Finance: The next industry to be outsourced?

June 10, 2008

What could be a better bargain than hiring a kid out of college at $100,000 per year to work 90 hours per week? How ’bout hiring a Chinese kid to do the same thing for less than half that.

The wave of outsourcing that has decimated employment in manufacturing and even IT in recent years may be coming to the financial world some time very soon. That is, if CFA test-taking numbers are any guide.

For those unfamiliar with the CFA, it’s a 3-year self-study course in financial analysis. It covers accounting, corporate finance, statistics, economics, equity and debt securities, derivatives, ethics, portfolio management and more.

Students take one exam per year and, assuming they pass each of them, receive the right to use the CFA designation after their name. For instance: Mike Jacobs, CFA. The acronym is short for “Chartered Financial Analyst” by the way.

Having completed the program I can say first-hand that it’s very difficult. The year I sat for Level 2, the pass rate was 32%, which remains the lowest for any CFA exam ever administered.

So now you know what the CFA is.

What’s particularly interesting is who’s taking it. Remember, all of this material is rooted in American accounting standards and the test is in English.

And yet over 40% of this year’s 175,000 test-takers were in Asia. According to the Economist: “job ads in the South China Morning Post now often say ‘CFA-required.'”

I’m not suggesting that the 75,000 Asian CFA hopefuls are all gearing up to provide support work for the New York operations of Wall Street banks. I’m just saying that at some point, the banks will wonder why they’re paying over $100k to American college grads when they can pay an Asian kid less than half that to do the same thing…


June 18th Post-script

Some interesting factoids from an e-mail I received from Jeff Diermeier, head of CFA Institute:

  • In early June we administered our one millionth exam.
  • Level I candidate growth for FY 2008 was 71 percent in Australia, 68 percent in China, 42 percent in the United Kingdom, and 27 percent in the United States.
  • Five of the top ten test center cities were in the Asia-Pacific region.
  • Growth in developing markets is especially strong—a 302 percent increase in new Vietnamese candidates and 95 percent in new Kenyan candidates.
  • 2300 candidates sat for the exam in Mumbai.
  • Since 1990, the compound annual growth rate for global registrations in the CFA Program is about 17 percent and the compound annual growth rate for CFA Institute membership is about 11 percent.
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