The 5 Things I Hope to Learn From The CFA ProgramSubmitted by KWB Wealth Managers on October 23rd, 2019
On Saturday, June 15th hundreds of tired and cognitively depleted students walked out of a six-hour examination. They’ve studied for months to prepare for one of the most notorious and revered exams in finance. The exam was the CFA and I was one of those people. I wasn't sure how I felt about the exam - the pass rates can be daunting. Weeks later, in early August the results for June 2019 CFA Level 1 exam were out. I was one of the 41% that passed - the lowest pass rate since 2013.
I was surprised to find out, after speaking to many other CFA Candidates, that they enrolled in the Program for that exact reason. It's difficulty made it a perfect place to showcase their ambition. Some said it'll help them land a job while others said it the CFA Designation would advance their careers and ultimately salary. Interestingly, through all the Candidates I've talked to, and forums I've read - there wasn't much mention of what they wanted to use this knowledge for. If you're going to commit to four years and 1000 hours to earn the designation, you better know how you're going to use it.
The 5 things I hope to learn from the CFA Program:
Back when I was a Junior at the University of Maine, I purchased the 2016 Level 1 textbooks. Even if I wanted, I couldn't enroll in the program at the time as they required an undergraduate degree. But I was curious to see what the study material is, to see how it compares to the college courses I was taking at the time, and get more examples of how it applies to the real world. Here's the first thing I learned:
The Big Picture. Each individual CFA Level 1 Reading (much like each standalone college course) by itself doesn't mean much but knowing how they relate as a whole does. The CFA Program does what a single Major cannot do. I majored in Economics but had limited Financial Accounting knowledge, I was taught economic theory but not how to test my hypothesis - what if I had a hypothesis about economic theory? I'd have to add another major or at least another course. And if I wanted to apply that to finance I'd have to add one more. The knowledge in all these topics is a solid foundation but understanding how it can relate and using them to complement one-another is even better.
Ethics. The Financial Industry isn't known for it's upright morals and ethics - that's too bad because it should be. It's almost paradoxical - you need to have a strong sense of trust for someone before letting them invest on your behalf, yet financial professionals are often seen as unscrupulous. That goes to show how inherently complex conflicts of interest can be - what's right for you isn't always what's right for the client and what's right for the client may not always be ideal for you. The CFA Program places a heavy emphasis on Ethical & Professional Standards and makes you think critically about practical, real-life scenarios. This should help me in seeing conflicts of interest before they arise and avoiding putting myself in such a situation, or how to deal with it if it's not avoided. It even addresses the proper due diligence procedures when it comes to research.
Programming & Data. Each year there are changes in the curriculum. I have been learning programming using Python in my free time and was happily surprised to see that Fin Tech, Machine learning, AI, and big data are all topics throughout the CFA Program. They not only discuss what's relevant in the industry today but give plenty of practical resources for you to get data from. I regularly use several Websites about which I learned through the learning material. I hope find more relevant data bases, learn how industry professionals are currently using this technology, and try to apply it for myself.
Theory vs. Practice. When I first went to college I wasn't sure what I was going to do - I was interested in the way people think so I majored in Psychology before eventually adding Economics as my second major. I remember one semester I was taking a cognitive psychology course in the morning and Introduction to Economic Growth immediately following that. In the morning I learned how humans tend to make poor decisions when it comes to heuristics and biases and in the afternoon I learned about how these models that were build by humans (with biases) work like clockwork. After this I picked up 'Thinking, Fast and Slow' by Daniel Kahnneman because I wanted to know more about how irrational human tendencies are reflected in rational economic models. Behavioral Finance is discussed throughout the program, especially in Level 3 & I hope to learn more about it.
How to Write an Investment Policy Statement. At some point I'll need to write up an Investment Policy Statement (IPS) and I'll need to know the structure of one. The material talks about choosing the right investment strategy for individual's risk tolerance, objectives, and time-horizon. I want to learn how exactly an investment strategy would vary across the different types of investor profiles and how to implement it accordingly.
CFA - What exactly is it?
The CFA (Chartered Financial Analyst) Designation is widely regarded as the highest distinction in the investment management profession. To earn the designation a candidate must pass all three exams (and meet some other requirements). The exams are difficult. The study material is made up of 10 comprehensive topics: Ethical & Professional Standards, Quantitative Methods, Economics, Financial Reporting and Analysis, Corporate Finance, Portfolio Management, Equity, Fixed-Income, Derivatives, and Alternative Investments.
I decided to enroll in the CFA Program to develop a deeper understanding of investment management. Through the course of my study, I learned about ethical & professional standards as they apply to real world examples, investment tools & asset valuation, and portfolio management & wealth planning. Level 1 focuses on knowledge and comprehension, while Levels 2 and 3 focus on application/analysis and evaluation, respectively.
Now that I passed Level 1, I can move onto the next level. Level 2 builds on what I’ve learned in Level 1 and goes more in depth. I was very happy to see that Level 2 has lots of material on Machine Learning and Data analysis – those topics have always been of interest to me. I’ve already enrolled for the June 2020 CFA Level 2 exam and began studying for it – there’s a lot to learn and I want to get an early start.
I was (and still am) ecstatic about having passed. It took months of study, lots of sacrifice, and the support of my friends, coworkers, and family. Although my journey is far from over, I’m reinvigorated by this achievement and am looking forward to learning many new things. I’m truly grateful for the support I’ve received; from my friends who didn’t take it personally when I had to study for hundreds of hours, my amazing team at KWB who not only made this possible but encouraged me along the way and gave me the time off that I needed to prepare, and my family – for being understanding and always there to help.
- Igor Nikachin