August 2018 e-Newsletter

CFALA e-Newsletter: August 2018

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

*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 ...

The Case for Regulatory Evolution: A Review of "And Now Ethics 2.0: An Argument For More Self-Governance"

And Now Ethics 2.0: An Argument For More Self-Governance

The above links to an article on “Ethics 2.0” by Carsten Tams argues the need for evolution within the regulatory industry for it to remain effective. While it doesn’t exclusively address financial services, the challenges identified are relevant and will resonate to anyone within the industry.

The current regulatory model—the one that we are all familiar with—is that of compliance. It is a rules-based system that is well-defined and easily measured. However, in my opinion, this model is best suited for simple decisions that require little subjective judgment. For example, to achieve regulation, drivers must stop at an intersection when the light is red. The correct choice (to stop) required little subjective thought and it was clear if it was violated (the light was red). But as our industry becomes more complex and personalized, it also becomes increasingly more difficult to define the “right” choice based upon a general set of objective rules. For example, can a predetermined set of rules determine something as simple as whether a recommendation for bonds was appropriate for a client? At first blush a seemingly straightforward question, but how many idiosyncratic, client-specific factors need to be incorporated within that decision?

Tams provides as an alternative approach to remedy this challenge in the form of ethics-based regulation. As a point of distinction, he defines compliance as “behavior in accordance with someone else’s requirements in order to gain rewards or avoid punishment” and ethics simply as “pro-social behavior for its own sake.” Although I prefer the definition provided by former Supreme Court Justice Potter Steward, who said ethics is “knowing the difference between what you have a right to do and what is the right thing to do.” The primary advantage of this ethics-based approach is the decision maker no longer needs to prove that her decision is in line with what the regulatory agency would have anticipated. Rather the decision maker is given the latitude to do whatever she deems best for the client, alleviating her concern of fitting into what is deemed a compliant solution by the regulators.

The ethics-based framework also has the additional benefit of positively changing the decision maker’s relationship with regulation itself. It empowers the individual for internal, “self” regulation for the benefit of society, rather than an adversarial, external regulation where the individual feels policed by the regulator. While subtle, this difference creates a sense of moral agency and facilitates an acceptance of regulation. In describing this point Tams uses the example of anti-harassment training in the workforce. Most people do not believe that they engage in harassing behavior and therefore become less receptive of the training. But with a greater sense of moral agency created by ethics-based compliance, they would view the training not as a judgment, but as an opportunity to help prevent harassment from occurring to others.

The article also describes how company management must facilitate the concept of ethics- based regulation by allowing it to be an agent of change rather than simply a catchword used as part of a policy initiative. Tams includes a great example of how Nike fostered ethical agency on behalf of their employees to fight sexual harassment and gender discrimination in the workplace.

Overall, the article does an excellent job of defining the difference between ethics and compliance in regulation. Even more useful than the framework it provides, the article identifies how the subtle differences of each approach can lead to material changes in acceptance, implementation, and outcome. The limitation of the article for the purposes of our society is that Carsten writes about regulation from the perspective of universal application rather than industry specific. To that extent, it is helpful to consider the article complimentary to work already completed by CFA Institute. Specifically the research conducted regarding the variable Phi (1) as a non-compensation contributor in the attribution of motivation. Phi identifies how the alignment of career goals and values create a long-term motivation resulting in increased performance. While they may seem like unrelated concepts, at the center of both Phi and self-regulation is an incentive structure that fosters ethical behavior and an environment that supports autonomy and a sense of moral agency.

Tams addresses the concern some may have about an ethics-based approach that may result in greater abuse and require greater attentiveness and investigation on the part of regulators to determine if a violation has occurred. He argues that this approach provides enough structure for compliance and enforcement, although requiring the aforementioned shift in mindset on the part of both regulators and those regulated. The result is the benefit of allowing regulators to protect consumers in situations where a client’s best interests have been violated, but no specific rule has been breached.

When viewed within this broader context, then it is clear that “Ethics 2.0” presents an opportunity for regulation to remain relevant and create a better alignment between the desires of the industry with the best interests of consumers. - Ryan De Silva, CFA

Ryan De Silva has thirteen years of experience serving as a client advocate within the investment industry through various technical and client-facing roles. He is a CFA Charterholder, Certified Financial Planner® designation holder, and completed UCLA Extension’s Certificate in Personal Financial Planning. Ryan is a graduate of Pepperdine University where he earned a degree in Economics.

(1) You can find information on Phi at the following link -

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The Annual CFA Society Los Angeles Golf Tournament Celebrates Eighth Year

A hot and humid day at Friendly Hills Country Club in Whittier was the setting for CFA Society Los Angeles’s (CFALA) annual golf tournament on Monday, July 23. The Eighth Annual CFALA Golf Tournament brought together more than 80 golfers, organized into 20 teams, for a day of fun on the links.

The tournament began with the putting contest, a challenging mini-golf style course laid out on the practice green. Holes on the practice green were impeded by tree branches, railroad ties and other obstacles to see which investment professional could do their best Tiger Woods impression. In the end, it was John Mahler, of Analytic Investors, who took home the title.

After a BBQ lunch on the back patio of the clubhouse, the electric golf carts began buzzing under a pounding afternoon sun, bringing the groups to their designated starting holes for the shotgun start. Using a best-ball format, groups quickly made their way around Friendly Hills’ beautiful course.

Added to the course were a number of challenges and competitions to see who had the longest drive on the 448-yard 4th hole, the most accurate drive on the 334-yard 10th hole, and who could get closest to the pin on hole 2, a par-3. Also available to participants was the par-3 Bulls-eye competition to earn raffle tickets on the 145-yard 8th hole, and a $10,000 prize for a hole-in-one on the 178-yard 13th hole. Unfortunately, no one went home $10,000 richer.

