Putting Investors First

DSC_2831Each May, CFA Institute and local societies join together to create awareness around placing investors interest first. This event reminds us of why we work in this industry – to best serve our clients.  Moderator Darin Goodwiler guided panelists Jonathan Boersma, CFA, David Hershey, CFA, and Brian Thompson through a discussion on the current regulatory and ethical environment investment professionals are navigating. The panelists provided insights from CFA Institute, the SEC and consulting and investment management disciplines.

Most of the discussion covered the Department of Labor (DOL) rule and its impacts. Given the goal of DOL is to provide objective advise to investors, 93% of 1400 surveyed want the law and 51% think the law is already set up to meet this objective. Broker dealers will be impacted the greatest and it is likely that security sales will be a differentiated title from what we have known as advisors. As the DOL regulation progresses, we can expect to hear a unified message from the SEC and FINRA via social media and other communication channels.  All who give advice to clients are be held to the same standards and it was noted that CFA charterholders, candidates and members have long been held to a very high standard of loyalty, prudence and care. Due to this, no change is expected for this group.

One thing DOL won’t help with is people behaving badly. Culture and management play a role. Ethics training and regulation can help but regulation backward looking is implemented because we learn from our mistakes and play “catch-up” from innovation. Thompson commented that ethical decision making plays into awareness like yoga does into moods and breathing. Panelists felt that best practices are using GIPS and having a strong and visible Chief Compliance Officer.

This event was part of CFA Institute’s annual ethics initiative. For those wanting to practice ethics by role play in an interactive environment, please see http://cfa.is/1WTtG0G to access on-line programs offered by the CFA Institute.

 

Building My Brand: Soft Skills for Success

DSC_2838What is the difference between our social selves and professional selves and why would it ever be bad to be social? What do we need to be successful financially and professionally? Melissa Ford, a business and life coach helped us develop an outer focus leading to success and better outcomes.

DSC_2841The social self is the self that is created as we grow up. It is likely created by authority and is reactive, self-focused and needy; sometimes even to the point of being creepy. It represents the inner fear and doubt we might feel when our manager indicates they want to talk to us or when we are in a new group and want everyone to like us. Our professional aura concentrates on serving, contributing, being confident and creative. At the center of the professional self we find power, focus and energy. We are the creators of our professional selves.

So if the professional self is better for success, how do we shift to it and what should we be aware of? It is a doing versus being problem. Tips that can help us get into this mindset and stay there are as follows:

  1. DSC_2842Work on active listening skills. Move out of broadcast only mode.
  2. Put yourself in situations with people who are in professional mode.
  3. Work on empathy and give yourself a break. This may take time and practice.
  4. Notice how you feel and when you catch yourself in social mode, move to professional mode.
  5. Roleplay your professional self and then make adjustments based on feedback.

Melissa told us that the best thing is to just “flip the switch” and turn on the professional. We will know that we are in our professional mindset when we start overriding pre-programmed responses and we can do this easily on difficult days like Monday mornings. It’s all about getting out of the comfort zone.

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CFA Society Chicago Company Presentation: AstraZeneca

DSC_2846The prospect of curing or even “containing” cancer has proven to be an elusive goal. One company that has recently joined the battle against this disease is AstraZeneca, a UK based Biopharmaceutical Company. On June 6th, CFA Society Chicago hosted a presentation by AstraZeneca given by Luke Miels, Executive Vice President Global Products and Portfolio Strategy. Mr. Miels outlined AstraZeneca’s going forward strategy and its plans to return to growth in 2017.

After a brief review of the company’s most recent acquisitions, Mr. Miels illustrated that an increase in research has yielded an increasing number of high-impact publications and Phase III trials of prospective breakthrough drugs. This increase in research and development has set the table for an acceleration of growth that is forecast to occur in 2017.

