The IMCA, which has 8,000 members, has traditionally been popular with brokers at wirehouses, but its fastest growing segment is RIAs. The wirehouse advisors in the IMCA commonly work in the consulting division or private client group of the giant brokerages, and they specialize in serving high-net-worth clients, those with a net worth of $1 million to $5 million, and ultra-high-net-worth clients with wealth in excess of $5 million. These advisors, who generally operate in teams, represent one of the most profitable slices of a wirehouse sales force, and they are also the most likely to become independent.
The IMCA licenses about 6,000 advisors as certified investment management analysts, and it recently began offering a new certification program for "certified private wealth advisors," a designation for those who offer comprehensive wealth management advice to high-net-worth clients. As long as the IMCA respects the wirehouses by not advocating positions on behalf of independent advisors, the wirehouses are likely to continue to promote the IMCA to their sales forces. The bottom line is that the IMCA has little to gain from taking advocacy positions and its relatively small size allows it to remain silent on controversial professional issues reshaping the financial advice industry.
The CFAI is entirely different. It's too big to fail. It must take a position because of its role in the financial services industry and growing presence in the financial advice segment of the business.
The CFAI's role in the financial advice industry is a little different from that of the FPA, the IMCA or other membership groups targeting financial advisors. The CFAI's influence on professional and regulatory issues is greater than that of the FPA, the CFP Board of Standards, the National Association of Personal Financial Advisors, the National Association of Insurance and Financial Advisors and other relatively small membership bodies serving advisors. That's because of the CFAI's history as the professional organization for Wall Street stock and bond analysts. Its promotion of reporting standards for investment managers and institutions, its analytical approach to accounting statements and its role in training Wall Street research analysts make its standing among government and private institutions more akin to that of the American Bar Association or the American Institute of CPAs.
That's not to say the CFAI has always been a beacon of light to the financial services industry. After the tech bubble burst in 2000, Wall Street stock analysts were assailed for feigning objectivity while writing favorable research reports for their firms' investment banking arms. And it was the CFAs at rating agencies who sold corporations and municipalities favorable credit ratings on flimsily backed bonds and derivatives.
But regulation-for instance, the global analyst research settlement-cleaned up the mess and undoubtedly taught the CFAI an important lesson about getting in front of advocacy issues. In addition, with about 30% of CFAs now reporting that they provide private wealth management services, the CFAI in the U.S. over the past decade has been transformed into a more advisor-centric organization.
The CFA Institute about a decade ago changed its name from the Association of Investment Management Research. The AIMR was best known to advisors for its initiatives in creating performance-reporting standards for investment managers, and it also played an important role in regulatory issues related to Wall Street analysts. Its private wealth membership division did not exist, and this part of its membership was too inconsequential to merit its own educational programs and committee structure. I remember, as a reporter at Dow Jones Investment Advisor, calling the CFAI in 1999 to ask about its financial advisor members, only to learn it did not have programs geared to wealth managers for high-net-worth clients.
That's changed. The CFAI now has positions on the most controversial issues affecting advisors.
On the issue of whether Finra should become the self-regulatory organization for RIAs, Kurt Schacht, the managing director of the CFA Institute's Centre for Financial Market Integrity, says the CFAI would have preferred that the SEC remain the sole regulator of RIAs.
Schacht, in mid-April, said he had just returned to New York after spending a week in Washington where he and CFAI board members spoke with the SEC and congressional aides about likely legislative reforms and the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Schacht, who has an undergraduate degree in chemistry, worked as a securities lawyer and served as chief operating officer and general counsel at a hedge fund before joining the CFA Institute and earning the CFA designation. He's a member of the standing advisory group of the Public Company Accounting Oversight Board and serves on the SEC Advisory Committee on Smaller Public Companies.