New International Qualification for Investment and Financial Analysts

Andrei Kolyagin

In the developed law-based market economies the profession of financial and investment analyst is well known, although it is relatively young in comparison with other professions. This profession has certain common features with such occupations as accounting, auditing, financial management, appraisal and others, however, financial analysts have different objectives. A clear definition of the analyst occupation is yet to be found. In our opinion Mr. David Damant, ex-president of the European Federation of Financial Analysts Societies, gave the best description of the analyst occupation in the Securities Market magazine :

«The name of the profession usually includes the word «analyst», whether «financial analyst», «investment analyst», or «securities analyst». In all circumstances, it was envisaged that the members of this profession would analyse securities – they would analyse companies, and the prospects for their shares and for their bond issues. In order to do this they would look towards the economy as a whole, within which a company is operating, the industry in which it operates, other macro economic factors, and then the position for the company itself. The company itself is not only a matter of what is contained in the financial statements – these are crucial, but when looking at a company me analyst has to go into a much wider field. This is not only a question of the macro economic climate, but also the internal and non-financial structure and efficiency of the company, the quality of the management, and many other concerns.

It is sometimes said that analysts take too short a view and seems to be concerned only with next year’s outcomes. But this is not the case. A close analysis of the activities of analysts in many countries, and the impact of those analysts on the pricing of securities, shows quite clearly that the position of an analyst is very similar to that of a company executive working within a company itself. Thus when planning the future, the directors of a company will look at the same factors which are being scrutinised by analysts working outside the company.

It may also be said that the training required for financial analysis, broadly defined, is of great value in other contexts. For example, in investment banking, where large sums of money are raised by an investment bank for investment in particular industries, the work of the financial analyst is almost identical of that carried out in the service of portfolio management. Of course the aims are different; investment banking has a desire to raise money for a particular project on behalf of a client. On the other hand, a financial analyst in a portfolio management context can take a neutral view whether to buy a particular share or not. This fact can often lead to diverse aims».

The importance of analysts’ work cannot be underestimated, since the proper appraisal of the cost of capital of investment deals leads to a greater economic activity. In the developed law-based market economies financial analysts have already organized professional societies that carry out one of the most important functions in the processing of national economies development and capital investments in such countries. Because of the tremendous importance of financial analysts’ performance for every participant of the investment market, this function, first of all, is reduced to the development and enforcement of the high standards for professional training of analysts. In the same article David Damant noted that:

«There are probably many other aspects of financial activity where a full training may be valuable. Thus for example even in regulatory bodies, and some government ministries there would be a strong argument in favour of a qualification in financial analysis even if a different field of activity would be pursued It is important in this and other contexts to recognise that we are talking about a high level qualification. This is not a matter of simply knowing enough about a particular process to be able to carry out a day to pay responsibility (for example as a trader, or an advisor to private investors). The qualification under discussion is such as to enable the possessor of the qualification to discuss the investment problems, whether the investment is direct or indirect, and whether the actors in the discussion are principal, or advisors, or regulators, in a sophisticated way».

Presently such standards cross the national boarders of the developed countries. National societies of analysts get together in a form of international organizations and develop common standards to be applicable to every member-country. Thus, for example, starting from 1962 the European Federation of Financial Analysts Societies (EFFAS) in Europe has been certifying the analysts applying for the all-Europe qualification of Certified European Financial Analyst – CEFA; Asian Federation of Securities Analysts (AFSA) also developed for its member-country the general standard of the professional analysts training.

Such an objective process, effected by the development of the international investment market, consequently resulted in the occurrence in 2000 of a more update international qualification for investment and financial analysts referred to as Certified International Investment Analyst – CIIA. The proactive part in the creation of such certification took the above mentioned international federations and other professional organizations including 32 countries of Europe, the Asia and Latin America. To be able to conduct a certification the developers thereof founded the Association of the certified International Analysts (ACIIA) and since 2001 the certification process in various countries has begun.

It should be noted that new standards in a form of the CIIA consider to the maximum extent the latest requirements of the international investment society set for the analyst professional training, and certification procedures provide for the flexible system of the examination, which allows for the specialists to pass exams in their own countries in different languages. It is also important that in addition to the common sections the certification program includes the national section, which guarantees that the certified specialist obtains the deep knowledge of specifics of investment market of the country of his/her business.

For the last several years of the previous century during the period of difficult and rapid economic and political transformations, and merge and development of the national capital market, Russian companies awakened for the expectations of financial flow from the various budgets and started to independently search for both internal resources for business development, and external private capital resource. Russian and foreign investment companies started emerging in the country, as well as banks and firms for financial consulting. The number of these entities is growing and they brisk up their work. We can’t say that these processes lead to certain results comparable to the results in the developed countries where investment risk has existed for a long period of time. However, the establishment of the Russian capital market and the development of its financial institutions is proceeding proactively, which consequently determined the need for the specialists such as financial and investment analysts. Today the professional society of Russian analysts is growing and therefore their professional training is becoming an important objective for many companies and banks operating at the Russian market.

Therefore, Russia did not stay apart from the significant international processes associated with preparation of investing and financial analysts. Since 1998 the Russian society of analysts has participated in the EFFAS activity as a non-for-profit partnership organization knows as Guild of Investment and Financial Analysts (GIFA), and in 2001 GIFA joined the ACIIA. All these efforts enabled the Guild to develop and start implementing a CIIA certification project in Russia. The success of the project shall not be restricted only by the given opportunity to implement an international certification in Russia, but also it will support the creation of the most important element of the infrastructure for the Russian financial market, being the national system for preparation of Russian analysts in compliance with the international standards as it is performed in other developed countries.

For more information on certification within CIIA and qualification examination process, please, search the Guild Internet site at http://www.gifa.ru.

Andrei Kolyagin is Director of the «Guild of Investment and Financial Analysts». He can be contacted at (095) 956 2276 or e-mail koliagin@gifa.ru.