The CFA® Charter as a Transition Tool

The World as It Was

I began my career in the bond market research department of a major sell-side investment bank. At that time, "Wall Street" was run by firms whose salespeople, traders, and research teams established the markets’ liquidity and dictated market prices to clients. In other words, they were the "masters of the universe" and the "wolves of Wall Street," with all the associated implications. For bonds, market making was the primary way to maintain bond market liquidity and circulation of bonds from a government to money-center banks to the public. Back then, there were 16 money-center banks and financial firms. My role was to perform statistical analysis; collect daily market data and chart the results; write market research reports; and distribute those reports to the salesforce, traders, and eventually to clients. After five years in research, I became a market maker of European bonds. My typical day was to track the money market—namely, the 2-year, 5-year, and 10-year yields of the Spanish, Italian, German, and French bond markets. I set prices for clients and took proprietary positions on behalf of the firm.

Rules Change

Then came the creation of the European Union. Spanish, Italian, German, and French money market and bond yield markets became one unified "Euro" interest rate market. In addition, electronic trading began to take a more prominent role in bond market activity. Major sell-side firms began to merge (there are now only four money-center banks left), and bond sales and trading staffs began significant downsizing. In other words, my job was eliminated.

Efforts by the regulatory agencies to create more transparency, objectivity, and accountability in research opinions forced major investment banks to "sell" research instead of passing along “fees" for research from existing transactions. Investment banks downsized their trading staffs and cut costs by eliminating research staff that could generate sufficient revenue on their own.  The investment firms I worked for were merged, and the research, sales, and trading jobs that were plentiful when I entered the job market out of college were almost completely eliminated from "Wall Street."

Evolve or Die

I began the job-search process hoping to utilize my skills writing bond market reports, conducting technical analysis, and doing interest rate forecasting, as well as trading and using my market-making experience. Fortunately, having lived overseas for periods of time, I was open to a job outside of the United States. One of my first interviews and eventual job offers came from Bermuda, an offshore center for global banks, hedge funds, and insurance/re-insurance companies. It was my first job on the new buy-side, where asset owners and clients began to dictate prices for themselves on the electronic markets and hire staff to perform the same research and trading tasks once demanded only by the sell-side.

The first thing my new manager (chief investment officer and head of investments) said was, "I need you to get a CFA to keep this job. Make sure you sign up as soon as possible." He explained that portfolio management or analyst credibility depended on achieving the CFA designation. Ten years after gaining a college diploma, I was going back to school. Two weeks after joining my new firm, I enrolled in a CFA test-preparation class sponsored by the company.

Pursuing the CFA Charter

My CFA-preparation experience is similar to that of many others, and probably very different to that of many more. At the time, I was juggling 50- to 60-hour work weeks, and had a wife and new baby. I needed to force myself to study. For that reason, I enrolled in a weekly CFA instructional class, complete with study materials, homework, and practice exams. The class began the January before the May exam, and each session was approximately two to three hours per week. This study plan enabled me to focus on small segments of the exam over an extended period of time. It was incredibly beneficial to me.

I notice that now, many CFA exam registrants take Level I while completing a graduate program and look to take advantage of time off to study for multiple exams over a shorter period of time. My key advice to anyone taking the CFA exam is to NOT underestimate the difficulty of the exam. It is an evolving exam, and CFA Institute staff have tried hard over the years to keep the exam topical, relevant, and challenging to pass.

Life as a CFA Charterholder

Portfolio construction and optimization is a key component of the exam. Level I treats you as an entry-level associate; Level II evaluates your ability to perform at the analyst level; Level III puts all the major concepts together and evaluates your portfolio management/CIO skillset.

Program trading, algorithmic trading, and other forms of system-driving trading has now taken hold of financial markets. The CFA exam's focus on quantitative methods, along with other analytic subjects, is now a key focus of the industry. Factor-based modeling, regression testing and analysis, and tail-risk analysis techniques are now common subjects in financial periodicals and panel discussions.

Going forward, continuing education that emphasizes the development of innovative ways to monitor performance, optimize portfolios, manage risk, and generate alpha is key to maintaining individual credibility and relevance in today's ever-changing job market.

Final Thoughts for Those Thinking of Pursuing the CFA Charter

Graduate students, in a generational change, now begin the CFA program in conjunction with their graduate education. Many graduate programs now integrate themes commonly evaluated in the CFA program and in financial analysis periodicals globally. It appears that trend will be continuing. Those who are changing careers have a new option to diversify and expand their career choices and job prospects. The CFA designation opens a door to careers in investment performance, portfolio management, market analytics, and evaluation, to name a few. And if you’re choosing between a CFA charter and an MBA, it’s not an either/or matter. If you are looking to develop a career in asset management, portfolio construction/optimization and risk analysis, or financial planning and advisement, the CFA designation is the ideal choice. If your career interest is outside of those choices, the MBA is optimal.

About the Author

Sidney Hardee is a former trading manager at the Bank of N.T. Butterfield in Bermuda, where he led their fixed-income and derivatives trading initiatives. Mr. Hardee began his career as a market analyst at Salomon Brothers, focused on European bond markets. Later, he joined Lehman Brothers in both New York and London as a bond trader. He was also a vice president in both the credit markets trading and global rates strategy groups at JPMorgan. Mr. Hardee holds a BA in economics and mathematics from Yale University and a MS in applied statistics from Columbia University. He is a holder of the CFA designation.