Tuesday, June 27, 2006

Ready, Set, Score!

No, I am not talking about the World Cup, although the world’s sport is a big part of the conversation. It is CFA Exam Grading Week at the headquarters of the Chartered Financial Analyst Institute.

Earning the designation as a Chartered Financial Analyst (CFA) requires passing three consecutive exams given around the world once a year on the first Saturday in June. The first and second exams are those so-called “item set” exams that can be marked in little ovals with a No. 2 pencil and scored by a computer.

However, only half of the third exam is computerized. The second half of the third and final exam requires written responses and must be graded by humans! So begins the annual CFA exam grading exercise.

To grade the third level exams this year over 300 holders of the charter have converged on Charlottesville, Virginia from all over the world. It is a team event with a dozen or so individuals assigned to grade each question according to their expertise in portfolio management, alternative assets, or equity valuation among other the financial topics that are part of the CFA program.

The Chartered Financial Analyst Institute - CFAI as it likes to be called now - continuously works on the body of knowledge that is required for every charter holder as a professional involved in the investment decision making process. Then there is the selection of reading materials and study guides to help candidates achieve competency in those topics that are considered essential.

A great deal of planning goes into the entire CFA program, and the testing process is no less meticulously executed. Of course, the CFAI has quite a bit of practice in both exam development and execution and most of the graders have several years of experience as well. Graders start preparing weeks in advance, so by the time they begin marking the papers, the grading keys and policies are thoroughly reviewed.

Then the scoring begins! This year over 16,000 third level exams will be marked. If the pass rate from last year is repeated, 55% or 8,800 individuals will become eligible to earn the charter. Along with passing the exam, charter holders must have three years of relevant experience in the investment decision making field.

This is my seventh year participating in the grading exercise. This year - yet again - I was struck by the level of effort each person puts into making it a fair and even exam for every last candidate who put pen to paper on that fateful first Saturday in June. The process itself provides for fairness through several levels of redundancy - checking and double checking for accuracy, sampling and auditing of random exams, and re-grading of marginal exams. The integrity of the graders make it a professional exam process like no other.

The CFA designation is also set apart from other professions like accountants, lawyers or doctors, whose rites of passage are typically executed within national boundaries. The CFAI, which long ago dropped any reference to "American" in its name in order to convey its world-wide scope, recently changed its name from the Association of Investment Management and Research (AIMR) to better advertise its global "CFA" brand. Charter holders and local CFA societies can be found on every continent - well maybe not Antarctica. The exam grading week brings together graders representing 29 countries from as far away as Sri Lanka and South Africa.

The international character of the exam grading session gives the exam graders a global perspective and fosters new friendships and professional affiliations. In discussing each question, the grading team members bring each other up to speed on the latest nuances in securities markets in their respective countries as they pertain to the questions on the exam. After the daily grading session, graders reach across cultural and linguistic differences to compare ideas and hear about financial practices in other countries and economies.

In a world that is beset by international trade disagreements, widespread deceit by corporate executives, and random acts of political violence, it is personally refreshing to collaborate with a large group of responsible, ethical and peaceful professionals.

Well peaceful, that is, until they start talking about soccer or some other sport and then it’s every countryman for himself.


Ready, set, score!

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