Neil Govier, managing director of financial training firm 7city, answers CFA questions from eFinancialCareers readers in Asia Pacific.
Q: I am a banking and finance lawyer preparing for level II of the CFA. I want to apply my CFA knowledge to my current job and ultimately morph into a lawyer-cum-finance specialist. But there appears to be a deep chasm between practical finance and what I am learning. Am I naive to assume that cracking the CFA exams will help achieve my ambitions? Or is this just the first step, and if so what other courses should I also pursue?
A: It is true that the curriculum teaches the theoretical aspect of many key financial ideas, for example the capital-asset pricing model and its assumptions about a risk-free asset and equity premium. Many of these assumptions can be challenged today, but it is still vital to understand the ideas that lie at the heart of so many portfolio theories. Without an understanding of the theory, it is impossible to be critical of it.
Regarding your second question: I think you would be guilty of naive thinking if you believed that having “CFA” after your name would automatically open doors that had previously been closed to you. However, the CFA qualification is recognised and respected globally, so it says a lot about the ability of anybody who has the charter and thus can only enhance your job prospects.
Q: I have the CFA qualification and over eight years’ experience in rates/FX trading and structuring at large global and commercial banks. Would a CFA charter help me move from the sell side to buy side in a relevant (or broader) asset-class than my current area (for instance, portfolio manager of an equity/fixed-income fund)? Secondly, what other factors are equally important to consider?
A: I believe the most critical thing that any prospective employer is looking for is whether the candidate has the ability now, or in the future, to do the job. Therefore the most important things are experience and/or technical ability. Without a background in portfolio management then the next best thing would be proof of technical ability, and this is where the CFA charter, through its global recognition, adds value. It’s not always easy to move across disciplines, for example from sell side to buy side, but the CFA charter would only help in the lack of proven experience.
Q: I am thinking about doing my CFA next year. I understand there is also another certification, CAIA, and would like to know the difference (from an investment banking perspective) between the two, and which job functions each is suited for.
A: CAIA is more focussed on alternative investments, as you would expect. Although alternatives are included in the CFA curriculum, they are a relatively small part and are certainly not the key focus of the syllabus. Therefore CAIA is more appropriate should you wish to focus on managing alternative investments, whereas the CFA qualification covers a far broader syllabus and provides a greater academic strength across many aspects of financial management. You can check the CFA Institute website to see a breakdown of the type of job that CFA delegates/charterholders do.
Q: I hear that the pass rate of the CFA is poor (I believe less than half of any cohort passes). Why is this? Also, what are the key mistakes students make and what can they do to better prepare themselves for the exams?
A: I have been training CFA candidates for a number of years and in my opinion the biggest factor leading to failure is the lack of hours spent studying. It is true that most students will find areas of the curriculum that they find challenging from an academic point of view, but failure to appreciate the number of hours of study time needed is to me the biggest reason for failing. It is very difficult to pass any level by relying on cramming as the exam date approaches. The study hours have to be spread across a couple of months if candidates are going to maximise their chance of success.
Q: Would taking the CFA help if I have a non-financial background and am keen on a mid-career switch into banking? If so, what sort of jobs should I apply for after obtaining the qualification?
A: Having a CFA charter will not guarantee that you get the job of your dreams. Coming from a non-financial background and trying to move into finance is difficult these days, especially in mid-career, but having the CFA qualification, or even just starting on it, is a statement to prospective employers that you are serious about your intentions. Experience is very important, but having passed the CFA will certainly, for many employers, be recognised as proof of academic ability.