Talking Points Charterholder Representation in Canada CFA Institute Support for Private Wealth Features of the CBOK   Further Reading Private Clients, You, and Public Relations article   E-mail update

Canadian Private Wealth Talking Points

 

Select Features of the CFA Program's
Candidate Body of Knowledge

in the Management of Private Client High-Net-Worth Assets

 

Advocating Ethical and Professional Standards

• CFA charterholders adhere to the highest professional and ethical standards. Charterholders place the interests of their clients and their profession above their own.
• The CFA Program trains charterholders to competently evaluate their clients’ needs and use professional judgement as they act on their clients’ behalf.
• As a service to their clients and their profession, CFA charterholders maintain their professional competence through professional development activities supported and provided by CFA Institute.

 

Scanning the Global Market

• CFA charterholders study the global economic environment to evaluate risk and return characteristics of various assets and asset classes.
• Often using sophisticated time series and econometric techniques based on internal and external research, CFA charterholders develop forecasts designed to project anticipated market movement and co-movements.
• The CFA program recognizes that international assets and asset classes offer valuable opportunities to capture benefits related to portfolio diversification and expected return.
• As part of economic and security valuation analysis, CFA charterholders analyze industries to ensure that clients are placing capital with issuers of equity and/or debt securities facing strong, sustainable business trends. Analytical frameworks (e.g. Porter's Competitive Forces) ensure that investment opportunities being considered satisfy optimal risk-adjusted return requirements.

 

Selecting Appropriate Securities to Achieve Investor Goals

• CFA charterholders employ a rigorous, multi-faceted approach to valuing individual equity securities or equity fund products. They implement various quantitative models (such as financial statement analysis, discounted cash flow, relative valuation, and residual income models) to identify mispriced securities.
• The CFA program develops tools to quantify investment risk and its relation to expected return. An understanding of different risk measures (e.g., standard deviation, market beta, and multi-factor models) allows charterholders to evaluate portfolio performance taking into consideration the level of interest rates, general market movements, and the risk assumed by the portfolio.
• Fixed-income instruments are typically analyzed in the context of credit risk, interest rate risk, tax characteristics, and embedded options. CFA charterholders apply quantitative analysis and professional judgement to estimate the appropriate price required to make a bond an attractive investment, taking into consideration a client’s tax position.
• In addition to assessing various risk exposures (related to factors such as interest rates, exchange rates, market movements, and tax uncertainties), CFA charterholders develop strategies to hedge portfolio risk using derivative securities.
• The CFA Program recognizes that alternative asset (e.g. real estate, private equity, and hedge funds, etc.) can improve portfolio returns and/or diversification. Understanding of the risk, return, liquidity, and tax characteristics of alternative investments, CFA charterholders try to ensure that alternative assets are suitable and have favorable tax implications for the client over the long run.

 

Ensuring Portfolio Construction that Maximizes Investment Return and Minimizes Risk

• CFA charterholders work closely with clients to develop an investment policy statement that addresses private clients' risk tolerance, required return, tax status, time horizon, legal requirements, liquidity needs and unique individual situations.
• A client's risk tolerance is estimated using both quantitative and qualitative techniques, such as psychographic analysis. Communicating the concept of "risk" to the client typically addresses both historical and expectational opinions of volatility for each asset class considered for the portfolio as well as correlations among assets classes. CFA charterholders may use scenario analysis to illustrate the ramifications of changes in investment assumptions to the client's well being. A proper monitoring process allows the charterholder to identify changes in a client’s risk tolerance or risk profile.
• Using modern portfolio theory, CFA charterholders construct portfolios that obtain the greatest expected return, given the level of risk assumed, to ensure the minimization of diversifiable risk while fulfilling the client's goal.
• CFA charterholders are flexible in the way they address client asset management strategies. This flexibility and multi-pronged approach ensures that assets are positioned to meet the long-term requirements of the client, add value in the context of minimizing risk and maximizing return potential relative to the global macro economic environment, and are integrated with the client's overall portfolio of liquid and illiquid holdings.
• Proactive monitoring and rebalancing of portfolios is an essential service provided by a CFA charterholder. Elements of proactive monitoring may include using a third-party independent performance measurement service or a consultant to verify the investment program is adhering to the client's proposed investment policy and achieving the client's stated goals.