It's pretty easy to bump into someone in the financial profession who is really excited about entering the Chartered Financial Analyst (CFA) program. Sometimes they know what they are getting into, sometimes they don't. They may have no idea how much time it takes or exactly how having the charter may help or hurt them.
Make no mistake about it - earning the CFA charter is a grueling process, so if the thought has crossed your mind that it might be worthwhile to begin the process, you had better check your preconceived ideas at the door and make sure your dream is not just a passing fancy. Before you commit, consider what it takes to earn the charter, how it will benefit you and your career, the negatives of going through the process and whether the pros outweigh the cons. In this article, we'll help take you through that decision process.
What It Takes to Earn the Charter
The CFA Institute requires three steps to become a CFA charter holder. They include:
- Pass all three levels of the CFA exam in succession
- Acquire 48 months of "acceptable professional work experience"
- Join the CFA Institute, which includes completing a professional conduct statement and affiliate with a local chapter. (To view the complete list of steps, visit the CFA Institute's website.)
For many people, the most difficult facet of earning a charter is fulfilling the educational requirements. The CFA program consists of three exams encompassing a "candidate body of knowledge" (CBOK) that the CFA Institute believes is necessary for those in the investment profession.
The Levels and Time
Level I is given in the late fall and late spring, while levels II and III are given only once a year in the late spring. Candidates must pass each level before moving on to the next.
The statistics are grim. On any given year, anywhere from roughly 40-65% of candidates for each level pass their exams. This means that even with the most optimistic scenarios, statistically, less than 30% of those who begin the CFA program as level I candidates actually go on to pass level III.
The investment of time is often the most important. The CFA Institute estimates that the average candidate should spend at least 250 hours preparing for each level (which, depending on when you start studying, is generally around six months). Most applicants will study 10-15 hours per week to prepare for each exam.
Once you've considered the levels and time required, you must look at the professional requirements. Before a candidate can receive the charter, he or she must have completed 48 months (or four years) of acceptable work experience. Fortunately, the CFA Institute's definition of acceptable experience is fairly broad, encompassing such areas as trading, economics and corporate finance. Still, there are a number of candidates who enter the program and are not in fields where anything they do can be construed to be part of the process. Some of these candidates may find that while they are able to pass the educational requirements, they will not receive the charter because they do not have the required professional experience.
Finally, before candidates can receive their charters, they must join the CFA Institute. If you need any help with this process, check out the CFA Institute's website where this process is explained in detail.
How Will the Charter Benefit You?
To help you decide whether to pursue the charter, let's take a look at how you will benefit from it. First, there is the educational benefit; you will learn a great deal and add a great credential to your CV. Then, there is the reputational benefit. People in the business know the time and dedication it takes to earn the charter. When they see that you have earned it, they will likely believe you have ability, dedication, ethical grounding and the hard, transferable analytical skills necessary to do the job in question.
There also may be financial benefits. You may see your salary increase after you've earned the charter or you may surpass other applicants when competing for a new job or position.The operative word here is "may." Career success depends on a number of factors, including hard work and skill. Luck, dedication, political savvy and character have just as much to do with one's success in the investment profession as educational background; so don't view the charter as your golden ticket to financial paradise.
How Will the Charter Benefit Your Career?
There are a number of financial fields where it makes sense to go through all the time and trouble to earn the charter. The obvious is investment management. As the investment industry continues to become more competitive (fewer positions) and somewhat commoditized, it will become almost imperative for any credible investment manager to earn the charter.
Outside of that, there are a number of other professions in which charter holders will benefit considerably:
- Buy-side trader (investment management) or other buy-side professional positions
- Sell-side analyst (investment banking), associate, or other sell-side professional positions
- Business school professor
- Financial advisor or financial planner
Beyond this list, there are a number of professions in which having the CFA Charter helps, but where it is not a career roadblock if the financial professional does not have it.
The CFA charter is not a guaranteed path to riches and glory. Before taking the plunge, carefully consider several drawbacks to earning it:
Becoming a CFA is a huge investment in time - a minimum of 250 hours per year over three years. You will sacrifice time with family and friends and the pursuit of hobbies you enjoy. And after all that, there is no guarantee that you will pass.
While this factor may not be a major consideration, it is worth pondering. A level I candidate will pay a one-time program enrollment fee plus an exam registration fee. Level II and III candidates will pay a registration fee as well. Then, there are the books you'll have to buy plus the cost of any study programs. All together, these costs easily add up to several thousand dollars each year you attempt the exams.
The CFA is not a panacea for an ailing career. If you're enrolling in the program to jump-start a stalling career, you may want to look at other reasons your career is not moving forward. Perhaps before investing inordinate amounts of time and some money into building your pedigree, you might choose to improve your soft skills such as work ethic and political suaveness.
Putting It All Together
A variation of the good old-fashioned cost-benefit analysis may be the best way to decide on a career choice. On paper, plot out the costs versus the benefits of earning the charter. Carefully consider each point, both positive and negative, and its importance to you. Ponder for a day or two, or more if necessary, and then make your decision. Your decision may also alter as your career changes. A lost promotion in five years may change the balance from not pursuing the charter to chasing it full steam.
The Bottom Line
Earning the CFA charter may be the right decision for you, but before taking the plunge, consider what it takes to earn the charter, how earning the charter will benefit or hurt your career and how all the factors weigh-in together. Whatever you decide, this analysis is a great introduction to the thought process you might later encounter as an investment manager.