Below, we outline our approach to the FY23 Funding Model, detail the four categories and the FY23 model itself, and address the top questions and concerns raised by the society network .We’ve also put together a longer FAQ document you can find on Society Center (Standards & Funding tile) and outlined questions it covers below.
OUR APPROACH
Recognizing the current financial picture of CFA Institute, we are reducing the global society operational funding budget for FY23 by about 15% overall. To do so, our primary goal was to design a model that ensures all societies would be able to operate normally in FY23. Given the wide differences in society financial positions across the network, we are taking a differentiated approach to implementing the budget reduction. We evaluated all funding criteria based on FY21 financial results and took three factors into consideration when differentiating funding levels across the network: reserve levels, surplus revenues, and the use of operational funding in FY21.
Reserves levels vary widely across the network and are a marker of financial stability, with some well-established societies having several years’ worth of operating expenses on hand to support their organizations’ activities, newer societies in emerging markets having little to no reserves, and the vast majority falling somewhere in the middle. Because reserves are, by definition, meant to serve as contingency resources to support member- and mission-based services, societies with a large surplus are well-positioned to use reserves accordingly.
In addition, nearly all societies around the world had significantly lower-than-normal expenses in FY21 and therefore had unused operational funding from FY21. Of course, operational funding grants are meant to be spent toward member- and mission-based services as well, as opposed to building reserves. Our approach enables societies to apply that unused grant funding and/or surplus operating margins to next year’s expenses in service of their members and markets.
THE FY23 OPERATIONAL FUNDING MODEL
With that approach in mind and based on FY21 financial results, we divided societies into four categories to get to our targeted budget reduction of 15%:
- Group A: Societies with more than three years’ reserves will receive 50% of FY22 funding. Average net operating margins in FY21 for this group were 52%.
- Group B: Those ~20% of societies with less than nine months’ reserves will have their FY23 funding remain at FY22 levels to support their financial stability.
- Group C: Twenty to 30% of societies with 2.0-2.9X reserves and who also had a net revenue surplus over and above their operational funding in FY21 will be allocated 75% of FY22 funding.
- Group D: All other societies will receive 90% of FY22 funding. This representation of approximately 50% of our network has reserves between 2 years’ and 9 months’ operating expenses OR a change in FY21 net assets that was less than FY21 grant funding received.
ADDRESSING YOUR TOP QUESTIONS
Since holding our regional and sub-regional calls and via 1:1 conversations and emails with many of you, we recognize there are some additional areas that require more clarity.
Why did we use FY21 financial results to inform the model?
We based our decisions on FY21 planned expenses, sourced from beginning-of-year business plans rather than actual year-end expenses, as planned expenses represent costs in a more normal environment. For reserves, we used year-end actuals to calculate reserves ratios. Because our global network has a variety of fiscal year start-dates, FY21 documentation is the most recent year we could draw on to get a consistent view of representative operating expenses and reserve levels.
How did we calculate reserve levels?
The equation we used was: FY21 actual year-end reserves/FY21 planned expenses (using FY21 business plans). This is why we need all societies’ FY21 year-end financial statements to validate reserves levels. Planned expenses generally represent spending in a more normal year.
How does FY23 funding affect technology and other indirect services, if at all?
Adjustments to the FY23 Funding Model will not affect the technology platforms or other services currently available to societies. However, we will continue to look for ways to optimize our resources and deliver efficient and effective solutions to the network. For example, Society Operations aims to develop a sustainable service model that will take into account our differentiation strategy.
We address the following questions and more in the longer-form FAQ document, on Society Center (Standards & Funding tile).
- Are other areas of CFA Institute’s budget being reduced in addition to society funding?
- Why is CFA Institute not funding societies the same way as we have in the past?
- What’s happening with society funding in FY24 and beyond?
- How did we evaluate which society will experience which scenario?
- When does this take effect?
- Why does surplus grant funding matter?
- What if my society was planning to increase operating expenses this fiscal year?
- Are strategic funding grants affected by these decisions?
- Why are societies that have ample reserves receiving lower operational funding in FY23?
MOVING FORWARD
Questions about how the FY23 funding model specifically affects your society can be directed towards your Society Relationship Manager. As a reminder, if you have not yet completed your FY21 financial reporting, we will not be able to share exactly how this model will affect your FY23 funding until after you do so. For any society who has not completed this reporting, please do so within four months of your financial year-end.
Societies can expect to receive their FY23 operational funding beginning in November 2022 and hear more about the approach to long-term funding for FY24 and beyond before the end of FY22. Know that CFA Institute remains committed to supporting the society network and that we appreciate the support we have received in return. We cannot be successful serving our members, mission, and the industry without your ongoing passion and support, and we are incredibly optimistic about the future for CFA Institute and our global community.