CFA Institute and CFA Centre An Overview John

CFA Institute and CFA Centre: An Overview John Barrass Head, Europe, Middle East, and Africa CFA Centre for Financial Market Integrity CFA Institute South Africa, October 2006

CFA Institute Who We Are: Non-Profit Professional Association of 86, 000 investment professionals worldwide. Ethical Leadership: Code of Ethics and Standards of Professional Conduct Quality Education for Investment Professionals: CFA Global Investment Performance Standards (GIPS) CFA Centre for Financial Market Integrity CFA Institute Mission: To lead the investment profession globally by setting the highest standards of ethics, education, and professional excellence. CFA Centre Mission: To be a leading voice for fairness, efficiency, and investor protection in global capital markets. The CFA® Programme A self-study, distance learning-based programme that takes a generalist approach to security analysis and portfolio management and emphasises the highest ethical and professional standards. CFA Institute

134 Member Societies, 55 Nations, 4 Offices, 86, 000 members Canada: 12 Societies United States: 70 Societies Argentina & Uruguay Bahamas Barbados Brazil Cayman Islands Mexico Trinidad & Tobago 32 EMEA Societies Austria Belgium Bulgaria Cyprus Czech Republic Denmark Finland France Germany Hellenic Hungary Ireland Italy Luxembourg Netherlands Bahrain Bermuda Egypt Jordan Lebanon Mauritius Poland Romania Russia Spain Sweden Switzerland Turkey United Kingdom Saudi Arabia South Africa United Arab Emirates Australia (Sydney & Melbourne) Hong Kong Indonesia Japan Korea Malaysia New Zealand Pakistan Philippines (Manila) Singapore Sri Lanka Thailand Offices in USA, UK (EMEA), Hong Kong (Asia) CFA Institute

CFA Institute: Core Values v Values: Ø Ø Integrity Professional Excellence Volunteer Service Strength of Community & Cooperation CFA Institute

CFA Institute: Range of Activities Ø Society, Member and Candidate Services Ø CFA Centre for Financial Market Integrity: Professional Standard Setting, Ethics and Standards of Professional Conduct, Advocacy Ø CFA Educational Programme and Examination Ø Educational Products, Events, Publications Ø Continuing Professional Development Programme (voluntary) Ø Public Relations/Media Awareness Ø Employer and University Outreach: University Partnerships Ø Internal (Finance, Legal) CFA Institute

CFA Institute Code of Ethics CFA Institute Members must: Ø Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets. Ø Place the integrity of the investment profession and the interests of clients above their own personal interests. Ø Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities. Ø Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession. Ø Promote the integrity of, and uphold the rules governing, capital markets. Ø Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals. CFA Institute

CFA Centre Policy Groups Research & Policy Formulation Standards of Practice ------------------------- • Code of Ethics & Standards of Conduct • Asset Manager Code • Soft Dollar Standards • Research Objectivity • Trade Management Investment Performance ------------------------ • AIMR-PPS® • Global Investment Performance Standards - GIPS® Capital Markets Policy ------------------------ • Market Regulation • Corporate Disclosure & Governance • Financial Accounting & Auditing Standards • Self-Regulatory Orgs CFA Institute

CFA Centre Staff Structure Kurt Schacht, CFA – Managing Director Research & Policy Formulation Global Outreach & Advocacy Jonathan Boersma, CFA John Barrass Director – Standards of Practice Head – CFA Centre for Europe, Middle East, & Africa Alecia Licata Lee Kha Loon, CFA Director – Investment Performance Standards Head – CFA Centre for Asia Pacific Rebecca Mc. Enally, CFA Society & Member Relations Director – Capital Markets Policy Bob Luck, CFA Director – Society & Member Relations CFA Institute

