CFA INSTITUTE | An essay

As a lifelong market observer and private investor who to all intents and purposes probably has finance running in his veins, the CFA Institute is a particularly curious and interesting entity. It strikes me these days that its eponymous qualification is now in the ascendancy carrying growing weight with increasing numbers of serious individuals and decision makers as it comes to replace the MBA in many quarters as the heavyweight calling card of choice.

After engineering half a century of self-perpetuating, almost Ponzi-like, explosive growth to become at its apogée effectively a prerequisite for both ambitious young people and mature candidates looking for a new career; more exceptional candidates, recruiters and administrators have become aware of certain home truths. Something had happened to this celebrated degree that for an age across the world came to define a class of leaders and membership of an elite that reached beyond the confines of just the business world or finance to permeate throughout the upper echelons of society as a whole.

It wasn’t even a stepping stone or helpful leg up the career ladder any more in the face of the vast numbers emerging each year who it turned out were little more than carbon copies with a tendency to the worst sort of cult-like group think and questionable values and ethics as well such that they came to most closely resemble any number of the evil forces in popular science fiction. (To my mind, Star Trek’s Borg. The parallels are uncanny.)

All that has happened in the wider world in terms of recent history has come to alter societal perception towards this mindset and bring its class into disrepute so that an MBA now is little more than a year or two long steeplechase cum boot camp to nowhere in particular (unless its participating in a recreation of aforementioned sci-fi).

It was probably as long ago as the Enron and WorldCom scandals that the navel-gazing began for the business school world, when it was laid bare just what sort of monster Frankenstein had created that far from being a force for good in society was full of faceless egomaniacs completely lacking in ethics, whose wanton ambition knew no bounds and with no moral compass as they rode roughshod over all else. The rest of course is history. Massive fraud committed on an unprecedented scale, thousands out of work and/or wiped out in bankruptcies, prison for one or two but nothing substantive really changing. The inevitable recriminations and knee-jerk reactions on Capitol Hill while there is political capital to be gained from it and the endless witch hunts that never go out of fashion but regretfully as ever plus ça change.

The persistent and perennial, secular failure to address fundamental problems at the very heart of the regulatory structure and the incestuous relationship it engenders between poacher and gamekeeper with respect the corporate world is nothing less than an abnegation of responsibility for the root-and-branch overhaul and reform needed to prevent the cycle endlessly repeating itself. According to this arms-length observer most recently of the current and ongoing financial and economic crisis, once again, amidst all the outcry and scandal and moral indignation that resemble nothing more than crocodile tears, the whole sorry saga has proceeded as if by textbook.

However, the solitary sunbeam that finds a chink in the clouds and illuminates all this as it seeks to shine a light on a possible new order and into the dark corners kept in the shadows by the old guard strikes me as being the CFA Institute through the agents of the providers of research and information (in other words the life blood of the investment community) who it seems to be making a valiant effort to reshape as a force for old fashioned, professional values in a world that clearly has scant regard for them in its pursuit of profit sans fin. The caveat and disclaimer being that I’m essentially relying on their marketing material and other PR efforts plus a load of anecdotal evidence gained over the years combined with a reasonable belief in my ability to read between the lines sufficient for the limited extent of this interpretive assessment.

It goes without saying that finance is one industry that has never felt the need to define itself in the way that the other professions do, with no love lost for the niceties of such organisational strictures. The City is an ancient institution that has seen it all before with a history that almost predates memory but always a place of trade and commerce. Its most recent incarnation as a financial hub where businessmen could meet and do business with one another according to its own unique set of rules evolved organically for hundreds of years from its 17th century origins in the coffee houses that gave birth to such iconic institutions as the LSE and Lloyd’s.

I suspect largely because the unique position of the Corporation of London meant that while the cannons thundered across Europe and centuries passed and the world turn pink and back again as the British Empire reached its heights in tandem with the East India Company coming to be the behemoth it once was (whose size and scale and scope of operations are hard for us to comprehend these days), even this must have posed challenges as it must have had great demand not just for finance but insurance and all kinds of other ancillary services offered by the City.

At the same time, they must have been dealing with similar problems to today. The challenges of managing the economic cycle, when to cooperate and when to compete with your ‘frenemies’, dealing with politicos and mandarins who have say over your business, be it duty and taxation; the award and removal of concessions etc. It is surely remarkable that the Corporation of London and ‘the City’ retained their autonomy and weren’t subsumed into the apparatus of the state or some other entity.

While it may be apocryphal, how one famous European banking dynasty came to have its roots in the unique position London occupied during the Napoleonic Wars at the same time being the provider of the royal overdraft. One could say that London’s status as the capital of global finance owes much to Britain’s history as an island trading nation on the edge and separate from a continent that only now after two world wars and the founding of the EU project has come to enjoy the longest period of peace and prosperity in its history that puts the current economic crisis pale in some context.

The threat to London from this resurgent Europe able to speak for the first time with one voice should not be underestimated. While empire may have come and gone and the UK’s status in the world be much diminished, in many ways it looks like chance or the law of unintended consequences that London regain its position as the capital of global finance. While geography must help, it is curious that the ‘Wimbledon’ approach meant that even if few had their global HQ here, becoming the de facto location of the international operations of almost everyone else.

London has a long history as a host city and its achievement here should not be underestimated or sacrificed lightly in dealing with our continental neighbours who would like nothing more than to bring some of its business to Frankfurt or any number of other European cities. In this way, even a cursory glance at history validates the City’s commitment to its independent status and self-government as an autonomous entity where the activities of consenting market participants are free from outside interference so as not to restrict them any more than is necessary since their fiercely guarded reputation and honour always used to be sufficient to avoid the prescriptive and legalistic contractual relationships common elsewhere and enshrined in the motto of the LSE dictum verbum pactum.

More recently, London’s light touch regulation has been castigated from Wall Street to DC and in Europe, for whom this arm’s length principle is completely alien and even anathema (the tenets of which spread amoeba-like through the underpinning of much of UK accounting and auditing, English law and protecting the citizen from the overreach of the state and its agents). This was largely a political failure as Blair and Brown cosied up to the industry.

While Thatcher and Lawson initiated the process of deregulation, the pace of financial innovation continued to gather pace and surely reached critical velocity in the early years of Blair and Brown’s first term in office which makes it inexcusable the way they took their eye off the ball at the worst possible time and quite shameful how the rankest form of base political expediency was the hallmark of the new Labour project.

So it comes to a place where “Professionals Must Take the Lead in Restoring Trust” says CFA Institute CEO John Rogers, CFA (Video) | CFA Institute Annual Conference http://cfa.is/169UP6C via @CFAInstitute which define how the efforts of the CFA Institute can resume the place of traditional professional bodies that no longer meet the role they were meant to be. It’s reassuring that we have an entity that now describes itself as

“The global association of investment professionals that sets the standard for professional excellence. We are a champion for ethical behavior in investment markets and a respected source of knowledge in the global financial community.

Our ultimate goal? To serve the greater good by creating an environment where investors’ interests come first, markets function at their best, and economies grow.”

So we wait in anticipation.