Lot of students asks me the options available to them while
they are doing CA or after completing CA.
And one of the most asked question is ‘should they go for a CFA degree’. The reason of writing this article is not to
tell you how to do CFA and what’s involved in it, but more about ‘Why
CFA’. You can very easily Google the
subjects and the course curriculum, something where I may not be able to add
any value. However, what I want to
elaborate through this article are the larger aspects of why should you pick
this course and what are the skills one should have to complete it.
After interacting with students and
young chartered accountants, I felt a majority are perhaps clueless of why
should they pursue this course. The
reason of starting my blog www.nimishgoel.com
was precisely this reason. It is
unfortunate students have limited means to take guidance and mentorship from
someone who is capable enough to guide in the right direction. Senior most family members, who may not have
any idea about the field you want to pursue, generally provide guidance. Because they are our elders in the family and
probably more educated (irrespective of the field), they end up becoming the
mentors to all the youngsters in the family. You can read one of my previous
articles on this topic http://nimishgoel.com/deal-unwanted-career-advice-family-friends/
Ok, coming back to the topic – Why CFA? It is important to understand the objective
of this course and how it is structured.
If we look at CFA’s website and read the preamble of the course, it says
as follows:
“The
CFA Program curriculum covers concepts and skills you will use at all stages of
your career, connecting academic theory with current practice and ethical and
professional standards to provide a strong foundation of advanced investment
analysis and real-world portfolio management skills”
If we carefully look at the underlined words, we should be
able to identify the philosophy behind launching the CFA course. It is quite evident by undergoing this course
you would acquire skills that are required for investment analysis and
portfolio management.
Before I discuss a little more on the finer aspects of CFA,
it would be worthwhile to see what are the jobs typically done by CFA’s. A research by eFinancialCareers found more
than 25% of CFAs work in Asset Management industry followed by 25% in Equities
and Fixed Income & Research, 20% in Hedge Funds, 15% in M&As, 10-15% in
Capital Markets, 10% in Private Banking and Risk Management, 10% in Trading and
Commodities and roughly 7-10% in accounting and finance.
By looking at the industries employing CFAs, it is evident the
jobs are more in the field related to corporate finance, treasury, hedging,
risk management and capital markets. And
this seems to be in line with the Preamble of the CFA Institute making
professionals in the field of investment analysis and portfolio management.
Lets try and understand in simple layman language, what does
the above terms mean and how CFA degree holders add value to these fields:
Investment Analysis
Investment
analysis is basically the study of how an investment is likely to perform and
how suitable it is for a given investor.
If someone wants to invest in equities or mutual funds, the investment
manager is the person who identifies which sector is promising to invest, which
equity has performed well in the past and basis the decisions taken in the past
and historical performance, takes the decision to make an investment.
To simply
put, it is like if you want to put your money in buying a house you invest time
to study the area, study the background of the builder, study the market prices
and also study the earning potential in case you wish to sell it in the
future. This is exactly what an
investment manager does whilst deciding where to put your money whilst buying
securities or mutual funds.
Portfolio Management
Portfolio
management is helping create and recommend portfolios of stocks, bonds, mutual
funds, exchange-traded funds or alternative investments to meet the investment
objectives of a specific investor. Professionals
who perform portfolio management are focused on meeting the needs of investors
through the rate of return achieved within a portfolio and they are often
responsible for rebalancing the account to remain in line with the investor's
allocation preferences.
The terms ‘investment analysis’ and ‘portfolio management’
are kind of synonymous, both of them leading the objective of ensuring
investor’s objectives aligned with the type of investments they invest in.
The other areas where CFAs generally work include the
following:
1.
Working as a Buy-side analyst. The Buy-side of a stock exchange comprises
the mutual funds, pension funds, insurance companies that buys a large
proportion of securities (shares, bonds etc) for money-management purposes.
A buy side analyst is a person who works internally for company’s
investment analysts and provides information and does research for the
company’s internal consumption. The
buy-side analyst’s work is not shared with in the public domain.
