Mandatory vs. Voluntary designations?

Several of the designations involved in our industry are often associated with being a mark of distinction. Series exams, for example, are often cited as a way clients will understand the legitimacy of their advisor. And while there are differences in the varied series designations they’re all more accurately described as mandatory designations. These exams allow people to carry out certain sales activities and securities actions in compliance with state and federal laws. 

Voluntary designations, by contrast, show an advanced understanding and often years of study into specific technical, strategic, and legal strategies that arise in an investor’s journey. These financial commitments often reflect an advisor’s commitment to their craft, and several of the designations have education and experience requirements that amount to years of study and difficult examination to attain. Some of these designations year in and year out have failure rates in the 35-50% range. Meaning that even after years of independent and classroom study that over a third of those in pursuit will still fail the final examination requirement.

There is a marked distinction between advisors who maintain an advanced designation and those who carry securities or insurance licenses. There will be a notable quality that should be apparent in their ethical, technical, and experiential expertise.

What is involved in the CIMA® Education?

There are only three universities that offer the core education platform for achieving a CIMA® designation. They all are required to maintain the highest ethical and educational standards to keep their standing with the Investment and Wealth Management Institute. The U.S. schools that currently offer the required education for this designation are as follows:

• The University of Chicago Booth School of Business
• The Wharton School, University of Pennsylvania
• Yale School of Management, Yale University

The curriculum for the CIMA® designation covers five core areas of technical and experiential disciplines. The program’s core topics and content are designed to be congruent with client expectations of the roles of an investment manager or financial advisor. The current make-up for the CIMA® designation requires applicants to understand and pass the examination on the following five topic areas:

1. Fundamentals

This area covers the statistics and methods of investment analysis, applied finance and economics, and the working of global capital markets. The fundamentals of a company’s balance sheet, economic conditions, and the marketplace give investors a baseline case for evaluating a company’s cost of capital, risk and interest rate exposure, and the general health of a company. 

2. Investments

Knowledge of the variable upside, risk, and performance expectations of the different vehicles is key to portfolio construction and investment advice. The proper use of Equity, Fixed Income, Alternative Investments, Options/Futures, and Real Assets can help an investor achieve a wide range of outcomes, mitigate risk, and better understand the route they want to follow. 

3. Portfolio Theory and Behavioral Finance

The behavior of different investments is the first level of mastery, the advanced understanding covered in a CIMA® designation also understands the interplay between these vehicles and how usage of several correlated and uncorrelated assets can constrain risk and drive excess returns. Portfolio theory and different behavioral models in finance theory can help CIMA® advisors better match a prospect or client with a risk profile that will accommodate their expectations. Different investment philosophies and styles coupled with the right tools and strategies help clients gain the comfort of aligning their expectations with reality and help them avoid the mistakes of fear and poor judgment.

4. Risk and Return

Price discovery and the attributes of risk are an important part of the investment process. Different nuances in risk and performance measurement and attribution help CIMA® advisors uncover the right trends inside of a fund’s performance to both isolate and mitigate the unwanted risks and capture the desired exposures over long arcs of time. 

5. Portfolio Construction and Consulting Process

The difference in how a CIMA® practice runs will be felt in several different ways. The Investments & Wealth Institute Code of Professional Responsibility and Ethics governs a large portion of the interactions CIMA® advisors have with their clients. This allows clients and prospects to have elevated expectations for the fiduciary and ethical touchpoints in their relationship. Client discovery, the drafting of an investment policy, and portfolio construction become great examples of how the engagement with clients looks and feels different for the investor. How an advisor documents a manager search or selection of a portfolio will help clients find a better fit and avoid the feeling of a ‘lazy portfolio assignment.’

The goal of advanced designations is to bridge the satisfaction gap

The divorce between client expectations and the relationship they have with an investment advisor is never more apparent than when asked “what do they own and why do they own it?”. Far too many investors own funds they don’t understand, and strategies they are prescribed that may fit in compliance terms, but clients cannot relate to. This creates a void where clients expect to have an understanding and comfortability with their investment decisions, but these expectations are not met by the advisor or insurance agent that they have done business with. This void creates a vacuum that is inevitably filled with fees, fear, greed, and poor decision-making. The structure prescribed in the CIMA® designation is focused on bridging that gap and further connecting the designee with the client and their goals.