How they do it at CFA Institute

As an educational association and voice of advocacy for investment professionals around the world, CFA Institute, which administers the Chartered Financial Analyst qualification, is unusual in that it’s a not-for-profit run by people whose business aim is, after all, profit. 

‘At the end of the day you have to take our ambiguous approach of return on mission as opposed to return on investment,’ notes Jeffrey Diermeier, CFA Institute’s CEO since 2005, a former global chief investment officer at UBS Global Asset Management and a current board member of Janus Capital Group. Having always been committed to fiduciary responsibilities and promoting ethics, this thinking came naturally to Diermeier, who believes, ‘With the exception of a few knuckleheads, this is a wonderful industry and there are a very good group of people that populate this industry.’

In his efforts to strengthen the 60-year-old examination provider’s relationship with its 95,000 members, Diermeier travels widely to talk to investment pros. Calling from an airport between two such engagements, he took a moment to share insights about the institute.

A constant state of change

One of the difficulties for not-for-profit boards, Diermeier says, is coordinating the many directors; CFA Institute’s main board has between 16 and 19. The tradition of a rotating chairman adds an extra level of complication. ‘Every year I get a new chairperson,’ he notes. Though each chair has a practical tenure of three years, given that each commonly serves as vice, future and past chairperson, the structure makes for constant change.

Because the board is dispersed throughout the globe, some of the five annual meetings are overseas. On a daily basis, Diermeier confers with local societies, regulators and the over 60 universities that have adopted CFA Institute’s influence into their curricula. The management committee, chaired by Diermeier, meets weekly to address issues concerning client function (member-society services), product (exams and the Centre for Financial Market Integrity) and professional conduct.

Building a global footprint

Following governance best practices is important to CFA Institute, says Diermeier, confiding, ‘In our industry, governance is not necessarily the strong suit.’ Four years ago, when governance rules were emerging, he adds, ‘members wanted to know if we were eating our own cooking.’

Working with global regulators to encourage the creation of CFA Institute-like associations demonstrates the institute’s confidence that it is doing the right thing. To Diermeier, the positive response is staggering. ‘Only 20 years ago the thought that we capitalists, CFA Institute, would be having these conversations in these countries would have seemed impossible. The fact that we are is something to be treasured.’

Pakistan is one such nation with which relations would have even recently seemed anomalous. ‘The SEC of Pakistan basically decided to move forward with a licensing program for people who give financial advice there,’ says Diermeier, explaining that CFA Institute’s local society works with the government to formulate basic level competency exams. ‘You’re going to be seeing us putting more and more of our skill positions outside of the US as we try to take the country equation out of the mix,’ he adds. The boom has begun; of the 220,000 exam-takers this year, 45 percent are from Asia.

In 2007, credentialing, a major function of the organization, changed drastically when the program division merged with professional development, ending the separation of exam and post-exam environments. Now, Tom Robinson, the head of educational content, who Diermeier calls Mr Body of Knowledge, shares his expertise in private wealth management and financial statement analysis to ‘help our members be successful even after they have their charter.’ CFA Institute also sends out daily briefs to 45,000 people detailing issues concerning investment professionals, and is planning an interactive website that can be personalized to assist members on projects.

Helping set future direction

With such a well-developed educational function, CFA Institute can focus on the advocacy generated by its Centre for Financial Market Integrity. ‘We are one of the prime, if not the prime, voices in the discussions of FASB and the IASB when it comes to the question of financial reporting,’ says Diermeier, who sits on the SEC advisory committee on improvements to financial reporting, developed in 2004 to advocate strong ethical codes for investment professionals, performance presentation standards on the part of asset managers and financial reporting. Diermeier says, ‘We’re moving into the next phase as we figure out how to improve that activity.’

Volunteer committees are critical to CFA Institute’s advocacy. Meeting at least quarterly, committees focus on capital markets, commenting on credit rating agencies and corporate governance issues; standards of practice; and corporate disclosure policy, focusing on financial reporting. Diermeier spends a lot of time on that last committee, participating on weekly calls. ‘The SEC seems like they want to go quicker,’ he notes, adding that the MOU between FASB and the IASB agreeing to ‘harmonize some of the issues is perfect, but we would prefer they wait and get that done before they allow any US companies to report under IFRS, which would be maybe two years.’ Diermeier stresses both the long-term benefits and the need to attend to the details.

CFA Institute’s directors meet often to discuss issues and committees confer with staff to ‘help formulate the vision,’ says Diermeier, adding that the advisory committee chaired by Alan Brown ‘gives us a high level of input to the overall direction.’ Diermeier also sends out surveys to get feedback from members on advocacy issues, such as the shift from GAAP to IFRS.

Keep on moving

What’s CFA Institute been up to recently? Last month it held a short--termism symposium – Business Roundtable and the National Investor Relations Institute participated on panels – inspired by a CFA Institute study indicating that corporate leaders feel analysts push them to ‘make the numbers’. Diermeier bemoans the ‘emphasis on making the quarterly earnings’ wary of the worst case scenario that companies could use ‘the accounting and other machinations to make the quarter.’

In August, Diermeier announced his plans to retire in January 2009. He says it’s time CFA Institute had a new leader to fulfill Vision 2012, a strategic plan he created to enhance the institute’s role as a go-to resource by the year 2012. He outlines the plan’s five elements: maintaining the CFA program’s excellence by having exams reflect the global investment environment; source quality content to promote life-long learning; make technological advancements, such as improving the website as advised by a managing director; moving the CFA Institute Centre for Financial Market Integrity into its second phase to improve advocacy effectiveness; and developing the global position of CFA Institute with respect to holding exams and to relationships with investors and regulators.

And Diermeier has no qualms about CFA Institute doppelgangers. ‘One interesting thing about the not-for-profit world is that we’re happy for them to do well. … If all of us do our jobs well it just makes for better interactions with the corporations that we would invest in.’