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Comprehensive Guide to Understanding the Applicability and Usefulness of the CFA Designation
The Chartered Financial Analyst (CFA) designation is a globally recognized credential for investment and finance professionals.
In this article, we will delve into why there are polarizing views on the CFA program and who benefits the most from the designation.
We will also discuss in detail what to expect on the CFA exams, as well as address changes in 2021 due to the implications of COVID-19.
In This Article
But before we begin our guide, we suggest reviewing our infographic on the numerous career paths in corporate finance to make an informed decision on whether to pursue the CFA designation:
Today, there are more than 170,000 CFA charterholders worldwide primarily within:
To become a charterholder, candidates must first pass 3 exams of increasing complexity (Levels I, II, and III), which consist of multiple-choice and essay questions covering a broad range of finance topics.
The passing rates for each level average 44%, with a significantly lower cumulative completion rate for all 3 levels. After completing the exams, candidates must have at least 3 years of Relevant Work Experience before applying to be a CFA charterholder.
|Total Number of Charterholders||170,000+|
|CFA Charter Requirements||
|Shortest Time to Getting Full Charter||1.5 Years (Almost Impossible to Do)|
|Registration Website||CFA Institute|
|Career Paths with Highest Relevance|
|Career Paths with Least Relevance|
|Average Age of Charterholders (Americas)||~45|
|Level 1||Level 2||Level 3|
|Average Hours Required||303 Hours||328 Hours||344 Hours|
*The testing dates are going to be different in 2021 due to the COVID-19 pandemic
CFA Designation Usefulness
There are varying opinions on the CFA program’s usefulness on the job and value to one’s career, especially when compared to an MBA.
At the end of the day, the weight of holding the CFA designation is very dependent on the career path being pursued.
Starting the CFA journey is a significant time commitment and not a decision to be taken lightly.
The exam series requires intense preparation and historically takes an average of 4 years to complete.
Typically, candidates spend around 323 hours studying for each level (with less than 50% passing).
Spread across 6 months, this equates to over 12 hours per week, leaving limited free time for full-time professionals.
Average Exam Preparation Time (Source: CFA 2019 Survey Report)
Due to this level of commitment, potential CFA candidates must ensure they receive an appropriate return on the time invested by understanding how the CFA might help them reach their career goals.
Below are some of the primary benefits of becoming a CFA charterholder:
The CFA exams are well-known to be difficult and most employers in the finance industry are aware of the time commitment, dedication, and intellect required to pass them.
In effect, becoming a charterholder signals to employers that you have the work ethic and analytical abilities that make you a valuable asset.
The CFA curriculum spans nearly all facets of finance from equities fixed income, derivatives and alternatives to accounting, corporate finance, economics, portfolio management, and ethics.
The program is intended to deliver foundational knowledge for the investment management industry and should be useful for anyone in an investment-related role.
The 900+ hours of study for the CFA program provide a masters-level education that will boost your technical skills.
There are over 150 CFA societies around the world offering networking and professional development events. These networks can be invaluable for finding a new job, connecting with potential clients or partners, and learning about trends in the investment industry.
The benefits above translate into making you a more attractive candidate for competitive, high-paying jobs and promotions. Of course, you will still have to land and ace your Finance Interviews, but having the CFA charter (or even being a candidate) can give you a leg up.
In terms of salary, the median compensation for all US charterholders was $193,000 (and $480,000 for senior executives) according to the compensation report released in 2019 by the CFA Institute.
Ready to sign up? Not so fast! There are some areas of finance where the CFA is not as highly valued and is considered to have too high of an opportunity cost.
Here are a few important questions to ask yourself before pursuing the CFA:
Although the CFA is broadly respected, its reputation can vary widely by the firm. This is the single most important factor to diligence before committing to the CFA.
Some organizations mandate taking the CFA to advance, while others discourage the program due to the time commitment or lack of content related to their field.
There are several ways you can figure this out.
