‘CFA will help Nigeria improve the quality of her financial market infrastructure’

Paul Smith, CFA, President/CEO of the CFA Institute, visited Nigeria recently to discuss Nigeria’s business environment with the authorities and how the CFA Institute can help the country improve its financial markets as a vehicle for attracting the much needed investments. During the visit, Paul Smith met with industry regulators including the National Pensions Commission (PenCom), Securities & Exchange Commission (SEC) and the Minister of Industry, Trade and Investment. He also paid a courtesy call on Nigeria’s Acting President, Prof Yemi Osinbajo. He discussed the outcomes of these meetings with Onyinye Nwachukwu, BusinessDay’s Abuja Bureau Chief.

What do CFA charterholders do?
We are investment managers working mainly within the financial services industry which covers a whole range of disciplines such as insurance, investment banking, asset management and allied services but our focus is really on the investment industry. So you will find CFA charterholders working in the fund management companies, pension fund management companies, sovereign wealth fund, investment banking, private equity firms, etc. They make investment decisions i.e. they decide which investment instruments such as equity, bonds, etc. are appropriate to buy, the sectors to invest each asset class, the quantity, etc. all with the aim of achieving a specified goal for their clients or business.
CFA Charterholders also serve as personal financial advisers or wealth managers where they advise individuals on the appropriate solutions for their short and medium term investments and/or how to provide for their pension. Anything around the investment decision-making world is our call.
We therefore see our role as primarily as investment professionals, who have a duty of care and loyalty to our clients. This ensures that the advice we give our clients places their interests first hence ensuring they benefit first from the advice. We view ourselves as always sitting on the same side of the table with our clients. Secondly, the CFA charterholder is equipped with the technical education on investment or wealth issues. You see advising people on how to invest their money is a technical business similar to a doctor advising his patient on his health. So as doctors look after your health, we (CFA Charterholders) look after your wealth.
CFA Charterholders also work with the mutual funds. In this role, the job entails working with portfolios and ensuring the attainment of the fund mandate. For instance, assuming there is a Nigeria Equity fund that is looking to form a Nigerian index. Under that scenario, the CFA charterholder will run the fund with the view of trying to do just that within a specified risk boundary. So that is the benefit that you have when you engage an adviser who demonstrates that they have more skills than someone who do not have the qualification.

Why are you in Nigeria?
The main reason is to support the local Nigerian Society, I have never been to Nigeria but for us at the Institute, it is a fast-growing market in terms of candidates for the CFA exams as well as CFA charterholders. So my main reason for visiting is to find out how to support the CFA charterholders in the country in their mission to improve the quality of the local investment industry, as that is the basic challenge.
The second reason is that I came to learn about the Sub-Saharan Africa, which is now becoming a focus, in the next 5-10 years, for the CFA Institute. We have been very successful in North America and Asia, becoming increasingly so in South America & Europe but in Africa, we have not been as successful as we ought and would like to be. So this is part of a loitering program, if you like, so in the process of time, I will be in Kenya, Uganda and Rwanda. I am just trying to extend my knowledge of the Sub-Saharan African countries so that we can better bring the CFA charter to a large part of the African society. In summary, my two reasons are to speak and spend time with our members in the Society here and to learn a little bit more about Africa and its potential for our professional body.

How do you describe the Nigerian market to investors?
Basically, I think in terms of attracting foreign capital into Nigeria; the higher the quality of the investment community, the more likely foreigners are going to invest. As everybody knows that Africa, and in particular Nigeria, has a huge potential of opportunities however there is a mismatch between the skills that Nigeria has to handle the incoming money and to deploy it effectively and sensibly for the society’s use which is what foreigners want. There is a huge gap between the potential of the country and the ability of the country to attract foreign money, and we see our role as being a bridge. The more CFA charterholders in Nigeria, the higher the quality of investment in Nigeria and the more interest foreigners will have for investment. This is because investments is about trust and CFA Charterholders are well trusted globally.

