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Professionals like doctors, lawyers, or investment managers tend to band together to address common concerns. For instance, they collectively deal with threats to the professions' prestige. They know painfully well, that any bad press would harm the practitioners' ability to earn a living.

When it comes to dealing with threats to prestige, a

CFA Philippines: benefit to the investment profession

By encouraging people to enroll in the CFA program, the CFAP aims to raise industry standards on both competence and ethics. This form of encouragement or "pressure" gives the practitioners a hard time. Yet it is a very welcome sort of pressure, one that "forces" one to be very knowledgeable about the profession. It "forces" the practitioner to be up-to-date with best practices. It obliges the practitioner to know all his duties to clients, to the investing public, and to society at large.

Today, it is widely acknowledged that investment professionals need both the technical training to do their job, and the wisdom to do what is right. The right training and the right wisdom are amply represented in the curriculum for the CFA exam. CFA charterholders encourage junior professionals to take the CFA exams, because it leads them to do a better job and to be ethical. Ethics classes are given a heavy weight in the CFA program. The emphasis on ethics often leads to the happy result, that the investment professionals make an honest living. If they do make a pile of money, it is because of excellent service to the client, and not because of any ethical shortcuts.

These are just a few of the benefits to society, which the CFAP strives to achieve.

By: Alexander N. Gilles, CFA

FEATURES

Prestige. Awe. Recognition. Respect. Not necessarily in that order. Aside from the Ooohs and Aaahs, though, you still get the occasional, “Huh?” – Virginia Luy, CFA

It means that I have attended a level of knowledge that is considered sufficient for working as a professional in the financial sector. – Chiu Ying Wong, CFA

Having the CFA Charter requires upholding the standard of competence and integrity. – Peter Chua, CFA

It means acting with integrity always. – Jun Villaluz, CFA

“

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better method is, actually, for the practitioners to promote high standards. This is a more positive, or proactive way, of guarding against bad press. It is easier to defend a profession by making it work for the good of the clients, for the good of society.

In Manila, the CFAP has brought together about 92 CFA charterholders to work toward raising standards in the investment profession, in terms of competence and ethics. Once the standards are high, clients, in general, should benefit. If the clients sense that they are treated well, they would have no qualms placing their trust in the investment professionals who handle their pension funds or mutual funds.

No client ever wants to deal with an incompetent investment manager who loses money, keeps no records, has wrong priorities, or who cannot even articulate his strategy. What the CFAP wants to avoid are situations in which investment professionals get accused of carelessness, in dealing with the hard-earned money of investors.

Note that there are 101 other ways to deceive an investment client, which the client would not even notice. Therefore, investment professionals need to be brutally honest in all dealings with clients; to tell on themselves, even when the client would not notice the fault. They should also be thoroughly competent. To this end, the Society expends great effort to promote best practices and practical learning (via the CFA study program). Individual members of the CFAP often point out that this great effort to achieve certification has been a worthwhile investment of their time.

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Self-fulfillment or profit.

Essentially, these are the two common motivations, like for any graduate program, for taking the CFA program. Candidates have some combination of these objectives at various points over the spectrum.

I have yet to hear of a candidate who was promised a promotion after earning the Charter. Most forms of encouragement are elusive signs of a salary increase, or promotion, or just simply, bragging rights. The rewards are especially unclear when one works in a unit that is not directly in investment research. I was in the Economics Research Department when I earned the Charter. My bosses appreciated that one of their economic analysts was a Charterholder, but never gave me assignments directly relevant to the Program I have learned. Not that I blame them for it, my division’s work was simply not in the relevant area.

In spite of the lack of Charter-related assignments, the above-average salary increase did come. Eventually, a higher position in one of our operations departments came up. Based on how my interviews went, my acceptance was mostly due to the Charter. “Branding” is the signal that a graduate degree sends to employers that an MBA graduate is ambitious, reliable, and hardworking. All things equal, a branded employee will likely be more valuable. Something similar must have happened to me having the CFA designation.

You must already know, from cliché-ic redundancy, that the CFA Charter opens doors. In the Philippines, not all the rewards are immediate, but they will arrive. The most immediate reward is, as with MBA programs, the networks that you will develop in the local society. In CFA Philippines, you will meet the best-looking finance professionals in the country. That I can guarantee.

By: Ma. Amora C. Manabat, CFA

motivatesWhat

Most people look at the CFA program as an investment. I, however, consider it a social investment. The growing number of CFA candidates will benefit not only the candidates themselves, but also the society at large.

