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The CFA chase: A cornerstone of trust, and no shortcuts

Margaret Franklin is the new chair of the worldwide Chartered Financial Analysts organization and President and CEO of Kinsale Private Wealth.

Sarah Dea/Sarah Dea/The Globe and Mail

They are just three little initials, but the CFA is the hot ticket among the world's striving young finance professionals. In fact, almost 60 per cent of the 112,000 candidates who wrote Chartered Financial Analyst exams in June failed in their efforts, and yet they keep coming back. What's the method behind their masochism? Margaret Franklin knows, because it's played a huge role in making her career. So now the 45-year-old wealth manager is giving back, as the new chair of the CFA Institute which runs the global education program and its three-stage exam process. Add the responsibilities of being president of a new wealth-management boutique, Kinsale Private Wealth Inc., and you have the portrait of a woman at a career inflection point.

As a student, were you a whiz at math?

No, I wasn't because it wasn't relevant when I was at school. I didn't understand what it all meant. I didn't start out in this business. I landed in it accidentally.

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I was working for an outdoor media company as a marketing analyst. I was going no place. The HR person said 'there is nothing here for you to do, but there is a job over at State Street Global Advisors. I know the HR gal and I said you would be really good for it.'

I took the job and I loved it. I didn't really know the difference between a stock and a bond when I started. I wrote my Canadian Securities Course, and then I really needed and desperately wanted technical expertise and began my CFA.

Now, 20 years on, you are president of your own money-management firm. Is it a difficult shift to running your own shop?

No, it is far more consistent with how I like to operate. You get to 20 years' experience, you go through the 2007-2009 period, and you come out with ideas that become very crystallized in what you think is important, what it all means, and how to execute on that for the rest of your career.

How do you want to run this company?

I don't really see much disconnect between the CFA Institute platforms and how it trickles down into practice. The whole thing is based on the cornerstone of trust. We don't sell a widget. We are navigating families through the uncertainty of investing. As soon as you know you can't deliver a very precise outcome, you help manage through the possible scenarios and how to deal with them. Rather than selling them some vision, you are educating them on a process.

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What happened to that process in the financial crash?

Before 2008, people talked a lot about risk but they didn't properly position themselves. A lot of people get caught in the daily part of the business where you are being measured in such short time frames against benchmarks which were never designed for portfolios.

Juxtapose that with a private-client, long-term capital preservation focus. In many cases the portfolio wasn't matched to those objectives or clients weren't told, 'We really have to worry about capital preservation.' It's not just that people lost money in '08 - it's the magnitude of the loss. And the result is psychological - they got out of the market and they missed all of the upside and so it's a double whammy. That is devastating.

What is the role of the CFA when so many people are skeptical of the financial industry?

It is not a guarantee of [personal]values, just like you can't teach character in a university course. But it is the gold standard because it is a very rigorous training. This is a money business, so the end is about making money. You are so measured in dollars. So starting people on their career journey thinking about ethics is something you hope will make a difference. I don't think you can guarantee it, but it is firmly based in the program.

When young people ask if they should pursue an MBA or a CFA, what do you say?

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It's like the difference between a science degree and a medical degree. An MBA is a really broad program and the CFA is specifically about investment. The concentration of time, effort and energy into a very defined activity allows much more breadth and depth in that one area.

If you're going to be a professional in the investment business, you de facto have to have the CFA now. I would question a student who isn't pursuing it because the CFA demonstrates a level of commitment and professionalism.

I don't think the CFA is the program for everybody. It's about investments and investing. Yet the world that touches up against investing is becoming much bigger. It used to be we were just largely a group of portfolio managers and analysts; now you see that group broadening out as markets become far more interrelated.

But are you happy with a pass rate of 42-43 per cent?

You'd like to see more people successful at it, but without any dilution to the charter. The testing and grading methodology are extraordinarily rigorous, which means the board can't say, 'We don't really like 43 per cent for business reasons, so let's be more flexible.' That's not a conversation that occurs, even though [the failure rate]does cause us some concern.

In two years you've seen a 10-per-cent increase in level-one CFA candidates in Canada. What's going on?

Canada has a disproportionately high number of CFAs and Toronto has the second-largest [CFA]society in the world behind New York. It's so competitive here. King and Bay [the financial core in Toronto]is not a big geography, but everyone is there working in the industry and you all write it.

But we also see tremendous growth from Asia reflecting quickly growing capital markets. That's where the CFA can have big impact. As markets are just developing, they are in their formative years for regulation, conduct, enforcement, and having the right kind of professionals. The CFAs are really welcomed in that process in emerging markets.

How does it feel being a Canadian in your role at the CFA?

It is a great time for a Canadian to be in that chair. Canadians really understand the concept that, look, we don't always get our way. We all have to get along. If I'm not assured of an outcome, what do I care enormously about? I care about the processes and conversations that got us to that outcome. If I feel it is fair, transparent and supportable, I can probably live with that decision. It's classically Canadian. I think that's why I'm in the position I'm in.

Post-meltdown, is there a Canadian advantage in the financial world?

Canada, by the nature of its size and with our oligopolistic banking system, can look like we thought the whole thing out, that we were really smart. But we got to here more by default than by design.

But there is much to be learned in that outcome. As Canadians, we are appropriately aware of how we got here, and we can seize the moment. We have everything the world wants - water, resources and funny people - but we're not so loud that we offend too much. We look for ways to bridge and be respectful of the process. And that's a real CFA approach,

But how do you get the numbers up for women, who constitute only about 20 per cent of Canadian CFAs?

The numbers haven't grown the way they have in engineering or medicine. I'm always surprised by that percentage, because I have had a wonderful career and a wonderful family life. I've got a son, 16, and a daughter, 12. I'm not in as great a shape as I want to be or probably not as well read, but I've been able to do both [career and family]very successfully. So this can be a good business for women.

How do you get women into it?

A lot of it is just letting people know about the business. And you have to encourage women. You have to give words of encouragement now and then, but I don't think they need to be treated especially different.

Isn't the problem that women have to take these arduous CFA programs at the moment they are starting a family?

Look, I wrote my first exam when my son was three months old, so I hear you. But the 20s shouldn't be about balance in your life - it should be about getting as much as possible done before the onslaught of big family responsibilities, combined with bigger roles in your profession. The 20s are about acquiring as much knowledge as you possibly can, and doing the work you need to do. And in our business, that means getting your CFA.

How will markets act the rest of the year?

I wouldn't make any predictions for such a short period. But I think it is going to be very volatile, very choppy, and psychologically very difficult.

You can't have a period of such great leverage as we did in building up to 2007-08, and expect it to be done in 18 months - this period of deleveraging, of reformulation and reorganization, is going to take longer.

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About the Author
Senior Writer, Report on Business

Gordon Pitts is an author, public speaker and business journalist, with a focus on management, strategy, and leadership. He was the 2009 winner of Canada's National Business Book Award for his fifth book, Stampede: The Rise of the West and Canada's New Power Elite. More

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