Do you then think our challenge here is one of advisory?
I think it is one of trust and intermediation, the work that an investment manager is doing is that of intermediation between providers of funds and the users of the funds and that relationship is based on largely on trust. The foreign investor usually do not understand Nigeria and is therefore will be concerned with the security of their investment and so having a high quality intermediary process will make it easier for such a foreign investor to make the decision. If they are convinced that there are opportunities that can be explored in a trust oriented environment, then no foreigner can look at Africa with any other eye, but that this is a place where the future should be built.

Why are investments not flowing into Nigeria as expected?
I think the challenge is probably due to lack of human infrastructure which obviously works hand in hand with the appropriate legal structures. You know people expect there to be enforceable law and consistent regulations overtime as these are the key ingredients that foreigners look for in Africa. What highly skilled people provide is a continuous improvement of the investment markets although it is not the answer but it is part of the process of improving the markets in a country. Other requirement for an attractive investible environment is a government that is consistent in its policies and makes it easy to transact business in the country; cutting through red tapes and making sure that there is protection of property interest and corruption is at its minimum. All of these things go hand in hand with high quality governance. So it’s not just one thing, it is a mix and we don’t feel we are the most important of that mix but just a piece of it.
On the other hand, whenever I come to Africa, I am always encouraged by the fact that when you talk to the average African whether in Nigeria, Egypt, Kenya or South Africa they are full of energy, full of ambition, very well motivated and enthusiastic about their country. All the members of the CFA Society Nigeria are volunteers, who are working and contributing to Nigeria enthusiastically and I see that spirit wherever I go in Africa. The government may not be the ones that the people deserve in Africa but I think that will change over time. I think things are changing for the better. Our role is to help Africa achieve a higher standard with members that are ready to contribute to their country.

How did your meeting with the authorities go?
Very well, the Acting President was very gracious and I was incredibly impressed by his high intelligence and charisma; he is an individual who has the ability to cut through what the CFA charter stands for within a few minutes of explanation. He understood clearly how we could help Nigeria in terms of the ethical standards, which is embedded in our global training and part of what we bring to the market. He offered us every possible help that we require to help entrench ethical values in the Nigerian business sphere. The honourable Minister of Industry, Trade & Investment, who is a CFA charterholder, provided support in most of the conversations and the Acting President was welcoming and willing to help grow the CFA ideals in Nigeria. He actually asked us when we will be setting up in Nigeria (he chuckles).
We are working very closely with the Securities and Exchange Commission (SEC), National Pension Commission (PenCom) here in Abuja and we hope to continue working with them to introduce some initiatives in the Nigerian financial market aimed at improving the quality of the financial market infrastructure.
A few things that need to be done were identified and this included resolving the technical challenges within the pension industry on investment performance reporting, deepening the securities market and introducing derivatives and a few other things required to aid the growth of the securities market.
There is also a lot to do around the human capacity building part. The CFA Institute can also bring a lot of expertise and add value to the pension fund regulations, the derivatives market, corporate governance, etc. We are not-for-profit but interested in investing in Nigeria, we want to work with the government to raise standards especially with respect to human capital development in the investment industry, retirement schemes, corporate governance and capital market development – these being the major areas identified from today’s meetings. We had very good meetings with the PenCom and SEC, we are working with them on investment performance standards and training.

We know that our capital market is not deep enough, what do you think is responsible and how do you think we can deepen it?
Well, it’s always a “chicken and egg”, there is need to mobilize more domestic savings before you can have a deep capital market, that is what I was emphasizing in my visit to PenCom – it is amazing though how quickly the pension fund market is growing in Nigeria. In addition, you also have the Sovereign Wealth Fund, these pool of funds must be used creatively to deepen the capital market. It was very interesting to hear PenCom state that 5% of the pension funds can be invested in infrastructure, I mean that is forward thinking, very strategic and clever although it is easy to say and harder to do but that is really the right approach. There is no magic work to improve the capital market – it has to come from developing domestic savings first which you do through having good products for people to invest in, adequate returns on savings, mutual funds, insurance products and other products are ways you can help Nigerians to save in a profitable fashion and the other side of that is having good regulations to help the money flow to where the economy can safely use it.
For instance, there are financial needs in power generation, roads, rail or port and other types of infrastructural spending, education, healthcare; all these basic amenities and infrastructure require funding to get Nigeria to a higher level of development.