AstraZeneca will focus on three main therapy areas: Respiratory, Inflammation & Autoimmunity, Cardiovascular & Metabolic disease, and Oncology. There are currently 10 AstraZeneca drugs in late-stage development targeted to treat these diseases. The drugs he highlighted did not exist five years ago. Mr. Miels went on to describe five growth platforms that will support the three main therapy areas. These platforms currently represent 56% of AstraZeneca’s business.

For each of the three main therapy areas, Mr. Miels listed the existing or late-stage trial treatments, the evolution of the treatments and the areas for which the treatments are most profitable. It appears that AstraZeneca is having its greatest success in emerging markets and the EU. It has developed successful treatments for severe asthma and COPD (Beralizumab), a super-aspirin (Brilintal/Brilique) and a treatment for diabetes (Faxiga).

AstraZeneca is a relative newcomer to Oncology. There are new treatments in development for ovarian cancer (Lynparza) and lung cancer (Tagrisso). AstraZeneca intends to focus on tumor resistance, DNA damage response, Immuno-oncology and antibody conjugates in its fight against this terrible disease. The ovarian cancer and lung cancer treatments appear to be more effective for patients with DNA mutations that make them susceptible to these cancers.  Research is ongoing by multiple drug companies on what treatments might make the immune system be able to recognize and fight an invading cancer.

There were several questions posed to Mr. Miels following his presentation. They focused on patent expiration and generic drugs. One question focused on the manufacture of a drug after patent expiration. Mr. Miels stated that it still was cheaper for the company with the patent to manufacture the now generic drug; however there is little incentive for the company to do so.  Another question concerned the efficacy of a biologic generic drug.  Mr. Miels stated that generics of chemical drugs are exact copies, however due to the nature of its manufacturing; biologic drugs are never exact copies.

Crunch Time! CFA Society Chicago Cram Session

DSC_2760Dan McKenna, CFA Institute’s Manager of Supplemental Study Tools, led off with insights and advice directly from the source.  New charterholders and study partners, Shai Dobrusin, CFA, and Jay Bullie, CFA, shared their thoughts and where their studies differed.  Dobrusin, Trust Associate and Financial Analyst at Charles E. Dobrusin & Associates, focused on the end of chapter problems in addition to the, now Kaplan Schweser, study materials and used the Kaplan QBank as supplement.  Bullie, Associate Director at Fitch Ratings, added that relying on Kaplan alone is debilitating, especially in regards to new material.  Kaplan tends to avoid adding CFA’s new material because it is not consistently tested. Bullie experienced these new questions and had to “suck it up and move on.”  Russell Rhoads, CFA, had the most unique route to becoming a charterholder.  He gained the designation 13 years after taking Level I because the hedge fund he worked for discouraged taking the exams.  Also, as the Director of Program Development, Options Institute at the CBOE, he is one of the few at the exchange with the designation.

After the panel discussion, attendees were fortunate to ask additional questions at level specific tables.

Suggestions:

  • DSC_2765Repetition is key to success. You are able to gain familiarity with the structure, format, and level of difficulty.
  • Utilize the learning outcome statements to direct your focus (i.e. do you need to know the formula or just the concepts).
  • Examples in the text are very helpful.
  • Optimize your remaining study time so you can cover all the material, master the challenging topics, and keep the mastered topics fresh.
  • Scale back the final week and if you are not done reading then focus on questions.
  • Relax the day before the exam and ensure you gain plenty of rest.
  • Take as many practice exams as you can. Replicating the test environment for at least one is helpful.

Level II

  • Mark up the vignettes to easily reference the facts.
  • Repetition and practice will make you more efficient.

Level III

  • The questions and answers rely heavily on the curriculum.
  • About 700 graders look for key items to give credit. After 7 hours of looking at an answer, graders appreciate your efforts to make it easy to give out points (bullet points, underlining).
  • You can get partial credit even if your formula is not 100%.
  • There is no extra credit. If the question asks for three points, anything beyond will be ignored.