CFA Centre Advocacy Ø Volunteer Committees Ø Global in scope Ø Regional rather than national focus when commenting Ø Mainly USA and Europe (Washington, Brussels) Ø Wide range of subjects, depending on region and members’ interests Ø Corporate Disclosure issues, especially international accounting standards, a speciality historically Ø Capital Markets issues the other high priority, including performance measurement CFA Institute

CFA Centre: Professional Standards (a selection) Ø Ø Ø Standards of Practice Handbook Code of Ethics and Standards of Professional Conduct Soft Dollar Standards (1999) (will be revised) Trade Management Guidelines (2002) Research Objectivity Standards (for equity analysts) Global Investment Performance Standards (GIPS®: 25 countries, of which 18 are in EMEA) Asset Manager Code (2005) IFRSs: CFA Centre involvement in work of IASB Analyst/Corporate Relations Guidelines (with NIRI) Corporate Governance Manual for Investors (2005) Comprehensive Business Reporting Model (2006) Short-Termism Report 2006 CFA Institute

Speaking Out on Issues The CFA Centre Comments in Asia, EMEA, & North America On: v v v v -Analyst Retaliation -Financial Reporting -Soft $ / Soft Commissions -Sarbanes Oxley -Analyst Standards -Financial Market Regulation -Investment Performance Stds -Option Expensing -Corporate Governance -Hedge Fund Regulations -Asset Manager Code of Conduct -Majority Director Voting -Investor Protection CFA Institute

Standards for Our Members CFA Institute

Standards for the World v Global Investment Performance Standards (GIPS®) Ø Convergence of many national standards including AIMR-PPS into one global standard. Ø Providing consistent performance measurement and reporting for investors worldwide. Ø An alliance of experts from a variety of fields within the global investment industry. CFA Institute

Educating Investors v Reasons for the Manual: Ø Corporate governance scandals have resulted in huge investor losses. Ø Studies show that returns are linked to governance. Ø Investors needed a guide to help them: – Recognize the risks, – Understand their implications, and – Know where to find relevant information. CFA Institute

Thought Leadership v Twelve Principles Including: Ø Reporting from Investor Perspective. Ø Reflect Fair Value, Not Historic Cost. Ø All Changes in Net Assets on One New Statement. Ø Require Direct Method Cash Flow. CFA Institute

Short Termism Project v Blue Ribbon Panel Meetings Ø Meetings with corporate issuers, analysts, asset managers, institutional investors led to recommendations in 5 areas: – – – Earnings Guidance Reform Incentives Leadership Communications & Transparency Education CFA Institute

Financial Market Integrity Index v Index of Member Sentiment Ø Focus on trends in member sentiment over time Ø Aggregate opinions of CFA members worldwide Ø Major Financial markets covered Ø Questions measured on five point scale Ø Twice yearly survey resulting in comparative scores Ø Twice yearly reports with comments behind scores Ø Members will rate ethical behaviour of: – Buyside, sellside, corporate boards, management, investment bankers, hedge fund and private equity professionals Ø Members will also assess: – Corporate Governance, legal protection of shareholders, financial transparency CFA Institute

Self Regulatory Organisations v Regulation and Roles of Self-Regulation Ø Optimum role of government in market regulation Ø Conflicts between markets and regulators v Continued Viability of SROs Ø Characteristics of successful regulatory systems Ø Duplicative rules & regs, overlapping jurisdictions & sectors Ø Risk of regulatory arbitrage – race to the bottom. v Globalisation and Consolidation of Markets Ø Movement towards global market/regulator Ø Cross-border mergers & conflicts between regulators v Demutualisation of Markets Ø Primary conflicts between for-profit exchanges & regulators Ø Implications for shareholders vs. investor interests CFA Institute

Pension Fund Trustee Code Conduct of Pension Fund Trustees v Conflicts of interest v Competence v Due Diligence v Fiduciary Duty & Delegation v Personal Travel and Gifts CFA Institute