How can the CFA Institute help the SEC, NSE and the stakeholders in the industry?
The CFA Institute have the international best practice; we are active in 155 countries around the world, and have generated a lot of research ourselves to help various stock exchanges in developing new initiatives which can be executed in this market. We can also act as a convener; bring foreigners, experts to Nigeria to help advice as well. We can hold events to publicize SEC/NSE events /initiatives and provide trainings on specific topics such as corporate governance, ethics, and investment management topics as well.

What is the CFA membership like, globally?
We have about 145,000 members and that is growing by about 6,000 to 7,000 annually. So it is a large organization, we think there are about a million people who work around the world in the investment management sphere and we think about 145,000 are CFA charterholders or people who are studying to become charterholders. Our penetration is about 14 or 15 percent of the global market, we would like it to be 100 percent not because we are a perfect organization but because we think anybody who looks after other people’s money should have the best qualification just as is the case in the medical field. We find however that this is not the case with too many financial institutions not having people with the right qualification for the job they are doing, resulting in the low reputation investment profession at large has amongst investors. Most investors do not believe investment professionals add enough value to their lives. This is because most of us are not properly trained but are in the profession to make a lot of money out of their clients which is not being professional. What the CFA Institute is doing globally, and through our Society in Nigeria and working with the regulators is to improve the quality of the profession.

So why do you think CFA Institute is not yet successful in Africa?
We have not really put our resources in Africa the way we should. Usually, the way we develop in a new country or continent is first through working with the regulators. We therefore have to do a lot of work to do with the regulatory authorities; Securities and Exchange Commissions, the Securities Exchanges – both Stock Exchanges and the OTC Exchanges, Central Banks, Pension Regulators, Insurance Regulators, etc. We need to create the awareness of the body of knowledge embedded in the CFA programs. We also need to get them to understand the core benefits of these programs together with the benefits of having well-trained staff. This is the first issue.
Secondly, we need to work on the supply side; that is working with the Universities and Employers. For the Universities, we goal is to get them to understand why they should incorporate and teach the CFA curriculum and for Employers, the objective is enlighten them as to why they should employ CFA charterholders and the benefits charterholders bring to their business. This will ensure there is a pool of highly skilled and well trained people working to global standards with a call of ethical excellence which is the heart of everything.

How successful are your discussions in Africa?
Well, similar to the CFA Society Nigeria, we have a society in Kenya, Egypt and South Africa, so we have about 3,000 charterholders in Africa till date. Compare that to Hong Kong where I live, we have 8,000 charterholders in a country of 7 million people. So we have a long way to go in Africa in terms of our charterholder base. Like I said, there is a need to work with Regulators, Universities and Employers in each country, find the people who really want to work with us to improve the fabric of the financial community. We help countries in capacity building by having excellent globally trained people who can run business from the perspective of being true professionals, like you would expect a lawyer, an accountant, a doctor to be professionals in their services to their clients.

How has the response been like in Africa?
Excellent, there is no shortage of appetite for what we have in Africa. Firstly, we provide a very accessible global and technical education and secondly, the call of the ethical content behind the program is next to none. These two things, I think, are really appealing in Africa. Africans wants to be on a level playing field with American, Europeans, Chinese and our qualification gives that. A young Nigerian sits the same examinations as a young American does so it is very rare qualification that is globally transposable and globally recognized. Anybody doing business with a CFA charterholder in Nigeria, United States of America, United Kingdom, Germany or any other country knows that the person is trained to the same level of standard regardless of residency. It is a very powerful tool of engagement.

Are there CFA test centers here?
No, there is currently no test center in Nigeria; the nearest test centre is in Ghana. Nigerian candidates have had to travel across two countries to get to a test centre. In spite of that, it is amazing and a huge tribute to young Nigerians, as we have about 2,000 young Nigerians who do this journey every year to sit for the CFA exams. We are aware that this is a huge expense, time commitment and strenuous so I am determined to ensure that Nigeria have test centres; one in Abuja and one in Lagos so Nigerians can sit for the CFA exams conveniently here. My belief is that we should be able to have our first test centre within eighteen months and the second within three years. So two test centres in the next three years.