Future Exams

  • CFA Chicago gives out scholarships for all levels including the Level I exam in December.
  • The Study Group Kick-off Party and Open House for the December 2016 CFA Level 1 exam will be held on July 12th at Norther Trust.

“I’d far rather be happy than right any day,” except on exam day (adapted from Douglas Adams).

CFA Society Chicago Book Club:

While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Looms as the Next Financial Crisis by Roger Lowenstein

While America AgedThe specter of unfunded pension liabilities haunts many of our major cities and a large number of public companies. This is especially true in the city of Chicago as public unions continue to threaten to strike over benefits and unfunded pension liabilities. We discussed Roger Lowenstein’s book about this topic at a well-attended CFA Society Chicago Book Club meeting held in April. The book attempts to answer why the private pension system as conceived in the United States has failed.

Mr. Lowenstein divides his book into three parts. Each part addresses the pension crisis from the perspective of; a public company (General Motors), public service workers in New York, and the public service worker pension plan for the city of San Diego.

Part One: Who Owns General Motors?

The question asks whether it is the shareholders or workers who own a publicly traded company.  GM was one of the most successful companies in the world, however due to labor union gains at the bargaining table, its future cash flow would not accrue to its shareholders, but rather to its pension obligations.

This part of the book revolves around Walter Reuther and the UAW. Mr. Reuther became the visionary leader of the UAW in the 1930’s. In 1950 Mr. Reuther crafted what Fortune Magazine dubbed the “Treaty of Detroit”. It was a 5-year agreement which committed GM to guarantee a pension, wage increases with a cost of living formula and hospital and medical insurance at half cost. It was the inability to fund these ever-growing commitments which eventually led to the downfall of GM.

Part Two: The Public Freight

Pension plans for city workers help to guarantee a stable work force; a highly desirable trait for teachers, firemen and transportation workers. Reliable bus and train service is critical for the economy of a city. The second part of the book examines the history of wages and pensions for the public workers of New York City.

The most effective union leader was Michael Quill, an Irish immigrant who was a member of the IRA and fought in the rebellion against the British. In the 1930’s, the Transit Workers Union (“TWU”) was led by a coalition of Communists and former IRA activists. In 1937, Mr. Quill became President of the TWU. A 13-day strike in 1965 permanently changed the dynamic between the unions and the city. New Yorkers endured the worst traffic-jams in its history during this strike. The state government reacted by passing stricter laws prohibiting strikes by public workers. These laws were ignored as union leaders happily went to jail. The citizens of any municipality are captive customers and are unable to shop elsewhere for subway service or police protection.

Part Three: Debacle in San Diego

The risk that the government will put the expense of a pension plan onto future generations is illustrated by the city of San Diego. By the summer of 2005, the municipal pension fund in San Diego, the San Diego City Employees Retirement System (“SDCERS”) was underfunded by $1.7 billion. How it got that way is addressed in the third part of this book.

In 2005 the national press referred to San Diego as “Enron-by-the-Sea”. The cause of the underfunding was the extreme reluctance of local politicians to raise money by increasing taxes. The political climate in the city was very conservative with a mistrust of any tax. The city covered its cash shortfalls by continuing to avoid making the required pension contributions.

Labor unions in the city began to contribute heavily to political campaigns; this was more effective in San Diego which had a weak form of city government where a relatively small amount of votes could sway elections. In the end, public employee unions had political clout on par with business interests. City managers became more adept at structuring solutions which circumvented state laws regarding the required funding of SDCERS.

Conclusion: The Way Out?

The author has a few suggestions as to how to mitigate some of the risks endemic to these pension and health care schemes. However, most participants at the Book Club thought they were rather weak. The author is of the opinion that the 401K is not an adequate substitution for a pension and advocates a “national” 401K offering matching credits to lower wage earners. He also suggests that 401K providers be required to offer an annuity as a default option. The author ends the book with a plea to strengthen social security by raising taxes, an unpopular but perhaps necessary measure.

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