Professionals and Institutions in the US and UK - Research Paper Example

The Impact of Certification on the Performance Certified Financial Professionals and institutions in the US and UK Name: Institution: Cover page Abstract………………………………………………………………………………………. 3 Introduction…………………………………………………………………………………... 4 Literature review………………………………………………………………………………6 Methodology…………………………………………………………………………………. 9 Analysis and findings……………………………………………………………………….. 11 Conclusion……………………………………………………………………………………16 Reference……………………………………………………………………………………..17 Abstract The paper intends to discuss the impact financial certification has on the quality of services rendered by certified financial analysts and advisers with special interest on the American and British markets. It will also analyze some of the ISO certifications for financial services. Consequently, the paper will highlight some of the examples of common financial certification. For the purpose of this paper, financial professionals will include all individuals whose opinion is used in financial decision making by a business organization or an independent individual. Therefore, all certified financial specialists such as accountants, life insurance underwriters, fund planners and financial consultants as well as financial organizations are included in this discussion. The introductory part of the paper gives the definition of certification in the context of finance and a few examples of leading financial certifications in America and the United Kingdom. It is followed by a literature review detailing the role played by the certification bodies across the two regions. Arguments for and against certification or certification bodies will also be analyzed in this section of the paper. This will be followed by an analysis of the impact of certification on organizations. The analysis will be based on ISO certification in the financial industry for reasons highlighted in the methodology. The last part of the paper is a summary of the findings and a conclusion of the discussion. Overall, this paper seeks to show that certification has greatly improved financial services in both regions despite various limitations or drawbacks Introduction Robin Donohoe Dennison defines certification as the process by which a non-governmental body validates an individual’s qualifications[Den12]. Consequently, in the context of finance, certification is validating and authorizing an individual to practice in a particular financial field. On the other hand, certification for organizations is a validation for the compliance with a particular set of requirements[ISO14]. It is quite similar to accreditation. The European Co-operation for accreditation points out that countries, and all market sectors, have seen an increase in the number of technical regulations, standards, testing and certification procedures[Eur13]. It adds that these measures are generally introduced to meet the requirements of quality and safety that consumers, businesses, and regulators demand of goods and services[Eur13]. Therefore, certification is carried out for organizations/ firms in specific industries to ensure they have the technical knowledge while certification is done to individuals and organizations and ensures that they possess a particular set of requirements. For example, some of the professional and organizational certifications in the financial sector are highlighted below; Chartered Life Underwriter/Chartered Financial Consultant (CLU/ChFC); they both have a background in the insurance field[Iin12]. The roles of the ChFC and CLU overlap those of the t of the Certified Financial Planner to such an extent that those who qualify for the ChFC exam are eligible for the CFP exam. Some of the common tested areas are investmenet5 management taxation and estate planning. However, CLU and ChFC place a greater emphasis in insurance[Iin12]. Certified Financial Planner (CFP) They deal with aspects such as asset management, education, estate planning and employee benefits. To qualify, one must be a university graduate, complete financial planning course work, have three years work experience and sit a two day 10 hour exam. A financial planner is defined as a person that provides financial planning to clients and meets all competence, ethics and experience requirements[Rad07]. Chartered Financial Analyst (CFA) To get this certification, an individual must pass the ethics requirement, have at least four years of work experience and pass an examination in portfolio management and securities analysis[Iin12]. Certified Public Accountant This is a professional accountant certification. The roles CPA holders may perform include business planning, tax preparation, financial analysis and auditing. In America, they may also represent a client before the IRS[Iin12]. Financial Risk Manager For certification, individuals have to take an examination in investment risk management administered by the Global Association of Risk Professionals[GAR14]. Chartered Alternative Investment Analyst (CAIA) This certification is administered the CAIA association. Professionals manage hedge funds, real estate, private equity and credit derivatives and structured products[Iin12]. ISO 15782-1:2009- Certificate management for financial services It defines a certificate management system for the financial industry used by real or legal persons[ISO14]. It includes aspects such as certification authority systems, revocation and recovery procedures, credentials and certificate contents, certificate generation, distribution validation and renewal and certificate authorization systems including certificates for digital signature and for encryption key[ISO14]. ISO 31000- Risk Management – principles and guidelines They are used by organizations increase the likelihood of achieving objectives, improve the identification of opportunities and threats and effectively allocate and use resources for risk treatment[ISO14].  