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.

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:

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.