CFAs Beat MBAs

Firms hiring investment advisers should look closely at their educational background, as a new study shows that MBAs tend to play risky when managing funds, while CFAs have a more conservative approach.

If security is what you are after, you should look out for a Chartered Financial Analyst rather than a b-school grad, say US researchers in a soon-to-be published paper.
Chartered Financial Analysts (CFAs) have been gaining popularity on Wall Street over the last decade, says Professor Hany Shawky, one of the authors of the paper. To start with, a CFA certificate does not require you to leave your job for two years, which has stopped many young traders from enrolling at b-school.
In addition, says Shawky, CFA programs have improved their curricula and toughened exam standards, increasing their respectability among professionals: “Wall Street regards the CFA as a more practical qualification than an MBA,” says the professor of finance at the University at Albany’s School of Business, NY.
Even more importantly, Shawky’s research has found that CFAs perform better in portfolio management than their MBA counterparts. “The CFA programs teach clear guidelines, urging their students to abide by good principles and value fiduciary responsibility,” he says. Their portfolios, consequently, are more conservative and less prone to risk than those of MBAs.
To be sure, risk averseness isn’t always the best strategy in fund management. Shawky advocates that CFAs should improve their innovative skills: “What they can learn from MBAs is to be more aware of alternative investment strategies, and more exotic derivative models.” On the other hand, b-school grads would benefit by gaining some fiduciary responsibility: “Ethical soundness towards investors is embedded in a CFA curriculum, but I haven’t seen it in any MBA program that I have been in contact with.”
Previous research has shown that, generally, both MBAs and CFAs improve portfolio performance. However, the new study indicates that the significance of having an MBA vanishes when certain factors are controlled for. “Most MBAs only manage portfolios of a very large size, for instance. We are currently analyzing the implications of this,” says Shawky.
The research paper, co-authored by Professor Shawky, Professor Oguzhan Dincer at Illinois State University and Professor Russell Gregory-Allen at Massey University, is nearing completion and is expected to be published before December. Stay tuned for more details.

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