Working Together Cooperation Across Divisions at CFA Institute v P&PD = Publications & Conferences v Society Services = Society Presentations & Programmes v CFA & CIPM Programs = Curriculum Content v Marketing & Communications = Employer Outreach, Public Awareness, & Media Relations v All Other Divisions = Key Support and Services CFA Institute

CHARTERED FINANCIAL ANALYST®: Key Features Ø Rigorous Self-Study Programme – flexible hours, no compulsory course attendance Ø Practical and relevant learning tied to current work requirements (questionnaires, job analysis, CCC) Ø Wide ranging body of knowledge; degree before starting; 3 levels Ø Global passport: same exam and language everywhere (COE) Ø Universal, tightly controlled, marking and grading (600 + charterholders) Ø Difficult to pass (low percentages): Europe has best average results for Level III Ø Full charter requirements include work experience, annual professional conduct statement, membership (of local society) as well as CFA at all 3 levels Ø Affordable price CFA Institute

The CFA® Programme COE CCC EXAMINATIONS EXAMINATION ADMINISTRATION CURRICULUM BODY OF KNOWLEDGE PRACTICE ANALYSIS GRADING Practitioners at every step of the process MINIMUM PASSING SCORE (MPS) CFA INSTITUTE GOVERNORS CFA Institute

Practice Analysis: What and Why? v Most respected authorities in education, testing and certification recommend or require periodic practice analysis studies v Focuses on the critical tasks performed by competent people working in the profession v Establishes content validity – curriculum and exams must be linked to the knowledge and skills needed by practitioners v Results in new CBOK – the blueprint for curriculum and exam content v The only way a topic gets into the CFA Programme (and eventually tested) is if practitioners throughout the world deem it important. CFA Institute

Locations of Practice Analysis Panels New York Boston Chicago San Francisco Los Angeles Washington, D. C. v Toronto v Montreal v v v v London Zurich Milan Frankfurt Tokyo Hong Kong Shanghai Singapore Sydney Melbourne Note: Members of Brazil and South Africa CFA Institute Societies were also asked to review/comment on CBOK (via email) CFA Institute

Body of Knowledge Ethical and Professional Standards v Quantitative Methods v Economics v Financial Statement Analysis v Corporate Finance v v Analysis of Equity Investments Analysis of Debt Investments Analysis of Derivatives Analysis of Alternative Investments v Portfolio Management and Performance Presentation Investment Tools Asset Valuation Portfolio Management CFA Institute

Curriculum Developed by Candidate Curriculum Committee (CCC); 150 people involved from all over the world; extensive review; each level 17 to 20 study sessions in CFA Instituteproduced study guides Study Guide Topic Focus Learning Focus Level I Investment Tools Asset Valuation Knowledge and Ethical Stds. Application and Ethical Stds. Portfolio Management Synthesis and Ethical Stds. Level III CFA Institute

Curriculum Percentages are approximations of the actual topic weights for exam purposes. Actual content of future exams may vary. CFA Institute

Curriculum v Each study session is designed for flexible, selfdirected study v Readings are drawn from a variety of materials, both CFA Institute and other v Each reading has learning outcome statements (LOS): “The candidate should be able to…” CFA Institute

Curriculum v Each LOS has one or more command words, which indicate type of learning expected: “discuss, calculate, contrast” v LOS are NOT an exact proxy for examination questions, but mastering LOS is the best study approach v CFA Institute increasingly developing and publishing own curriculum to meet unique needs CFA Institute

Preparatory Courses and Materials v Candidates should only use preparatory courses and materials as supplements to the CFA Institute prescribed curriculum v CFA Institute does not review or warrant the accuracy of any preparatory materials v Preparation is the key to success on the examinations – there are no shortcuts to success CFA Institute

Examinations Developed by Council of Examiners (COE), consultants, staff; driven by LOS; over 80 people involved from all over the world; extensive reviews; each exam 6 hours in length Exam Topics Format Level I All topics Multiple choice Level II All topics Level III Portfolio Management Other topics Item sets— 100% Essays— 50% Item sets— 50% CFA Institute

