New Asia-Pacific boss of CFA Institute backs low exam pass rate

Not many would-be financial analysts pass the CFA Institute's tests, and that, says its new Asia-Pacific MD, is just how it should be

PUBLISHED : Saturday, 26 January, 2013, 12:00am
UPDATED : Saturday, 26 January, 2013, 5:03am

Mention Paul Smith, and many people will think of the British fashion designer known for his use of multicoloured stripes.

Ironically, his style of menswear does not suit his Hong Kong-based namesake, the Paul Smith who was recently appointed managing director for Asia-Pacific operations at the CFA Institute.

The institute runs the training and examination programme for chartered financial analysts, a designation considered an entry ticket for would-be securities analysts and fund managers.

The CFA programme was set up 50 years ago in the United States by a group of analysts who decided they needed to develop a curriculum and examination to test and certify analysts' professionalism and expertise.

In 1988 it expanded outside the US, establishing an international society in Singapore.

At present, the institute has more than 113,000 members, including 102,000 CFA charter holders, in 137 societies across 140 countries and territories.

Of the charter holders, 65,000 are in the US, while the Asia-Pacific region has 22,079. Hong Kong, with 5,402, has the largest contingent in the region, followed by 2,974 in Singapore, 2,513 on the mainland, 1,746 in Australia and 1,068 in Japan.

The CFA Institute's Paul Smith was born and brought up in London. He has a master's degree in modern history from Oxford University and is a CFA charter holder.

After graduating from Oxford, Smith was trained and qualified as a chartered accountant at Price Waterhouse, then joined the hedge fund firm Ermitage in France in 1985, becoming its managing director in the 1990s.

In 1996, Smith came to Hong Kong to work in the securities business at Bank of Bermuda, which became part of HSBC in 2001. In 2004, he set up his own asset management company. Then in October last year he joined the institute as its Asia-Pacific managing director.

Why did you leave the fund management industry to join the CFA Institute?

The CFA is a qualification for people who want to start a career as an analyst for an asset management company.

This is an important moment, as the CFA Institute tries to help restore the trust of people in the financial industry.

The global financial crisis has driven trust in the industry to a low point. We have to rebuild trust by upgrading the ethics of those who work in it.

Financial analysts must put their clients' interests before their own, keep a fair and transparent market and speak out if they come across people who engage in unethical behaviour. This is important for the next generation to have a healthy financial industry.

Who is suitable to be a CFA?

Anyone can be a CFA. About 65 per cent of our members are male, while 35 per cent are female. People usually start studying for the CFA examination when they are 27 or 28 years old. In Asia, people take the examination at a younger age, when they enter their careers in the financial industry. They would need a university degree, but that can be in any subject. I studied history in university but later became a CFA.

What are the differences between running a fund management company and running the CFA Institute?

The asset management companies I worked for were profit-making organisations, but the CFA Institute is a not-for-profit organisation. Any money it earns from its exam programmes must be spent on industry relationships, regulator relationships or professional education.

It is sometimes harder to run a non-profit organisation, because you cannot judge the value of a project by how much profit it can make.

This makes it more difficult for the management to decide if a project is one that it is sensible to spend our money on.

Do you hire only CFAs to manage the institute?

No, not all people who work in the institute are CFAs. We want to hire different types of people. We need people with business development experience and also people with an education background. We also need people to do academic research.

We cannot gauge people on how much profit they bring to the institute but have to measure their performance by the quality of their research papers and the response to the educational programme.

As many financial firms are laying people off, do you think fewer people will want to get the CFA qualification?

In Hong Kong, the number of people who registered for the examination was about 20 per cent lower last year than in 2011, because the market was weak.

But in other parts of Asia, such as mainland China, where the financial industry is expanding, the number went up 12 per cent last year.

Mature markets are under pressure as people are being laid off. But even during the recession, some people believed they lost their jobs because their skill set was not good enough. They decided to come back to school to study for the CFA to improve their skills to prepare themselves to return to the industry.

What is the future outlook for the CFA programme?

At present, 220,000 students are preparing to sit exams by studying the three-year course. Half are from Asia.

Mainland China has the largest number of people registered for the examinations at 30,112, representing 31 per cent of the Asia-Pacific market, followed by India with 20,823 and Hong Kong with 10,954.

CFA charter holders in Hong Kong and on the mainland are expected to grow by 30 per cent in the next five to 10 years.

Some say the pass rate of the CFA is low because the exam is too difficult - is that true?

It is true that the programme and examination are very difficult. This is necessary. If you want to give me all your pension money to manage, do you want the CFA examination to be tough or easy?

I think all analysts or fund managers would like to tell their clients that they have passed a rigorous examination like the CFA to prove their skills.

You have the same name as the well-known fashion designer - do you wear Paul Smith yourself?

Paul Smith is not an uncommon name. I know the fashion designer is from another part of England, and he is older than me.

I do not wear Paul Smith. It is just a matter of taste, as I think the style of his suits is more suitable for some slim Italian than for a large-sized Englishman like me.