1) Check if the professionals at your current (or dream) firm are CFA charterholders – the best way to figure this out is through LinkedIn.
Sample Equity Research Analyst @ J.P. Morgan from LinkedIn
2) Search for job postings on sites such as Indeed or LinkedIn for the specific roles that you want to land, and confirm that CFA is listed as a desired qualification.
Sample Hedge Fund Analyst Posting on Indeed
3) Network! Ask around your firm to see if they recommend that you take the CFA – if so, the firm will more often than not reimburse you for the CFA exam feeds and/or the membership dues.
The CFA is the gold standard qualification for traditional asset managers. Investment professionals (i.e. research analysts and portfolio managers) focused on long-only equities and fixed income, as well as asset allocation and manager selection often hold the CFA designation.
Non-investment staff at asset managers, such as distribution, risk, and operations professionals, are also often encouraged to pursue the CFA. The CFA may be particularly useful if they have expressed interest in transitioning from the back office into a front office investment role.
Beyond asset management, the CFA is highly valued at consulting / valuation firms, certain departments in banks (e.g. equity research, risk), certain corporate functions, and most functions that touch the public markets.
2019 CFA Survey – Respondent Organization Type (Source: CFA Institute)
This is for a variety of reasons:
However, one exception to this rule would be professionals that cover the asset management industry, as well as non-direct investment professionals at PE firms.
Consider the following commentary on the role that MBAs have in the private equity industry:
First, many associates cannot be promoted within their firm without obtaining an MBA.
There is much debate surrounding the usefulness of an MBA – you can investigate the culture of any given firm by seeing how many senior professionals have taken time off to attend business school.
This dynamic is often seen at mega-funds and leading upper-middle market firms.
For example, you may come across someone that worked two years at PJT, three years at Blackstone in the Private Equity division, and yet leave their high-paying job to attend an expensive top educational institution in order to advance their career in private equity.
When someone is unable to secure a job in investment banking or management consulting (which is often required to be considered for PE), an MBA from a top institution is often a viable alternative.
Over the summer, the MBA candidate can secure a summer associate role in investment banking or nearby private equity firms.
The time-consuming, self-study nature of the CFA program is what makes it challenging and not for everyone.
The CFA program makes the most sense for asset management professionals and roles related to investing in the public markets.
If you are working in a highly-demanding job such as investment banking, you will have to be willing to give up nights and weekends for an extended period.
The CFA exams are intense so it is critical to be strategic and think about the cost-benefit when making the decision to sign up.
First, your schedule should be predictable and allow you to have sufficient time to study consistently.
Understand that preparation for the CFA has the potential to negatively impact your performance on the job.
So, if your main priority is your current role, it may not be the right decision for you to knowingly increase your workload.
As such, a CFA may not be feasible or preferable, and going back to school for an MBA would be the better option.
One group that should have adequate time to prep for the CFA is college seniors. In fact, 23% of CFA test-takers in 2019 were students.
Participating in the CFA program during college demonstrates dedication to the field of finance and provides a base of knowledge that may be useful for recruiting or starting a new job.
Employment Status of CFA Test-Takers (Source: CFA 2019 Survey Report)
In addition, it is recommended to take the CFA earlier in your career, rather than later, as there may be more time available to study and the benefits to your career can accrue over a longer period.
For the costs associated with taking the CFA exam, the total cost typically ranges between $2,500 and $3,500 to register for and take the CFA exams, depending on timing and the need to retake any levels.
Charterholders must also pay annual dues of $400 to the CFA Institute and their local society.
Nevertheless, the CFA is a bargain compared to business school tuition, which can cost up to $150,000.
Moreover, most large companies will reimburse CFA costs and also pay for additional prep materials.
In terms of students taking the CFA, Level I in particular would be useful to build a base of knowledge and demonstrate an interest in the finance industry.
However, the importance of having work experience within the finance industry cannot be overstated.