Examinations v Multiple choice: stand alone individual multiple choice questions; 1 question = 1. 5 minutes, exam = 240 questions = 360 points v Essay: discussion-type and problem solving questions; ½ exam = typically 10 -18 questions with variable minutes = 180 points v Item set: vignette with set of accompanying related multiple choice questions (items); 1 question = 3 minutes, 1 item set = 6 questions, ½ exam = 10 item sets = 180 points CFA Institute

Examination Development v CFA Institute offers on-line sample examinations for Level I, Level II and Level III (item set only) Ø Length reflective of live examination (3 hours) Ø Timed, with immediate feedback Ø Developed utilizing same process as live examination Ø Modest fee of $50 CFA Institute

Minimum Passing Score v MPS for each level established by CFA Institute Board of Governors v Multiple inputs (standard setting, candidate performance statistics, quality of candidate responses, etc. ) used to set the MPS v. Passing rate for each level is a residual determined by each level’s MPS CFA Institute

CFA: Employers’ Attitudes Ø An increasing number of employers worldwide are requiring the CFA charter (or at least participation in the programme) for hiring and promotion. Ø An increasing number of employers worldwide are substituting the CFA charter for graduate degrees when establishing job specifications. CFA Institute

Employers of Charterholders CFA Institute

CFA® Charterholders and Candidates There are currently about 10, 000 active charterholders in EMEA (13, 000 CFA Institute members) and 71, 000 active charterholders worldwide. The EMEA charterholder numbers are increasing at over 1, 500 a year. In the academic year 2005/06, approaching 20, 000 CFA candidates enrolled in EMEA for the CFA examinations, and over 116, 000 candidates worldwide. December results for 2006/07 imply that this figure could be exceeded this year. CFA Institute

Combined Pass Rates 1963 -2005 CFA Institute

June 2006 Exams v Over 84, 000 candidates enrolled from 145 countries/territories v 1, 235 in South Africa v 186 exam sites in 86 countries/territories worldwide v Pass rates 2005 Ø 36% at Level I Ø 56% at Level II Ø 55% at Level III v Combined (weighted average) pass rate was 48% v Better this year Results are available online and by mail v Level I: Late July and Early January v Level II and III: Mid-August CFA Institute

CFA® Charter Requirements v Sequentially pass Level I, II, and III exams v Have 4 years of professional experience v Provide professional references (Level III) v Submit professional conduct statement v Apply for membership in CFA Institute and a local analysts’ society CFA Institute

CFA® Programme Costs Estimated Basic Costs for Level I (all amounts GBP) • Registration Fee to Enter CFA® Programme • Enrollment Fee for Level I Examination Required Fees £ 215 £ 255 £ 470* • Study Materials for Level I: Modular Curriculum Package £ 245 Approximate Total Costs for Level I £ 715 *Assumes Registration and Enrollment received by 16 February 2007 CFA Institute

Take your CFA Charter to the Bank… € 175, 000 The CFA Premium = € 35, 000 CFA Charter holders Median Total Compensation for CFA Institute Members with 10+ Years Experience 2003 Compensation Survey € 140, 000 Noncharter holders CFA Institute

Contact Information Central, Europe CFA Institute, 10 th Floor, One Canada Square Canary Wharf, London E 14 5 AB, United Kingdom Telephone: +44 (0) 20 7531 0751 Fax: +44 (0) 20 7531 0767 E-mail: infoeu@cfainstitute. org John Barrass Telephone: E-mail: +44 (0) 20 7531 0761 john. barrass@cfainstitute. org www. cfainstitute. org Click on “CFA Program” Ann Marie Wood CFA South Africa P O Box 131, Ferndale 2160 South Africa Tel: +27 011 791 0105 Fax: +27 011 791 0107 Email: info@cfa. ac. za CFA Institute