CHARLOTTESVILLE, Va. - Money managers and analysts are sharply divided over a proposal that they devote 20 hours a year to continuing education to keep their CFA accreditation, in what may turn into a vote of confidence in the board of the Association for Investment Management and Research.
Opponents argue the measure - which is up for a vote on May 12 at AIMR's annual meeting in Toronto - is unnecessary, lacks focus and is designed to bolster a burgeoning bureaucracy at AIMR, the Charlottesville-based industry body that administers chartered financial analyst exams.
"The continuing education vote has turned into a ham-handed power play where AIMR has used incredible financial resources and organizational advantages in an attempt to cram through major bylaw changes. This is a case study in group-think, of how an organization's leadership can lose touch with their members, treat opposing views with condescension, and lose any sense of objectivity," wrote Kurt Ostergaard, a former Morgan Stanley analyst, in an e-mail to Pensions & Investments.
Supporters say the proposed education requirement enhances the value of the chartered financial analyst, that clients think CFAs already have to meet such requirements, and the typical charter holder already logs about 40 hours a year in continuing education anyway. James Lyon, vice president of the Los Angeles Society of Financial Analysts, said the program's rules have been made far more flexible after input from members.
CFA members could meet the 20-hour test by reading finance journal articles or books, attending conferences or society events, using in-house training or viewing webcasts. While the Financial Analysts Journal or Journal of Portfolio Management would be accepted reading, material that is information, short-term oriented or insufficiently academic would not qualify, such as the Wall Street Journal or books such as "Jack: Straight from the Gut," by Jack Welsh and John A. Byrne.
Members would have to record their hours in a web-based diary or on paper, with AIMR making occasional checks. If a CFA failed to meet the requirements, he or she would be asked to make them up. After a while, the CFA designation would be removed until the member fulfilled the obligation.
Some opponents say the measure is shaping up to be a vote of confidence on AIMR's board. "I feel they have spent enough time and money trying to push this proposal that if the membership repudiates their views, I don't see that they have any alternative," said James Hymas, president of Hymas Investment Management Inc., Toronto.
Linda Killian, principal, Renaissance Capital Corp., Greenwich, Conn., a vocal opponent of the proposal, no longer thinks the board should step down if the proposal fails, but notes AIMR officials were late in giving the opposition a forum.
Rich Wyler, an AIMR spokesman, said the organization has spent $789,000 over the past three years on the proposal.
Now the issue is coming to a head. AIMR officials say they expect a majority of the association's 57,000 members to endorse the proposal, but it's not clear if the proposed bylaw change will win the required two-thirds approval. If the proposal fails to pass muster, the continuing education program would be used on a voluntary basis, replacing AIMR's current little-used program.
Road shows, phone banks
AIMR officials have put on 100 road shows at local securities analyst societies across the country touting the merits of the mandatory proposal and have used phone banks to call members. In addition, portfolio managers say they have been bombarded by e-mails on the subject from both sides. "I'm tired of reading about it," said Philip L. Hildebrandt, managing director of Segall Bryant & Hamill Investment Counsel, Chicago, who favors the proposal.
To date, seven societies have endorsed adoption: Chicago, Los Angeles, Dallas, San Diego, Victoria (British Columbia), Japan and Switzerland, while the vast majority of societies have just urged members to study the proposal carefully and vote.
Three societies - Atlanta, San Francisco and Richmond, Va. - have come out against the proposal, Mr. Wyler said. Unlike some groups that had lobbied to ease the requirements, the Atlanta Society of Financial Analysts argued the proposed program was not tough enough. "We feel it is eroding the integrity of the charter by adopting the lowest common denominator of the global community and catering to public perception rather than fulfilling the needs of practitioners," wrote Ronald J. Days, society president, in a message to Atlanta CFAs.
He argued that continuing education should be purely voluntary, and treated more like extra credit than part of the CFA designation.
Opponents also maintain that one size doesn't fit all because of the vast diversity of jobs performed by CFAs. Ms. Killian questioned how one program would meet the needs of novices to seasoned professionals, from analysts "who follow retail stocks to people who are in the REIT business." She added: "How are you going to be able to customize or even check each individuals' (continuing education) program?"
May not help
Some CFAs believe a continuing education requirement would not help clients or portfolio managers. "As investment professionals, it will not be a benefit to us either because our clients don't care," said John Hyland, president of the Security Analysts of San Francisco and former director of securities research at CB Richard Ellis, San Francisco.
The underlying motive, some opponents say, is a job entrenchment program for AIMR staff. AIMR now derives 53% of its revenue from fees paid by CFA candidates, who must pass a three-part exam held over three years to obtain their credentials. The number of CFA candidates has skyrocketed in recent years, surpassing 100,000 this year - a ninefold increase since 1990, and opponents say the figure is bound to taper off.
At the same time, the staff has roughly quadrupled to about 200 since AIMR was created from the merger of the Financial Analysts Federation and the Institute of Chartered Financial Analysts 12 years ago.
"I don't think (the proposal) is needed. I think it's going to be a huge time sink. It will add a huge layer of bureaucracy to people back in Charlottesville," said Robert Thompson, vice president of Dodge & Cox, San Francisco, and secretary-treasurer of the San Francisco analysts' group.
AIMR staffers deny that revenue generation is behind the proposal. "That is categorically false," said Jim Cudahy, AIMR's vice president of marketing and communications. At best, the program would be revenue-neutral over all time, he said. Most people would use existing publications and society programs to meet continuing education requirements, not AIMR conferences, he said.
What's more, AIMR officials say the program has been driven by members and is not a power grab by AIMR staff.
Nor is the requirement designed to be a uniform program designed to meet the needs of all charterholders. "Members will have the opportunity to choose educational content that they would choose to fulfill the program," Mr. Cudahy said. A fixed-income manager could select only fixed-income materials to study, where an equity analyst could pick just stock-related course matter.