ISO 9001: quality management systems These are management systems that dynamic and can be used in many industries. By complying with the various requirements regarding aspects such as training, internal quality audits, management responsibility and quality system. Literature review The argument for certification Proponents of accreditation support it on two main grounds. First proponents laud accreditation based on the benefits it accrues to its members. The principle role of certification and certification bodies is to ensure that professionalism is ensured across the board. Stephen Marley and Jeffrey Pedersen point out that professional association like the Institute of Chartered accountants keep members up to date on new developments in the field through journals and annual seminars. They also insist that members take a specific number of hours of professional development annually[Mar09]. Professional bodies keep members abreast with changes to ensure that set standards are maintained. Any changes in professional techniques or industrial standards are communicated to all members to ensure that clients are offered similar services. The difference in skills between a certified professional and uncertified professional is best illustrated in the accounting profession. In the United Kingdom, chattered accountants are allowed to work in both the private, public sector or start independent practices[Hot09]. The Postgraduate UK study and funding guide points out that to qualify as a chartered accountant one must be a member of a recognized industrial body such as the ACCA, The institute of chartered accountants in England and Wales (ICAEW), the institute of chartered accountants of Scotland (ICAS) or the Ulster Society of Chartered Accountants (ULSC)[Hot09]. To become an Associate Chartered Accountant (ACA), which is a prerequisite for joining ICAEW an individual must pass the professional stage and advanced stage examinations[Hot09]. Moreover, they must complete a three year with an authorized training organization and a 450 days of technical work experience whilst under training contract[Hot09]. Other professional accreditation bodies also insist on similar academic as well as practical qualifications for their members. For instance, GARP offers a financial risk management program that comprises of examinations for would be financial risk managers[GAR14]. According to ICEW, these measures ensure that individuals with such accreditation are very qualified in their respective fields due to the tests and practical exposure[Hot09]. Other selling points touted by proponents of professional bodies/ accreditation bodies include the networking opportunities and careers opportunities[Hal14]. Accreditation bodies offer members a chance to network among their peers and other professionals[Hal14]. Through seminars, the members are able to not only learn but also build professional networks. The websites of such organizations also post employment opportunities for its members[Hal14]. Robert Half points out that some association websites have members only log in protocols that offer exclusive online resources[Hal14]. Members are given access to resource databases and message centers. They also provide information or career development and business management for members running their own firms. Moreover the publications on offer to members are in some instances free or substantially discounted[Hal14]. The accreditation bodies/ professional bodies also offer advocacy services for its members. The bodies lobby governments and other stakeholders on behalf of its members in issues pertaining to their professional wellbeing. Members are also able actively promote their field to others and offer mentorship to younger members. Secondly accreditation is lauded due to the benefits it has accrued to regulators business organizations and clients. These benefits can be broken down into different categories. First of all it helps businesses to acquiring qualified individuals in their recruitment programmes[Fre13]. Employing an individual who has been certified by bodies such as GARP and ICAEW guarantees some level of skill and expertise from the individual due to the strict, thorough and detailed certification process. Moreover this ethics (ethical practices) forms a significant part of the certification process. Consequently, this makes the process of regulation easier[Eur13]. When companies hire the write individuals with proven records in terms of skill and ethics cases of malpractice are reduced[Eur13]. In essence, certification bodies filter out with questionable character and below per qualifications to a certain extent, thereby, reducing the work load of regulatory bodies. Proponents argue that when the right people are hired for the job, cases of malpractice are substantially reduced[Eur13]. Clients are also protected from exploitation. People seeking financial advice from individuals holding certified titles such as Chartered Financial Analyst, Chartered Alternative Investment Analyst and Chartered Life Underwriter/Chartered Financial Consultant are more likely to get more value for their money[Eur13]. The argument against certification Despite the highlighted benefits, some drawbacks do exist especially for businesses. Some businesses move towards certification without fully understanding what it entails or the impact the changes would have on the company. Consequently the whole process becomes a waste time effort and resources for the organization. The process of certification is also very costly. For instance the GARP FRM examination costs around $ 2000 for the examination[GAR14]. These two factors are also highlighted my Mirela Minca[Min13]. She points out that high consumption of resources and a disregard for costs are key weaknesses that the ISO certification process faces[Min13]. Methodology Due to financial and time constraints, the research heavy relies on secondary data from papers and journals published by experts in this field. The data will consists of findings from studies done in the UK, US and Spain on the impact of ISO certification on organizations. The analysis will be limited to certification on organization (ISO certification) for two main reasons. First of all, there are numerous categories of certification and certification bodies in finance occasioned by the many disciplines as highlighted in the introduction. Consequently, it is impossible to do a study that touches on each disciple. Secondly, finding data on the impact of certified accountants or certified financial planners in organization will prove to be a labored affair since there are no contrary scenarios