The United States Agency for International Development (USAID) apparently also held this view in 1995, when it funded the Financial Executives Institute of the Philippines (FINEX) sponsorship of the first batch of Filipino CFA candidates. The Bangko Sentral ng Pilipinas (BSP)shares the same view as it continues to support many of its employees in the program.

Analysts with world-class competence and ethical standards, indeed, lead to greater investment confidence, which leads to a more robust financial system and faster economic growth.

The advertised return of the CFA Program to individual candidates will surely catch anybody’s attention. Based on the last salary survey, the CFA Charterholder receives 54% premium over a non–CFA Charterholder, and an 18% premium over an MBA graduate. Skeptics contend that these returns are not always realized in the Philippines because very few managers actually appreciate the CFA Charter. That situation seems to have changed dramatically in the recent years, yet many Philippine candidates still [sadly] set their sights abroad.

you?

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THESE LIST OF TIPS do not include your run-of-the-mill “Start your

review early,” “Stay focused,” “Keep a healthy diet and sleep schedule.”

Those tips are very important, but to my mind, they are necessary, but

not sufficient conditions for passing the exams. I believe I can share

valuable lessons in taking the exams, not because I recently became a

grader in Charlottesville, but because I have taken the exams in more

years than it took me to finish my doctoral courses.

Pinning down

the CFA exams By: Dr. Felix Berto Bustos Jr., DBA, CFA

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1Condition your mind to reading and answering exam questions at the same time of the exam day. This is

very important especially near exam time because most people are not used to sitting still for six hours straight, reading and writing under strict time pressure.

Some of my Indian MBA students said they adopted a technique used by those who take the entrance exam for the IIMA, a graduate school harder to get into than the Harvard Business School. During the last two weeks or so before the CFA exams, they woke up at the same time that they would wake up during the exam day, followed the same pre-exam routine and then wrote sample exams at exactly 9 am and finished at noon. They went for lunch, took a power nap and then sat for practice exams again from 2 pm to 5 pm.

Tiger Woods and Michael Jordan do this also. They practice their golf swing, jump or dunk shots multiple times so that they develop “muscle memory.” They can then do these things instinctively without thinking at crunch time.

2Prepare for the different levels differently. The different levels emphasize different things so you can’t prepare for them the same way.

o CFA Level I emphasizes breadth rather than depth. You are expected to know enough about a lot of subjects --- quantitative analysis, economic, financial statement analysis, corporate finance, derivatives, etc., to meet the entry level requirements of different types of investment-related firms or assist investment professionals doing different functions

o The CFA Level II exams emphasize the tools. You have to know how to use various valuation tools by heart. And the best way to do this is to practice, Practice, and PRACTICE.

o The CFA Level III exams are more integrative and use a lot of caselets in Portfolio Management and Ethics.

CFA Level I Tip: read, Read, and READ. 1. Try to read all of the different assigned readings

rather than relying on summaries from Reviewers.

2. After doing one or two exams to identify your area of weaknesses, re-read those subjects, with emphasis on the assigned Learning Objectives (LOS).

CFA Level 2 Tip: practice, Practice, and PRACTICE1. Get copies of old exams and a big, fat notebook to use as answer or solutions

book. 2. Solve the problems using a timer or your cell phone to make sure you do them

within the assigned time. 3. Check your solutions, and using a red pen write down the portion of the

suggested answers that you missed. This will make it easier for you to review your notes later.

4. If your employer allows you to take a few days off before the Level 2 exams, purchase one or two “predicted” exams from CFA reviewers/providers or from the Internet, and do what you did in Level I.

5. Simulate the whole exam day from the time you wake up to the end of the exam!

CFA Level 3 Tip: Read, analyze the case, and complete the requirements of the question as quickly as possible

o AND if your handwriting is as un-intelligible as mine, practice printing as Fast and as Clearly as you can. Otherwise, pray that the essay part is lowered by 50%. Then you don’t have to take CFA Level III exam again and again.

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Procedural prudence and fiduciary dutiesWhat are fiduciaries? The article, “Common Mistakes of Fiduciaries Responsible for Investments,” by the late Lynn Hopewell, defines it as the people who “are responsible for the management of money that does not belong to them.”

Interestingly enough, Hopewell, a well-known financial planning expert, mentioned things that are rather true even here in the Philippine context. Fiduciaries are put in such positions not only because of their financial expertise but also of some other aspect relevant to the core business of the organizations. The problem is that not everyone is aware that they can be held personally liable should the assets under their fiduciary care be invested imprudently.

