The Chartered Financial Analyst (CFA) designation is regarded by most to be the key certification for investment professionals, especially in the areas of research and portfolio management. It is, however, one of many designations used today. This can cause some confusion as investors and professionals alike puzzle out what each designation means and which is best. This article will take an in-depth look at the CFA designation. If you are a professional considering the CFA, we provide the information you need to begin weighing the costs and benefits of this decision.

Exam Preparation: CFA Level 1

What Is the CFA Designation?
The CFA designation is given to investment professionals who have successfully completed the requirements set by the globally recognized CFA Institute (formerly the Association for Investment Management and Research, or AIMR). To be eligible for the CFA designation, candidates must meet the following criteria:

1. Pass three rigorous, six-hour exams over several years.
2. Have 48 months of "acceptable professional work experience." Although the CFA institute allows a fairly broad interpretation here, the experience usually has to be financial in nature. 3. Join the CFA institute by committing to the CFA Institute's Code of Ethics and Standards of Professional Conduct.

What Is the CFA Institute?
The CFA Institute is a global non-profit professional organization of more than 100,000 charterholders, portfolio managers and other financial professionals in 135 countries. Its stated mission is to promote and develop a high level of educational, ethical and professional standards in the investment industry.

The CFA Exams
Most people considering the CFA designation tend to worry about one thing – the exams. The exams are divided into three levels. Level 1 is written twice per year in June and December. It tests the candidates' knowledge of investment theory, ethics, financial accounting and portfolio management. (For more check out the Exam Section. For a complete list of all sections, check out the Investopedia CFA Level 1 Study Guide.)

Level 2 and Level 3 exams are held once per year in June. For a complete breakdown of the sections, check out CFA Level II Exam and CFA Level III Exam. This is not an easy test. The CFA institute estimates that at least 250 hours of studying is needed to pass each exam. For professionals attempting to study while still working in their field, this can be a daunting number. However, many candidates consider the concentrated study required a better education than graduate school because of its total focus on investment management and practice.

CFA Pass Rates
This course of study was formed in 1962 and is constantly updated to ensure that the curriculum meets the demands of the global investment industry. This graduate-level curriculum generally entails six months of study prior to each exam date. Pass rates vary from year to year, but since the first exam was given in 1963, the overall rate is 44% and the 10-year average pass rate sits at 39% as of 2010. Moreover, fewer than 20% of the candidates pass all three tests in the first three attempts, so it is important for candidates not to get discouraged. (We've got you covered! Check out Pass Your CFA Exams On The First Try.)

CFA Careers
CFA charterholders often seek careers at institutional investment firms (such as hedge funds or mutual funds), broker-dealers, insurance companies, pension funds, banks and universities. Some go on to work for governments in the areas of regulation and public policy. By the time the designation is earned, the charterholder will have the generally acquired four years of work experience, which also helps prepare them for a higher level financial profession. (For more on this check out A Look At CFA Job Opportunities.)

What Do CFA Designations Mean to Investors?
When an investor is dealing with a CFA charterholder, he or she can make some basic assumptions. In generally, a CFA is committed to becoming better at his or her craft, whether it is security analysis, portfolio management, business reporting or some other service. In addition, the individual has agreed to maintain a higher level of integrity by following CFA Institute's Code of Ethics and Standards of Professional Conduct.

In other words, investment professionals with a CFA designation have put in a significant amount of time and effort to better their skills and knowledge on behalf of their clients. This will come as a great comfort to most investors – especially if they are depending primarily on professional advice in managing their financial affairs.

Limitations of the CFA
Although there is a certain mastery required by the CFA exams when it comes to financial concepts and markets, having the CFA designation does not automatically make one a better stock picker or more successful investor. Stock picking is a practical skill that must be developed through experience. While the knowledge gained through studying for the CFA exam won't hurt, the certification alone isn't going to make a market maven out of every charterholder.

That said, there are some very well-known investment professionals who hold the CFA charter: Abby Joseph Cohen, Gary Brinson and Sir John Marks Templeton, among others. The reasons why these famous names pursued the CFA designation may vary, but it is safe to say they all have one thing in common: the desire to be the best.

Bottom Line
The CFA designation does distinguish the charterholder from other practitioners in the eyes of professionals and investors. The successful CFA charterholder has proved his or her ability to withstand rigorous testing, shown a capacity for learning and made a serious commitment to conduct his or her professional life according to high ethical standards. It's not magic, but it may be the next best thing.

Related Articles
  1. Mutual Funds & ETFs

    The ABCs of Mutual Fund Classes

    There are three main mutual fund classes, and each charges fees in a different way.
  2. Investing Basics

    5 Common Mistakes Young Investors Make

    Missteps are common whenever you’re learning something new. But in investing, missteps can have serious financial consequences.
  3. Mutual Funds & ETFs

    The 4 Best American Funds for Growth Investors in 2016

    Discover four excellent growth funds from American Funds, one of the country's premier mutual fund families with a history of consistent returns.
  4. Products and Investments

    A Guide to DIY Portfolio Management

    These are some of the pillars needed to build a DIY portfolio.
  5. Investing

    What Investors Need to Know About Returns in 2016

    Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016.
  6. Stock Analysis

    Tech Stocks Vs. Financial Stocks in 2016

    Consider the arguments for allocating more of your investment portfolio to either the technology sector or the financial sector for 2016.
  7. Stock Analysis

    The Top 5 Financial Penny Stocks for 2016 (CPSS, ASRV)

    Learn about some of the most promising penny stocks in the financial services sector that investors can consider adding to their portfolio for 2016.
  8. Mutual Funds & ETFs

    The Top 5 Buffalo Funds for Retirement Diversification in 2016

    Discover the top five Buffalo Funds for retirement diversification in 2016, with a summary of each fund, including manager and performance information.
  9. Mutual Funds & ETFs

    How to Build Your Own Mutual Fund

    Here are some tips for building a mutual fund that may help pave the way to a strong performance.
  10. Investing Basics

    How to Become A Self-Taught Financial Expert

    Becoming a self-taught financial expert may not be as daunting of a task as it seems.
RELATED FAQS
  1. What licenses and certifications do you need for a career in portfolio management?

    Traditionally, a career in portfolio management requires a certain level of education, professional licensing, on-the-job ... Read Full Answer >>
  2. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
  3. Does mutual fund manager tenure matter?

    Mutual fund investors have numerous items to consider when selecting a fund, including investment style, sector focus, operating ... Read Full Answer >>
  4. Why do financial advisors dislike target-date funds?

    Financial advisors dislike target-date funds because these funds tend to charge high fees and have limited histories. It ... Read Full Answer >>
  5. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
  6. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center