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04/13/2010

Privilege of Peerage: The Value of Professional Designations


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If it seems like an increasing number of people in the investment community have an acronym or two after their names, it’s true—more people are earning professional designations and certifications than ever before. There are already too many designations to keep track of—at least 100, by some estimates—but their popularity continues to grow. It’s fair to ask whether a few letters after your name can really make a difference in your career prospects, especially in today’s tough job market. But top-level professionals across a broad spectrum of financial sectors answer that question with an unequivocal yes.

Compound Annual Growth Rates for Leading Financial Designations


Designations-graph
Total number of designations awarded since inception. Data for the CFP and CMT are not available. CAGRs (compound annual growth rates) are through 2008, except for the CAIA (through March 2009) and CIC (through June 2009). Inception dates are 2003 for CAIA, 1963 for CFA, 1975 for CIC, 1988 for CIMA, 1996 for CRPC, and 1997 for FRM. Sources: CFA Institute, Chartered Alternative Investment Analyst Association, College for Financial Planning, Global Association of Risk Professionals, Investment Adviser Association, Investment Management Consultants Association.

“It’s unquestionably beneficial,” says Isabelle De Leonibus Tranchina, a longtime recruiter on the buy side. “Hiring managers take candidates more seriously if they have a top designation. They see the candidate’s willingness to study hard and pass a demanding exam as a positive statement about the candidate’s self-discipline, commitment to the field, and ability to multitask.”

THE BIG EIGHT

Eight financial designations are premier within their areas of specialization:

  • CAIASM. The Chartered Alternative Investment AnalystSM designation—the only certification among the Big Eight that’s specifically intended for alternative investments—concentrates on the primary alternative sectors of hedge funds, real estate, private equity, commodities, and managed futures. Since the Chartered Alternative Investment Analyst Association® awarded the first CAIAs in 2003, the rapid growth in alternatives has fostered a concomitant explosion in new CAIAs. As of June 2009, approximately 3,000 CAIAs had been awarded to designees in 62 countries.
  • CFA®. The oldest, most widely held, and perhaps most highly regarded financial designation is that of the Chartered Financial Analyst®. The first CFA certifications were awarded in 1963 by the Institute of Chartered Financial Analysts and the Financial Analysts Federation, which in 1999 merged under the umbrella of AIMR (Association for Investment Management and Research, renamed CFA Institute in 2004). As of May 2009, approximately 98,500 CFAs had been awarded to individuals in 130 countries. The qualifying exam covers a broad swath of subject matter applicable to securities analysis and portfolio management.
  • CFP®. The Certified Financial Planner Board of Standards owns and awards the Certified Financial Planner designation. Because of the CFP’s long history and popularity within the profession, and because of the breadth of material the CFP exams involve, the CFP can be viewed as the financial planning field’s equivalent to the CFA. The first CFPs were awarded in 1973; as of May 2009, there were about 59,000 active certificants. The CFP’s emphasis on domestic laws and estate issues means that it is currently awarded almost exclusively within the US.
  • CIC. The Chartered Investment Counselor designation is essentially an extension of the CFA geared specifically toward client-facing investment managers. It was first awarded in 1975 by the Investment Counsel Association of America, which became the Investment Adviser Association in 2005. As of June 2009, there were about 350 active CIC charterholders, the vast majority of whom are in the US.
  • CIMA®. Certified Investment Management AnalystsSM are generally investment consultants who focus on asset allocation, the construction of portfolios of multiple managers or strategies, manager search and selection, and performance measurement. The CIMA has been conferred by the Investment Management Consultants AssociationSM since the designation’s inauguration in 1988. As of the end of 2008, nearly 5,800 CIMAs had been awarded, mostly in the US.
  • CMT®. The Chartered Market Technician is devoted to the study and application of technical analysis. The Market Technicians Association awarded the first CMT charters in 1989. In June 2009, there were just over 800 active CMT charterholders in 36 countries.
  • CRPC®. Pre- and post-retirement planning is what the Chartered Retirement Planning CounselorSM is all about. Given the public’s heightened awareness of retirement-related issues, it’s not surprising that the annual growth rate of CRPCs is one of the highest among the Big Eight. The College for Financial Planning—the dominant administrator of the CFP exam—conferred the first CRPCs in 1996. The CRPC is based on US tax law and is therefore specific to the US. As of May 2009, around 15,500 investment professionals held CRPC charters.
  • FRM®. The need for effective risk management, underscored by the recent financial crisis, has prompted dramatic growth in certification of Financial Risk Managers by the Global Association of Risk Professionals. FRM certificants are trained in the major strategic disciplines of financial risk management (market, credit, and operational risks, and risk management in investment management). From 1997 through 2008, approximately 17,700 FRMs were awarded in 90 countries.

KEY SIMILARITIES

The Big Eight share a number of bedrock principles:

  • Creating and maintaining a comprehensive, standardized body of practitioner knowledge.
  • Setting high standards for professional competence and ethical conduct.
  • Doing what’s best for clients.
  • Developing industry best practices.
  • Raising professional and public awareness of the practitioner.
  • Differentiating designees from their peers.