2.
Working as a Sell-side analyst. A Sell-side analyst is a person whose work is
shared in the public domain and he/she generally works in a brokerage firm and
provides recommendations for purchase, sale, prices and opinions to the public
market.
3.
Working as a Financial Planner. The other areas where CFAs are found quite
useful is the field of financial planning.
Financial planners help companies and individuals plan their finances
keeping the short term and log term goals in mind including retirement
benefits, children’s education and marriage etc. They are the people who have skills to
foresee which investment is fruitful keeping the objectives in mind.
4.
Working as Economists. CFAs are also quite good in the field of
economics and that’s because as part of the curriculum they are taught the
concepts of statistics, probability theory, time value of money, micro and
macroeconomics, international economics etc.
How Does CFA differ
From CA?
I think by now you yourself would have identified what a CFA
does and the kind of industries they work in.
If we look at a macro level, CFA degree helps you get expertise in areas
of investment analysis, portfolio management, economic theory, financial
reporting, corporate finance that includes capital investment decisions,
capital structure policy, dividend policy and the economic aspects of mergers
and acquisitions. A CFA is generally
expected to have sound knowledge of ‘Finance’ in the broader sense. Leveraging statistical tools and economics
based tools, the CFAs provide their services.
A Chartered Accountant, on the other hand is expected to
have sound knowledge of accounting, audit, taxation (both direct as well as
indirect) and law. Though, in the CA
course there are papers on financial management and a lot of CAs do practice in
the field of corporate finance, in my personal opinion the quantum of financial
management and economics oriented subjects in these courses vary, with CFA
having much larger pie of these subjects than CA. Similarly, even the perception of both the
degrees to the outside world is different.
When Should You Do
CFA? Should you do CFA after CA?
In my opinion before deciding to choose a professional
qualification, you should ask yourself the following questions:
1.
Do I have strong analytical skills;
2.
Am I good in research;
3.
Does my patience exceeds normal patience levels;
4.
Do I enjoy reading the pages in Economic
Times/Financial Express/Business Line that cover reports and analysis on stock
market, foreign currency and India and world economy;
5.
Do I like watching news on NDTV Profit, CNBC
TV18 on issues related to economy, stock market, financial products,
derivatives, equities and bonds and how are they valued etc; and
6.
Do I have the habit for an attention to details.
So, if your interest is more in capital markets, financial
management, forex, derivatives, hedging and you have a knack to do research
oriented work, CFA might be a good career option to you. Students of economics wanting to make a
career in corporate finance do well in CFA.
I personally think if you enjoy reading about stock exchange, derivatives,
policies related to exchange money control and foreign exchange and the subject
economics and world around it excites you, CFA probably would be a good bet for
you to try as a career option.
But, having said that it doesn’t mean that people who don’t
like reading economics or who have not been students of economics can’t do CFA,
they surely can if they develop that interest.
However, if you (like me J)
have more interest in reading balance sheets, picking up issues on taxation,
understanding how accounting entries are passed for complex transactions, know
how to interpret legal provisions and enjoy auditing the past transactions, then
making a move towards CA might be a good option.
Doing CFA after completing CA in my opinion is a good option
provided you have interest in capital markets and related fields. Your knowledge of financial management in CA
exams will surely help but then don’t expect yourself doing the same kind of
work that your CA friend might be doing, post qualification.
It is critical to understand in minutest of the details how
each course/degree unfolds its career options and if you take a decision
without being clear in the objectives, the results may be damaging and
catastrophic.
Don’t play with your career.
Do your research well and take informed decisions without anyone’s
compulsions and pressure. After all,
it’s your life and only you have the right to make it right.
Good luck and stay blessed…
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Authored by Nimish Goel who by profession is a
qualified chartered accountant but by passion, is an active blogger. Nimish has worked with EY and PwC in India
and has also worked with KPMG in Europe.
He now runs his own consulting company (International Business Advisors)
and manages his blog www.nimishgoel.com.
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