In Defense of the Gold Standard

No, not that gold standard.  Rather, the CFA or Chartered Financial Analyst designation, considered the gold standard for financial education, according to two FT reporters in a story over the weekend.  The story was slanted enough that I fired off a letter to the editor.  So far it’s unpublished, so we’ve decided to run it here:

Sir: 

While not quite a hatchet job, Rachel Sanderson and Gillian Tett’s article on the CFA (“Get me into Goldmans”, FT Life & Arts, Aug 14^th/15^th) hardly presents a fair view of the CFA designation, its holders, or the CFA Institute. As a Level II CFA candidate, I have direct experience with some of the issues they discussed, and would like to offer a few criticisms.

First, their focus on the presence of CFA charter holders in large Wall Street banks is overly myopic. Almost all of the individuals I have met through my experiences with the CFA Institute work for other employers and in a wide variety of professions other than investment banking. Comments from two CFA candidates who hope to enter investment banking hardly constitutes a valid sample (as Level I candidates learn from study of quantitative analysis).

Second, having sat for the Level II exam more times than I like to admit, I have found that the exam readings adapt quickly to industry developments and new research, and that they are (for the most part) free of bias, especially the religious adherence to efficient markets intimated in your article. From my start in the program, I have found the treatment of EMH to be circumspect overall, reflecting current academic thinking. The problem, as noted by Sanderson and Tett, is that economic and financial models that better reflect the real world are not yet easily tractable for solving the kinds of challenges we face in daily practice. That does not mean that CFA charter holders do not think or talk about them (they do so very publicly if you peruse the organization’s publications) or attempt to incorporate them into their professional practices. The article’s focus on EMH among CFAs, as opposed to the economics and finance professions in general, is myopic and likely to misguide uninformed readers.

Third, I have always been impressed by the diverse range of views CFA charter holders and candidates bring to bear on economics, finance, and other relevant subjects. This diversity is well reflected in the speakers, topics, and Q+A of annual CFA meetings. Local chapters have autonomy in their selection of guest speakers, as reflected in the article’s mention of economist Andrew Lo and behavioral economics, and judging by the chapters in my area, they are open to a diverse range of views and opinions. Simply, put, there is no top down catechism imposed upon CFA societies, charter holders, or candidates, be it on EMH or anything else.

That being said, there is one area where a diversity of viewpoints is not tolerated, and it’s ethics. At their core, the CFA Code of Ethics and Standards of Conduct require that all of us put our clients’ interests first, and our employers’ interests and the industry’s well being above our own. Unlike many trade associations, the CFA Institute has formal enforcement procedures in place for dealing with violations, and regularly publishes the nature, findings, and sanctions of its cases. I would speculate that the only comparable education regarding fiduciary duties is to be found in some law school classes. And while a small number of charter holders do run afoul of ethics (inevitably, as behavioral economists might posit), I suspect that the continuous emphasis that the CFA Institute puts on upholding the highest ethical standards is unrivalled by any profession. In my view, the gold standard status of the CFA designation is rooted almost entirely in that fact, and not in some unfounded expectation that its curriculum should be years ahead of academic research…

I simply don’t see how the authors’ assertion that the crash of 2008 may have “fatally undermined” the value of the CFA charter is plausible.

Of course, “having sat for the Level II exam more times than I like to admit,” that possibility is disconcerting to say the least!  Hence my indignance???

You can read more about the CFA charter and program at the CFA Institute’s website.