They also all have tough requirements in common, including intensive study and, in most cases, passage of a rigorous set of examinations (CRPC charterholders need pass only one exam, and for CIC charterholders there’s no exam as such—instead, they must have earned the CFA charter, which entails a three-level exam).

Exams for most of the Big Eight are administered by the sponsoring organizations, although candidates for the CFP, which is officially awarded by the CFP Board of Standards, must take their exams through the College for Financial Planning or at a number of universities. Coursework for the Level III CIMA exam and the exam itself are offered at different times of the year at the Wharton School of Business at the University of Pennsylvania, and the Haas School of Business at the University of California, Berkeley. IMCA remains CIMA’s sponsoring organization.

While designees have long likened taking exams to having root canal surgery, employers take a much more favorable view. “There’s nothing like experiencing the discipline and education of the exam process to show an employer that you mean business and have the drive to succeed,” says Richard G. Lipstein, managing director at Boyden Global Executive Search and the chair of the New York Society of Security Analysts Career Development Committee.

MEANINGFUL DIFFERENCES

Each of the Big Eight designations is distinct, highly specialized, and tightly focused on a very specific profession. The CFA and FRM have the broadest scope of applicability.

The CFA is held throughout the ranks of executives and practitioners—by analysts, portfolio managers, traders, salespeople, and marketers on the buy and sell sides, practicing both long-only and alternative approaches. The FRM has a fairly tight focus, but many of its certificants perform an abundance of functions, not only in financial companies, but also in corporate America more generally and within government agencies.

A crucial distinction among the designations is the CE (continuing education) requirement. All of the Big Eight make CE available to designees and encourage participation, but only three (the CFP, CIMA, and FRM) actually have an annual CE mandate. In practice, though, most designees throughout the Big Eight spectrum are likely to pursue CE as a way of staying current in their respective areas of specialization.

A third and fairly sharp divide is evident when it comes to globalization of the Big Eight. The FRM, CFA, CAIA, and CMT designations have a significant presence outside the US, while the CFP, CIC, CIMA, and CRPC are US centric.

For a side-by-side comparison of the key differences and similarities, see this table

IT’S WORTH IT

Pursuing a financial designation means dedicating copious time and effort to study, but the rewards are rich. On a big-picture level, a persuasive case for growth can be made, based on the increasing complexity of the financial marketplace, clients’ heightening need for more specialized expertise, and job seekers’ drive to differentiate themselves from the competition.

Real-life evidence of career benefits tends to be qualitative, but a quantitative link between designations and professional rewards is suggested by hard data from the College for Financial Planning’s “2008 Survey of Trends in the Financial Planning Industry,” which shows CFP certificants’ average annual gross income in the year after earning CFP certification jumping 21% in 2005 and 2006, and 39% in 2007.

What do the designees themselves have to say about the tangible impact of their certifications on their professional lives? Their reviews are overwhelmingly positive:

"The CMT is a must-have for job candidates. With more professional investors using technical analysis to help them make better tactical decisions, the importance of having the CMT is that much greater."
—David Keller, CMT, manager of the Fidelity Chart Room and the Fidelity Management and Research technical analysis team; vice president of the Market Technicians Association’s board of directors

"The CIMA makes you more marketable by refining your skills and giving you the knowledge base you need to be a top-quality consultant. It’s a requirement for members of my team."
—Anthony B. Davidow, CIMA, executive vice president and head of distribution for IndexIQ; Investment Management Consultants Association board member

"I have observed on a daily basis the value that participation in the CAIA program can bring to a firm. The program provides a common analytical foundation for our employees, making it easier for us to more effectively serve our institutional investors. As a result, we consider the CAIA program required training for both investment and noninvestment personnel."
—Jane Buchan, CAIA, CEO of Pacific Alternative Asset Management Company; director of the Chartered Alternative Investment Analyst Association

Membership in a sponsoring organization—both on the national and local level—can provide access to job opportunities. Many sponsors have staff devoted to designees’ career development and online career centers with sector-specific job boards. Each of the Big Eight organizations actively facilitates networking among its member base.

IS IT BETTER TO HAVE MORE THAN ONE?

The consensus from the financial community seems to be that if one professional designation or certification is good, more than one is even better. Kristin Hetzer, CMT, CIMA, CFP, principal and founder of Royal Palms Capital and a director of the Market Technicians Association, sums up this view. She argues that “having multiple designations is most helpful in showing potential employers that the designee has mastered the specialized body of knowledge and is committed to learning the business.” In particular, Hetzer calls attention to the growing trend in which CFA designees pursue CMTs in order to balance their expertise in technical and fundamental analysis.

And that trend is echoed in the field of financial planning, as an increasing number of CFPs add CFA charters to their toolkits, according to David G. Strege of Syverson, Strege & Company. The immediate past chair of the Certified Financial Planner Board of Standards and a CFP and CFA designee, Strege points out that “planners recognize that they need to deepen their knowledge of investments in order to create the most appropriate plans for their clients.”

—Gordon R. Schonfeld, CFA, is a New York-based marketing communications consultant specializing in financial and professional services.


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