Fintech is about to become a big part of the CFA exams. This is what you should know

Get ready Chartered Financial Analyst candidates: Fintech has hit the CFA exam, and it will only continue to become an even bigger part of it.

AI, machine learning, algorithmic trading, data science, blockchain – all of this and more is set to become part of the CFA exams starting in 2019. Fintech is already part of the curriculum – integrated into other sections of the exam – but it will be a subject in its own right within a year.

Fintech is a broad category, so in describing the landscape the CFA Institute groups it into four topic areas, according to Lisa Plaxco, the head of the CFA Program at the CFA Institute.

“We have a distributed model, so fintech is sprinkled throughout the curriculum,” she said. "Rather than conflating different tech advances, we’ve grouped subjects by the topic areas that are most relevant."

The first category includes financial analysis, big data analytics, artificial intelligence, machine learning and algorithmic trading.

“As a profession, we’ve been building models since the early '90s, but big data sets are very different from what we’ve studied historically, and unstructured data has become more important as well,” Plaxco said.

The second area includes technology’s impact on portfolio management and private wealth management, including the use of automated investment advisory software platforms known as roboadvisers.

“That is bigger news for the investment management industry in terms of their job security, but it has less impact on the average investor who is still making pretty simple portfolio-management decisions,” Plaxco said. “We are seeing some move toward automation in the institutional space as well.”

The third category deals with how capital flows through the system, including peer-to-peer lending, shadow banking and crowdfunding.

The fourth area includes market infrastructure, mobile payments, payment systems, cryptocurrencies such as Bitcoin, blockchain for settlements, high-frequency trading and financial regulators’ use of technology.

“We’re still hearing loud and clear from the practice analysis that we do that how we treat the traditional quantitative material in the exams is still relevant, so this is additive, not replacing that,” said Plaxco.

The objective is to make sure Level I candidates have an appreciation of what fintech is, its relevance for their careers, why they should care and how it fits into the big-picture market knowledge they'll need. Quant methods already appear heavily in Level I and also factor into Level II but drops out of Level III, as the latter is much more about portfolio management and private wealth management. The CFA Program added high-frequency and algorithmic trading to Level II three years ago.

Soon, fintech questions will span all three levels of the CFA exam more widely. For example, the CFA Institute plans to focus on concepts such as co-integration, weighted regression and machine learning algorithms, as well as non-numeric and unstructured data.

“Fintech is already integrated widely into preexisting curriculum topics, but for the major topics where it makes sense, it would be more deeply integrated into the curriculum, calling out the fintech elements of trading, private wealth and quantitative methods,” Plaxco said. “For example, covering the criticality not just of building models but doing an assessment of the quality of algorithms, speaking to risks such as data mining and fitting a model that explains the past but does have explanatory power for the future."

In addition to beefing up the questions related to fintech and making its relevance explicit, the CFA will introduce new content with specific information about various fintech categories in a new series of introductory readings focused on increasing professionalism. You won't need to know about it for this June: the earliest that the fintech content will come into the curriculum is 2019.

“We describe the investment management profession as it exists,” Plaxco said. “We’re not looking to judge whether something is a good trend or a bad trend – we’re not describing one approach as better than another.

“We’re simply recognizing that these types of strategies have risen to a point of prominence that it is appropriate to call them out in the curriculum,” she said.

David Schatsky is a managing director at Deloitte responsible for analyzing emerging technology and business trends such as quantum computing, robot process automation, augmented reality and virtual reality. He said it makes sense that the CFA Institute is placing a greater emphasis on fintech.

“Artificial intelligence is transforming every field, none more so than finance,” Schatsky said. “A growing number of tasks that previously only people could perform are now being done, and done well, by computers."

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