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, just 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.
- The CFA designation is given to investment professionals who have successfully completed the requirements set by the CFA Institute.
- Professionals with the designation stand out to employers and may receive higher salaries than those without it.
- Candidates are required to pass three levels of exams in order to become charterholders.
- CFA charterholders often work at institutional investment firms, broker-dealers, insurance companies, pension funds, banks, and universities.
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 (AIMR). To be eligible for the CFA designation, candidates:
- Must pass three rigorous, 4.5-hour exams over several years.
- Must have "4,000 hours of work experience and/or higher education that was acquired over a minimum of three sequential years." Although the CFA institute allows a fairly broad interpretation here, the experience usually has to be financial in nature.
- Must join the CFA Institute by committing to the CFA Institute's Code of Ethics and Standards of Professional Conduct.
Candidates don't necessarily need to have a university degree in order to qualify for the CFA.
Because of its focus on analysis, investment knowledge, and ethics, the CFA designation is widely recognized around the world, and is the leading credential among financial professionals.
The CFA designation is widely recognized around the world because of its focus on analysis, investment knowledge, and ethics.
All charterholders are listed in the CFA Institute's member directory with their contact details. This makes it easy for individuals, institutions, and corporations to locate charterholders, member, or financial advisor. The directory also notes whether members are in good standing with the institute.
Being a CFA charterholder provides the member both distinction and benefits. The designation is recognized as a benchmark, making charterholders appealing to potential employers. Because of the time, discipline, and dedication it takes to pass the exams and become a member, charterholders often stand out. Earning the designation becomes even more critical as the workforce becomes more competitive.
There are also financial benefits that come with becoming a member of the CFA Institute. Salaries of members may often be higher when compared to people who don't hold the designation.
What is the CFA Institute?
The CFA Institute is a global non-profit professional organization of more than 170,000 charterholders, portfolio managers, and other financial professionals in more than 160 different global markets. The institute's stated mission is to promote and develop a high level of educational, ethical, and professional standards in the investment industry.
The designation was first created in 1962, after financial analyst societies in four different American cities—New York, Boston, Chicago, and Pennsylvania—banded together and created a code of conduct. The first exam was held in 1963 with 284 candidates. The group awarded 268 charters that year. The name of the group was changed from AIMR to the CFA Institute in 2004.
CFA member societies are found all around the world. The locations with the most members include:
- United Kingdom
- New York
- Hong Kong
The CFA Exams
Most people considering the CFA designation tend to worry about one thing: the exams. The exams are divided into three levels and all are taken via computer. Level I is written four times per year, in February, May, August, and November. It tests the candidates' knowledge of investment theory, ethics, financial accounting, and portfolio management.
Level II and Level III exams are held twice per year, in February and August for Level II and in May and November for Level III. These are not easy tests. The CFA institute estimates that more than 300 hours of studying is needed to pass each exam. Professionals attempting to study while still working in their field may find this to be a daunting task. 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 have varied from year to year since the first exam was given in 1963.
According to the institute, the late 2020/early 2021 pass rates were:
- Level I: 44%
- Level II: 55%
- Level III: 56%
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.
CFA charterholders can be found in different areas of the financial services industry, while others go on to work for governments in regulation and public policy. They often seek careers at institutional investment firms—such as hedge funds or mutual funds—broker-dealers, insurance companies, pension funds, banks, and universities. CFA members can be found at some of the world's largest institutions including Goldman Sachs, JP Morgan, Morgan Stanley, and UBS.
CFA Designations and Investors
Investors who deal with CFA charterholders can make some basic assumptions. A CFA is generally committed to becoming better at their 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 doesn't automatically make one a better stock picker or more successful investor. Stock picking is a practical skill that must be developed through experience. The knowledge gained from studying for the CFA exam won't hurt, but the certification alone isn't going to make a market maven out of every charterholder.
That being said, there are some very well-known investment professionals who hold the CFA charter. Gary Brinson, and Sir John Marks Templeton are two famous examples.
The Bottom Line
The CFA designation distinguishes the charterholder from other practitioners in the eyes of professionals and investors. A successful CFA charterholder has proved his or her ability to complete rigorous testing, has shown a capacity for learning, and has made a serious commitment to conduct his or her professional life according to high ethical standards.