Welcome to the CFALA e-newsletter, a periodic publication with stories about noteworthy events and programs sponsored or hosted by the society, guest articles by members, book reviews, and other items of interest to CFALA members. Click on the headlines below to read the full stories. And if you’d like to contribute a story suggestion or, even better, write an article, we’d love to hear from you. Please email Executive Director Laura Carney at firstname.lastname@example.org.
*Please note that the content of this e-newsletter should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Society Los Angeles.
In this issue ...
Career Mentorship Program Approaches One-year Anniversary
A little more than a year ago, the CFA Society Los Angeles (CFALA) Executive Committee asked members Ryan Buckmaster, CFA and Akiko Hayata, CFA to create a mentorship program to help young professionals navigate the beginning of their careers. Buckmaster and Hayata generously agreed to tackle the project and the CFA Society Los Angeles Career Mentorship Program was born. The program seeks to provide a unique, year-long mentoring program pairing members who seek skill development and professional growth with an experienced professional in the industry.
The one-year anniversary of the program is approaching and the program has experienced great success, while nimbly handling the growing pains of any new project.
“We are happy with the success of the program knowing people are getting real value out of the program,” Hayata said. Buckmaster added, “The number of applications we received and the number of pairs we were able to put together was fantastic. Overall, the program is going pretty well.”
One concern when the program started was the potential for mismatches between mentors and mentees. Buckmaster said, “Yes, there was a mismatch. We received far more mentee applications than mentor applications.” Given that situation, it provides a great opportunity for volunteers to get involved in CFA Society Los Angeles and making a tangible effect on a young professional’s career. The program can benefit members who wish to give back and have a direct impact on the life and career of a CFALA member who is looking for guidance. The time commitment is minimal and flexible.
“The initial time commitment is slightly greater in the beginning for all parties involved,” Buckmaster said. “Then, we envision the program taking a few hours per quarter for mentors and mentees. Mentors need to communicate regularly with their mentees, helping them to achieve their goals.”
While this is the first year for the CFA Society Los Angeles program, the committee members drew on the experience of other societies in San Francisco and Dallas/Fort Worth. When asked about the biggest surprise during the first year, Buckmaster said, “How many ways the program can be utilized or customized has been the biggest surprise. For instance one mentor had his mentee read a book outside the CFA curriculum to complement her understanding of specific topics.”
Additional observations about the first year include making sure participants are aware of the goals of the program. “Know that the program is not a job placement service,” Buckmaster said. “Rather it is a means to learn more about yourself and the career paths you are interested in. In your application, be as specific as possible and what you hope to gain from the program. If you don’t know exactly what you want to do, but you have it narrowed down to a couple paths, talk about those paths and how you want to explore them.”
Like any long-term investor, judging results after only one year is difficult. “It is hard to assess, but we will have a better idea once this first year is concluded and we’ve sent out review questionnaires to mentor and mentees,” Hayata said. “We are looking forward to receiving feedback.”
With the first year almost in the books, the committee looks forward to continued success. “We would love more mentors and mentees for next year,” Buckmaster noted. “Once application season begins again in the summer, we look forward to many applications.” Hayata added, “We are continuously looking for ways to improve the mentor-mentee engagement.”
For more information on the program, contact Ryan Buckmaster (email@example.com) or Akiko Hayata (firstname.lastname@example.org) or visit the Career Mentorship Program application page.
Embedded Fees: Are They a Disservice To Our Clients?
Imagine this. You get a call from your CPA’s office telling you, “Good news, you’re getting an income tax refund of $1,000. Also, you will not receive a bill for services from us”. What the CPA’s office doesn’t tell you is that your refund is actually $1,500. They are keeping back $500 as their fee. You would have known that if you’d read through the 70 page explanation of their business practices.
This sounds ludicrous. But this is the daily business practice of most firms that manage money for their clients. Hedge funds, mutual funds, bond brokers and variable annuities all embed their fee among the ebb and flow of their client’s account balance. How can they do this? Because the financial services industry is in a unique position. The product of the financial services industry (money) and the charge for services rendered (money) are the same. Consider how this would work in other industries. A customer places an order for 100 bowling balls, but only 95 arrive. The bowling ball manufacturer is holding back five as his fee. Not very practical. His employees want money, not bowling balls. So instead he sends an invoice for those 100 bowling balls with the delivery.
Isn’t the industry billing standard ok? Can’t the client easily calculate his fees? Often the answer is no. Consider buying a bond from a bond broker. What is his markup? That is never revealed to the client. Or consider the mutual fund investor. He wants to know what all of the charges are for his fund. So he looks in the 70 page prospectus for the total operating expenses and calculates the fee. Except the total operating expenses do not include brokerage commissions. In order to estimate those, the investor would have to look in the SAI (statement of additional information) which is a document about which many professional investors are unaware, let alone the general public.
Here is the real issue. CFA Institute recently did a survey of 3,800 retail and institutional investors, titled What Investors Want. “Fully discloses fees and other costs” and “Clearly explains all fees and costs before they are charged” were two of the three most important attributes investors considered. Yet it seems we work very hard to do the exact opposite.
Why is this? The cynic might say it’s because we intentionally hide this information from our clients. We make it difficult to find out exactly how much they are paying, allowing us to charge more. Regardless of whether that is true or not, it is a disservice to our clients. It’s wrong for financial services companies to take on the responsibility of managing an investor’s life savings and then withhold information the client feels is important.
As an industry, we can do better. Hedge funds can easily provide a breakdown of client fees. Mutual funds can provide a total fee estimate on the client’s statement.
We should not wait for regulators to force us to do this. We owe it to our clients to provide them with a breakdown of all their costs. Our clients deserve to have a full accounting and to have the information to cost compare like they can for services they receive in in any other industry.
CFA Institute exists primarily so that its members will be taken seriously as professionals, like CPAs and attorneys. Being straightforward about the fees we charge would be a big step down that road.
By Don Steinmann
Member, Ethics and Advocacy Committee
DOL Fiduciary Rule
The US Department of Labor (DOL) recently released its conflict of interest final rule and corresponding exemptions for plans and IRAs. Jim Allen, CFA, head of capital markets policy at CFA Insitute, breaks down the DOL fiduciary rule in this CFA Insitute Market Integrity Insights blog post and video. Read more... And more...
FinTech is changing the world of finance. In this comprehensive Citi Global Perspectives & Solutions report, the authors assess the impact of digital disruption on traditional banking. The authors look at where FinTech capital is being deployed -- by segment, product and geography -- and how innovation is impacting traditional banking. The report also includes Q&A sessions with Citi executives regarding the impact that FinTech has had on the bank's various lines of business. Read more... And more...
Fintech (the Word, That Is) Evolves
We started to wonder where the term "FinTech" (or "fintech") came from. In this short American Banker (AB) article from October 2015, AB Editor in Chief Marc Hochstein explains how the term may have originated from . . . Citicorp, a predecessor to today's Citi. Hochstein provides a link to a 1993 AB article to support his explanation.
Welcome To The Unicorn Club
While we were at it, we also started to wonder where the (financial) term "unicorn" came from. Here is Aileen Lee's seminal November 2013 Techcrunch blog post, in which the founder of Cowboy Ventures introduces the term and shares her insights regarding US-based technology startups valued at over $1 billion. Last summer, Lee posted a follow up to her original post. Read more... And more...
Merle Hazard: How Long (Will Interest Rates Stay Low)?