What is the benchmark for prudence? Is it dependent on how much money was lost? Is it dependent on how independent the fiduciaries are with respect to the investment decision making process? When is an investment imprudent and when is it not?

Generally, the idea of investment prudence is already quite known. The “Prudent Man Rule” asserts that the assets entrusted to the care of the fiduciaries should be managed the way that people of average “prudence, discretion, and intelligence” would manage their own investments. This rule requires prudence to be observed for each and every investment to be made by the fiduciaries.

On the other hand, there is the “Prudent Investor Rule,” which is said to have replaced the Prudent Man Rule in most other legal jurisdictions in the United States. It still requires prudence to be exercised by the fiduciaries, of course. However, there are fundamental differences, of which the following are notable (Stalla Notes):

1. No asset classes are considered imprudent by itself;2. The standard of prudence is exercised on a portfolio basis;3. Reasonable diversification is explicitly required rather than simply implied;4. Prudence and care is extended to include the “delegation of authority and the

selection of advisors and supervisors”;5. The trust is required to keep their cost structure to a reasonable and appropriate level;6. There is a requirement of professional standard of care and prudence, rather than an

“average person of intelligence” standard; and7. All the beneficiaries of a trust must be treated equally.

Therefore, although derivatives are imprudent under the Prudent Man Rule, they are not necessarily so under the Prudent Investor Rule if the derivatives are used properly, especially for hedging and most especially if it makes the overall portfolio safer or less volatile! (Please see next page for continuation)

By: Ildemarc C. Bautista, CFA

CBOK corner(Candidate Body of Knowledge)

Fiduciaries ar e put in such positions not only because of thei r financial expertise but also of some other aspect r elevant to the cor e business of the or ganizations.

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CFAPE Scholarship Fellow (CFA Society of the Philippines Educator Scholarship Fellow)

What is the CFAPE Scholarship Fellow?

The CFAPES Fellow or the CFA Society of the Philippines Educator Scholarship Fellow is a recognition of commitment to the development of educators in the Investments Profession, by helping fund their CFA Exams. The fellowship is an honor (not an award) given to individuals who contribute certain amounts (P5,000 for Silver; P10,000 Gold and P20,000 Platinum), and persons for whom such donations are made by others. The fellowship is CFAP’s way of honor, and represents humanitarian qualities such as generosity, concern to educator development in the field of Investments Profession

CFAPE Scholarship Fellow receive a personalized recognition in honor of their commitment to the Investment Profession education development, and shall be recognized in appropriate CFAP events, publications and through other appropriate forms of recognition.

Is the CFAPE Scholarship Fellow for CFA Society of the Philippines members only?

The fellowship is not limited to CFA members, and not limited to CFA Society affiliate members. It is open to non-society members to whom identical recognition is presented.

Who can contribute toward a CFAPE Scholarship Fellow?

Contributions can be made by individuals including non-CFA charterholders. A contribution of P5,000 will entitle a Silver Fellow, P10,000 for Gold Fellow and P20,000 Platinum Fellow. As an incentive, to the first batch of contributors, they will be honored as “Founding” CFAPE Scholarship Fellow.

Where will be the funds raised by the CFAPE Scholarship Fellow be used and who shall govern the fund?

The funds CFAP Scholarship fund will be used solely for educator scholarship, and administration of the CFAPE Scholarship Fellow. The funds raised through the CFAPE Scholarship will be governed by a board composed of the CFAP President as Chairman, the CFAP Scholarship Chair as Vice Chair, and board members appointed by the CFAP President.

Six Key Steps

Based on these higher standards, financial planners have developed some rules of thumb to test for prudence. Accordingly, prudence (or the lack of it) should not be defined by how much assets become impaired or not. Rather, prudence is defined by the clear policies and procedures laid down by the fiduciaries to ensure that prudence is in fact being practiced!

The key steps towards Prudence as summarized in the Hopewell article are as follows:1. An investment policy specifying all aspects of the procedures for managing investments must be established and

must be in writing;2. Assets must be diversified through several dimensions, both securities selection and asset classes;3. Investment decisions must be made with the skill and care of a prudent expert;4. Investment performance must be monitored;5. Investment expenses must be controlled; and6. Prohibited transactions (conflicts of interest) must be avoided.

Continued from page 14

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