Introduction

The Purpose of This Textbook

This textbook has been developed with two objectives in mind: Consolidate the key concepts, research, theories, and application that form the critical knowledge and skills of investment advisors and consultants into one volume; and offer CIMA certification candidates a comprehensive resource to help them in their studies as they proceed through their candidacy.

The Layout and Structure of This Textbook

We have leveraged works from some of the best minds in academia and industry to present a unified body of text that encompasses the CIMA Core Topics List. While the readings in the textbook follow the CIMA exam content blueprint by domain and section, not all of the (525) line items found on that list are covered in this book. That being said, you will find that most of those topics are reviewed in this text, and just as important, each is covered at a level of depth and cognitive skill as is appropriate.

In addition to following the order of the CIMA Core Topics List, we have woven readings together in a way that is logical and should be easy to follow. Some of the concepts found early in this textbook should be considered building blocks for content and application that will appear later in the text. Consequently you will see some repetition of concepts and calculations that we feel form a critical foundation for understanding more advanced application.

For the most part we were able to use complete chapters and readings to explore various topics adequately, but there are cases in which we removed sub-sections of various works as they did not directly address CIMA curriculum; thus you may notice that some readings appear to jump around a bit. Suffice it to say, we've reduced the readings down to what we believe are the most critical components for candidates studying for the CIMA exams.

It is also important to note that not all of the readings are in agreement. For example, some authors prefer passive over active investment strategies; some authors prefer extensive use of alternative investments while others do not; and many authors disagree on the level of efficiency in the markets. We thought it best to include dissenting opinions, as it should be useful for readers to learn where debate lies in our industry and to explore different analyses and conclusions.

Another reason for incorporating the work of different authors is the value that each brings based on his or her own unique communication style. By introducing different writing styles, we help ensure that numerous learning styles are addressed, which should benefit the readers of this textbook. Therefore keep in mind that some authors will be "speaking your language" while others will not.

How to Use This Text

Each chapter begins with a brief introduction highlighting key concepts as they relate to investment advisors and consultants. These short intros build a framework for the readings found in each chapter, particularly since some chapters contain readings from different authors as described earlier. A list of learning objectives that tie directly to the CIMA Core Topics List is provided for each reading in the chapter. This list of objectives should help you focus on what is most important in each reading as it pertains to CIMA content and your exams.

We recommend that you become a proactive learner. Don't just read the text but interact with it: Take notes; make a list of key concepts and calculations; make a list of topics that you'll need to come back to and review again; make a list of questions concerning things you don't understand; work through the examples, problems, and quiz questions-then go back and do them again.

You should use the CIMA Core Topics List, found in the CIMA Candidate Handbook, as your road map for what you'll be responsible for on your exams. Self-assess your own strengths and weaknesses as you work through this textbook. Review the quiz databank as you continue to assess your competency. If you struggle with any subject matter in this textbook, we recommend you pursue additional resources in those areas as you continue to study and prepare to take the exams. You might consider other university level textbooks or web content and exam prep material from qualified and reliable sources. We do not, however, recommend that you consider this textbook as an "exam prep" resource or guide that covers exactly what you'll see on your exams, as that is not the purpose of this work. The text is, however, organized as a comprehensive resource designed to cover key concepts and applications found in the CIMA Core Topics List at an appropriate level of depth.

The CIMA Content

The content found in the following readings defines, discusses, and explains the core topics and learning objectives found in the CIMA Core Topics List used as a blueprint for the CIMA qualification and certification exams.

The CIMA Core Topics List includes content divided into six domains, including:

1. I. Governance

   IMCA's Code of Professional Responsibility and industry regulation are reviewed.

2. II. Fundamentals

   Key concepts and applications in statistics, the time value of money, economics, and global financial markets are described and explained.

3. III. Portfolio Performance and Risk Measurements

   Authors define and discuss risk attributes, risk measurements, performance measurement, and attribution. Concepts are explained and mathematical formulae are used to walk readers through quantitative methods and analysis.

4. IV. Traditional and Alternative Investments

   These readings include descriptions of various equity and fixed income investments such as stocks and bonds, various fund structures (such as mutual funds, exchange-traded funds, and hedge funds), foreign exchange, alternative investments, options, futures, and other derivatives. This section also includes a chapter covering technical analysis.

5. V. Portfolio Theory and Behavioral Finance

   Modern Portfolio Theory (MPT), and research and theories considered Post-MPT are explored and debated. Key concepts such as mean variance optimization (MVO), the efficient frontier, the Capital Allocation Line (CAL), diversification, the Capital Asset Pricing Model (CAPM), and the Arbitrage Pricing Theory (APT) are all discussed in detail.

6. VI. Investment Consulting Process

   The last section of this textbook reviews client discovery, the investment policy statement (IPS), portfolio construction methodology, risk management, and manager search and selection for those employing active managers and/or strategies. Tax-aware (tax-efficient) investment strategies are also explored.

This textbook is organized using these six domains and the 21 chapters to line up directly with the 21 sections that can be found under the six domains in the CIMA Candidate Handbook. There are approximately 111 core topics and 525 line items, per the CIMA exam content blueprint.

Please note that IMCA-specific documents found in this text (e.g., CIMA Core Topics List, IMCA Code of Professional Responsibility, IMCA Standards of Practice, IMCA Performance Reporting Standards, IMCA Disciplinary Rules and Procedures, and IMCA Guidelines Regarding the Acceptance of Benefits from Third Parties) are subject to change; therefore we recommend candidates check IMCA's website at www.imca.org for the most recent version of these documents before testing.

The CIMA Exams

At the time of publication of this textbook, the CIMA qualification exam includes 60 multiple-choice questions given over a two-hour time period. The CIMA certification exam includes 110 multiple-choice questions given over a four-hour time period. Based on the core topics list, content from each of the six domains and each of the 21 subsections (chapters in this text) are tested on both exams. The primary differences in the two exams are in overall length, the topic coverage for each exam per the weightings identified in the core topics list, and in the cognitive level at which specific topics are tested. The certification exam should include questions that demand a higher level of cognitive skill and knowledge to answer correctly.

Candidates should be familiar with IMCA's "Sample Formula Sheet for CIMA Certification" which may be downloaded from IMCA's website. All candidates will be given a copy of the formula sheet during the qualification and certification exams. Note however that each university may use a different formula sheet, or possibly no formula sheet, for their exam. Candidates should be familiar with all of the terms and formulas on this sheet, but keep in mind that some of these calculations may be expressed differently (e.g., ordering of figures may be different, different symbols may be used, etc.). Therefore, candidates should know each well enough to be able to make the necessary adjustments if any formula is expressed differently in readings or on their exams. In other words, learn how to use the formulas; do not simply memorize them.

Candidates who report studying 100+ hours for the CIMA qualification exam and an additional 100+ hours for the certification exam demonstrate higher rates of success. Of course, the time needed to successfully comprehend and retain a sufficient amount of the material depends on several factors, including a candidate's existing knowledge and experience, study habits, focus, and determination.

Good luck to all of you who...