As with most degrees and designations, including an MBA, the lack of relevant work experience causes a decline in value and the benefit to ones’ candidacy becomes marginal.
Put another way, the CFA cannot be used as a replacement for legitimate work experience with a high degree of relevance to the role that you are interviewing for.
Given the competitiveness of interviewing for front-office positions in finance, mundane work experience is insufficient (even if considered to be part of the financial services industry).
For example, a candidate with internship and real-work experience directly applicable to the role being interviewed for could have an edge over another candidate that holds the CFA designation but only has work experience in an otherwise unrelated field in finance.
In addition, the CFA should not be viewed as a “placeholder” for having the practical skills used on-the-job, nor should one neglect the technical knowledge required to stand out in interviews.
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To reiterate, the CFA is a highly respected and sometimes mandatory credential for asset management professionals, such as Equity Research Analysts and portfolio managers.
Oftentimes, the CFA is recommended for those who want a post-graduate credential but who do not want to take time off for school.
The program is also well-regarded for corporate finance, accounting, and valuation professionals, although prospective candidates should do their homework and make sure the CFA is relevant for their field and firm.
But the CFA is typically not recognized enough by M&A professionals and direct PE / VC investment professionals to justify the time commitment.
For the roles where the CFA does not carry much weight, an MBA could be the better option and open more doors than the CFA designation can.
Thus, the first task in order is to confirm the CFA’s relevance to your personal end-goal in terms of the role that you desire to work in.
In August 2020, there were many notable changes announced regarding how the CFA exams will be administered for the time being.
The CFA exams will no longer be paper-based and instead will switch to computer-based starting in 2021.
This means no more crowding into the Javits Center in New York City or ExCeL in London and having one shot in June to make months of studying worth it.
Pre-COVID CFA Testing Environment (Source: Bloomberg)
Candidates will now be able to take Computer-Based Exams with a broader choice of testing centers and exam dates. Level I candidates will have four windows to take the exam (previously single-day testing in June and December).
Level II and III candidates will have two windows (previously single-day testing only in June). There are still strict rules on when candidates can take or retake each exam, but the changes should be welcomed by new candidates as they increase flexibility and can potentially shorten the CFA journey to less than two years (for those inclined to put in the hours).
Once you decide to move forward with becoming a CFA charterholder, it is important to understand the changes to the exams and budget the 300+ hours needed to prepare for each level.
The new computer-based format shortens the CFA exams to 4.5 hours each, but the curriculum and question types remain the same. There are 3 types of questions: standalone Multiple-Choice Questions, item sets (vignettes) of multiple-choice questions, and essay questions:
Candidates have an average of 90 seconds for each multiple-choice question, so time management is a critical part of passing the CFA.
The topics tested vary by level and the typical weights are shown below, along with a description of each topic area:
CFA Tested Topics (Source: CFA Institute)
As part of your registration, the CFA Institute provides a full textbook-like curriculum, practice questions and mock exams to help you prepare.
Although the CFA curriculum is quite broad, it does not cover the management training and soft skills that MBA programs teach. In addition, all calculations are done by hand or on a financial calculator, and the curriculum does not cover the Financial Modeling Skills required on the job.
In addition, extra support such as study guides, additional mock exams, and classroom instruction is available from a variety of exam prep providers.
While attempting to pass the CFA exams using only CFA Institute materials is possible, most candidates (and the recommended approach) choose to supplement their preparation with third-party materials.
Below we list the most well-known CFA training providers, which all offer a self-study program with some combination of videos, printed materials, practice exams and question banks, and all fall roughly in the $300-$500 ballpark depending on how many bells and whistles you want.
|CFA Exam Prep Provider||Self-Study Cost|
|Local CFA Societies||$600|
|Bloomberg Exam Prep||$699|
Note that most exam prep providers also offer in-person training options, which were not included in the table above.
This concludes our guide to the CFA exam, we hope this article was helpful in making your final decision and wish you the best of luck on your journey!
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