I have seen a lot of online debate around this topic and my opinion is that although having the designation does not automatically guarantee a highly paid job, the CFA charter does come as a preferred qualification under numerous job descriptions (you can look at investment management jobs on eFinancialCareers for example) and it will help you get jobs that are likely to pay a higher salary range.
Company Promotes It: I have met a lot of candidates who work for institutions where CFA is part of their company’s learning and development policy. In addition to paying for exam fees, I heard that these companies will offer employees cash incentives for passing exams.
Increase Employability: this point has lot of overlap with the “Higher Salary” argument. For jobs where CFA knowledge is relevant, having the charter or at least showing on your CV that you are a CFA candidate is likely to increase your chances of an interview. I also think a lot of recruiters use CFA as a keyword when they filter CVs.
Entry into the Buyside: the curriculum is heavily focused on investment management and I have seen a lot of people justify their study hours thinking the qualification would allow them to get a job at a fund; for some it paid off and for others it didn’t.
My Friends are doing it: if you are already working in the financial sector and if every year around May, all you hear about is the CFA exam I can see how you can get inevitably influenced. Especially at big companies where grads get together to form study groups I saw cases where the CFA programme created some form of sub-community.
Learning: I am sure that there are people out there who just embark on this journey for the educational value that they place on the curriculum.

So, how hard are the CFA Exams you may ask. This is exactly what I googled prior to registering for the exam and I kept coming across warnings about the difficulty of the exams; the pass rates which are published by CFA Institute can be seen below:

Year	Level 1	Level 2	Level 3
2018 Pass %	43%/45%	45%	56%
2017 Pass %	43%/43%	47%	54%
2016 Pass %	43%/43%	46%	54%
2015 Pass %	42%/43%	46%	53%
2014 Pass %	42%/44%	46%	54%
2013 Pass %	38%/43%	43%	49%
2012 Pass %	38%/37%	42%	52%

Although at first they might not seem extremely low pass rates, we must keep in mind the average study hours that each candidate put in. The preparation time might vary based on the candidate’s background but some online sources that I came across suggested that the average candidate puts in 6 months prep time or 200-300 hours. That is a lot of time for not having the certainty of passing. A lot of people end up giving up because of the time the exam takes away from their personal lives and frankly I don’t blame them. The average charterholder fails 2 exams before reaching his/her goal so prior to embarking on the program I think you really need to ask yourself if you are willing to invest 2-4 years of your life in studying the contents of the curriculum.

My Thoughts

For me, taking the CFA exams was definitely the right choice. Compared to when I started studying for the exam I believe that I have gained a good foundation in finance and portfolio management. Some of the key benefits that I would like to mention are:

Personal Investing: I regularly apply the concepts that I picked up from the curriculum for my personal investments and thanks to what I learned I am more conscious about retirement planning and my management of my own personal wealth. Whether I am stock picking or allocating my wealth I have learned to look at things in a methodical manner whilst being conscious of any behavioural biases that I made have as an investor.
Broad Financial Knowledge: it would have been impossible for the CFA programme to give detailed technical knowledge of ALL areas in Finance but it has done a great job in depicting the big picture. The programme has a bit of everything for everyone and I think the CFA coupled with some specialised technical knowledge is the key to a successful career.
It Taught Me Discipline: having brutally failed the level 2 exam after putting in hundreds of hours, the exam forced me to step back and to assess what was not working for me, it helped me remove bad habits and to implement effective study techniques.

I hope you enjoyed this post. In future posts I will go into more detail regarding each level, I intend to present some exam strategies that worked for me. I appreciate your feedback so please feel free to leave comments.