for comparison purposes. Traditionally, ISO certifications are used by manufacturing firms. However, they have been successfully implemented by service oriented professions such as government departments and architecture firms[Min13]. Since financial firms predominantly offer services (banking, consultation, project appraisal and financial planning), analyzing the impact of ISO certification on other service oriented industries can used to project its impact in the financial service industry. Secondly, the analysis will examine the impact of ISO certification on profitability in general. In the UK, data will be sourced from a 2013 survey on the impact of ISO certification on UK organizations. The study ranked various responses on a scale of 1 to 5 with one being the least important reason and five being assigned to a very important reasons as highlighted below 1 = not important, 2 = not very important 3 = not sure, 4 = important 5 = very important. They respondents were then asked to identify the main reasons for certification and the impact the impact they can identify with the most. Data from the US is based on studies done to analyze the performance of companies that had been ISO 9000 certified between 1988 and 1997. The data compares there performance to projections of their performance had they not been certified. The last data is sourced from a study The data from Spain shows the results of s profitability impact of ISO certification in the Basque region of Spain. The region was chosen on the basis that it firms in that part of Spain had experienced the most impact of ISO 9000 certification. The data was sourced from ARDAN database. The sample 4000 certified companies and 400 uncertified companies was taken and sales revenues and profitability levels were analyzed over a five year period (1994-1998) Analysis and findings To analyze the impact ISO certification, it is crucial to highlight general reasons that service providers have for seeking certification. Data from the UK study are used for this. The median score and modes for all the chouices are highlighted in the table below. Item services Median Mode Internal motives Reduce costs 2 1 Reduce complaints 2 2 Increase productivity 2 4 Improve process 4 4 External Motives Customer demand 3 5 Increase market share 2 1 Competitors were certified 4 4 Gain competitive advantage 4 5 Gain entry into new markets 1 1 Source[McC13]. Based on the liker scaling, the researchers assigned a reason as important if the median is more than three. Based on that, only the three mentioned motives were considered as important. When the question was changed to how strongly they agreed with a list of impact due to ISO certification. The results were as highlighted below Item services Median Mode Operation impact Reduce internal quality costs 3 4 Increased productivity 4 4 Greater service quality 4 4 Fewer company complaints 3 4 Reduced inspection costs 3 4 Business impact Increased competitiveness 3 4 Increased market share 3 3 Increase in exports 3 3 Increase revenue 3 3 Increases profits 3 4 Source[McC13]. The table shows that the respondents identified most increased productivity and greater service quality. To analyze the impact further, we must look at the efficiency and return on investment of on ISO 900 certification. The results from the American study are represented in the graphs below. The blue graph represents ISO certified trends in an organization while the green ones represents trends if the company had not been ISO certified. The researchers estimated that it took around 18 months. Time t represents when the firm was certified. Consequently, going 18 months back (t-2) would give the period at which changed had not started to come into effect. Similarly time (t+…) represents periods after certification Diagram 1). Source[Cor02]. Diagram 2). Source[Cor02]. The figure above shows that firms that had not certified experienced a significant drop in return on assets. Certified companies kept the ROA relatively constant for the first three years [proceeding certification. On the other hand, there is a significant dip in ROA in non-certification. These results are reflected by the difference in Tobin’s Q between the two scenarios represented in diagram 2. Source[Cor02]. The cost of goods sold were 4.9%% lower in the third year after certification. Moreover the sales to asset ratio also experienced a relatively less decline in certified firms as illustrated below. Lastly, the general impact of certification on profitability is shown in the diagram below. The graphs are based on findings from the Basque study. The results offer further evidence on the positive impacts certification have had on the companies. Source[Her00]. Conclusion Certain aspects are evident from the discussion. The first on is certification in finance is more complex than in most industries as it involves both the employees and the organizations. The need for employees handling highly sensitive financial dockets such as accounting and financial analysis to be certified cannot be question. What is in doubt is if the ISO certification practices adopted by other industries are applicable in the financial sector. The analysis and findings above show that they are relevant and should be adopted by financial institutions such as investment banks, brokerage firms and hedge fund managers. From the UK study, most of the aspects that ISO certification seeks to improve (fewer company complaints, increased productivity, increased competitiveness and Increases profits) are components of any financial organizations. Consequently, if ISO certification impacts other firms positively, then financial firms will have similar results if they employ the same strategy albeit with some alterations to suit their particular demands. References Den12: , (Dennison, 2012), ISO14: , (ISO, 2014), Eur13: , (European Co-operation for Accreditation, 2013), Iin12: , (Investopedia, 2012), Rad07: , (Radaideh & Al-Ameed, 2007), GAR14: , (GARP, 2014), Mar09: , (Marley & Pedersen, 2009), Hot09: , (Hotcourses, 2009), Hal14: , (Half, 2014), Fre13: , (Frenz & Lambert, 2013), Min13: , (Minca, 2013), McC13: , (McCrosson, Cano, O’Neill, & Kobi, 2013), Cor02: , (Corbett, Montes, Kirsch, & Jose, 2002), Her00: , (Heras, Casadeus, & Ochoa, 2000), Read More