Still, birdies were made, bunkers were avoided, and balls were lost. Eventually the tournament wrapped up as the sun began to set over Whittier. Cocktails and hors d’oeuvres on the patio made way for dinner inside the banquet room while team scorecards were finalized.

But first, the Golf Committee announced the winners of the individual contests. Jarred Murphy won the longest drive contest, James Long had the most accurate drive, and Dan Sexton, CFA, was the closest to the pin at hole 2.

Finally, it was time to announce which group won the tournament and who would see their names added to the coveted Annual CFALA Golf Tournament trophy. Finishing in third, with a score of 59, was the foursome of James Gudger, Kevin Cole, CFA, Matthew Robinson, CFA, and John Mahler. The runner-up was one of the teams from BlackRock, consisting of Bruce Emken, Brian Sterz, CFA, David Little, and Tim Davidson, CFA, with a score of 56, one off of the lead.

The leaders at the end of 18 holes, shooting a 16-below-par 55, was the team of Eric Souders, CFA (one of the co-Chairs of the Golf Committee), Steve Reh, CFA, and Adam Congdon, CFA, representing Payden & Rygel. The Golf Committee would be remiss if they didn’t also recognize the “most honorable team” of the day, consisting of Erica Levy, CFA, Jason Katzen, CFA, Alec Small, CFA, and Christian Leveque, who were also representing Payden & Rygel.

The CFALA Golf Committee and staff would like to thank our sponsors for contributing to the tournament, the Friendly Hills Country Club staff and grounds crew for preparing the course and meals, and all of our participants who made the day enjoyable for all.

Andrew Elmers Back To Top ^^ 

Robert Hardaway, CFA and Past President of CFALA, Receives Special Service Award From CFA Institute

Robert B. Hardaway, Jr., CFA, was honored with CFA Institute’s Special Service Award while he was in Charlottesville, Virginia, last month grading CFA exams for a 28th-consecutive year. Hardaway, 90-years-old and a past president of CFA Society Los Angeles, was officially recognized by the CFA Institute Board of Governors for his “exceptional service to CFA Institute and the investment management profession throughout his career,” according to a press release from CFA Institute. Hardaway will also be recognized at CFALA's annual Charter Recognition Dinner on November 15.

Hardaway has contributed to CFA Institute, and its antecedents, since 1952, three years after graduating from the University of Virginia in 1949. A native of Virginia, Hardaway first joined the Richmond Society of Financial Analysts and earned his charter in 1966. He eventually moved to Los Angeles, served as President of CFALA (then known as the Los Angeles Society of Financial Analysts) from 1985 to 1986, and developed the USC/CFALA CFA Review Program, which is a still popular review program for CFA candidates more than 30 years after its creation.

Hardaway has served in a variety of leadership positions for the Financial Analysts Federation (FAF), a predecessor of CFA Institute, and was instrumental in the merger between the FAF and the Institute of Chartered Financial Analysts, which led to our present-day CFA Institute. Around the time of the merger, Hardaway began grading CFA exams, spending a week in Charlottesville each summer as a way to give back to the profession and “nourish his roots,” he told Charlottesville’s The Daily Progress newspaper. Back To Top ^^


2019 Access Scholarships Are Available

Once again, CFA Institute is awarding Access Scholarships to candidates taking CFA Exams in 2019. A needs-based scholarship, the Access Scholarship provides an opportunity for individuals who cannot afford the full costs of the CFA Program to work toward their charter. CFA Society Los Angeles will oversee reviewing and allocating 2019 Access Scholarships to Southern California CFA candidates who submit their applications by September 15.

The Access Scholarship program has steadily grown over the past five years, with around 3,600 candidates worldwide receiving the scholarship in 2018. In order to continue the great outcomes from this program, we urge you to share information on the scholarships to younger colleagues, who may or may not already be part of the CFA Program.

Click here for more information on 2019 Access Scholarships.  Back To Top ^^     

The Battery Issue: The Past, Present, and Future of the Lithium-Ion Battery

The Verge news site is dedicating its August issue to "the past, present, and future of the lithium-ion battery," with eighteen articles (and counting) on the science and supply chain behind these essential devices, tips for staying charged, and essays about our collective anxiety about being out of juice and out of touch. Read more...  Back To Top ^^    

Will batteries follow the same cost curve as solar pv?

In a recent post  on his The Cleantech Investor blog, renewable energy finance consultant and CFA Society Los Angeles member Harshan Jeyakumar, CFA examines why the cost decline of solar photovoltaics has been so dramatic, and considers whether batteries, vitally important for their storage properties, will follow the same path. Read more...   Back To Top ^^    

The ultra-pure, super-secret sand that makes your phone possible

In this excerpt from his recently-released book, journalist and Wired magazine contributor Vince Beiser reports on a deposit of high-grade quartz in Spruce Pine, North Carolina, that plays a key role in the manufacturing of the computer chips that power our laptops and cell phones. Read more... And more... Back To Top ^^   

17 Remarkable (and scary) things we saw at black hat 2018

PC Magazine Lead Analyst Neil J. Rubenking and Software Analyst Max Eddy report on the highlights (and sobering lowlights) of the 2018 Black Hat information security conference.  Read more... Back To Top ^^  

When someone posts a screenshot of their phone...

This single-panel 2014 xkcd web comic, referenced in The Verge Battery Issue, seems to sum up the spirit of our battery-dependent times.  Read more...  Back To Top ^^ 




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