Financial advisors, stockbrokers, and investment professionals of all stripes swim in a sea of designations and certificates. Because each title comes with its own three- or four-letter abbreviation, the designations are known as the “alphabet soup” of the investment advice industry.
Two of the most strenuous but financially rewarding titles are the Master of Business Administration (MBA) and the Chartered Financial Analyst (CFA). A potential financial advisor or anyone considering a career in finance or investing should consider their differences.
Should you invest the time, resources, and money in an MBA or a CFA?
- For financial professionals, two of the most significant credentials to have are Master of Business Administration (MBA) and Chartered Financial Analyst (CFA).
- An MBA takes two years of full-time study in a program that will often cost at least $100,000, with students taking classes that cover all aspects of the business world, as well as the opportunity to focus on a specific industry.
- A CFA takes at least 19 months of self-study and the passing of three exams; it’s cheaper than an MBA—under $5,000—and focuses more specifically on investment analysis, portfolio strategy, and asset allocation.
- The average starting salary of those with MBAs is around $92,000, while those with a CFA designation might see an average starting salary of $97,000.
MBA Course of Study
An MBA takes two years of full-time study, with classes covering various aspects of running a business. Courses range from human resources to accounting, from marketing and sales to managing operations, supply chains, and technology. Students get MBAs in specific topics—such as healthcare, communications, or information systems technology—depending on which field most interests them. These degrees still stress broad knowledge of core business concepts.
MBA Cost and Reward
Getting an MBA is usually pricey. Students are not only paying for two years of full-time graduate school or its part-time equivalent but also missing out on potential earnings during that time. A two-year MBA program can end up costing far north of $100,000 from a top business school, not counting room, board, books, and peripheral expenses.
The amount of debt for MBA graduates is high—upward of $71,000 or more—and those are just the most recent figures as of October 2021.
Also, consider the effects of any wages that you forgo while in school. Of course, financial aid can reduce this burden somewhat, and some corporations will assume a portion of expenses for employees seeking an MBA. The return on your investment, however, might make it worthwhile. Getting an MBA from a well-regarded school can make you more attractive to employers because it demonstrates drive and work ethic, not to mention a solid network. It provides lifelong professional contacts with scores of other Type A overachievers with whom you’ve shared a long, tough challenge.
If you want a management role at a large company or those in areas like marketing, consulting, finance, or investment banking, you would do well to at least consider getting an MBA. Healthcare is another field where mid- and upper-level management is increasingly populated with MBAs to better cope with changes in insurance, government regulation, and patient record-keeping standards.
An MBA is more costly to acquire than a CFA and typically requires being a full-time student, while someone studying for a CFA can simultaneously hold a full-time job. However, the tradeoff is that after completion, an MBA often gives a bigger boost to your earnings potential than a CFA.
The CFA designation, first introduced in 1962, provides those who pass three exams, known as charterholders, with specialized skills like investment analysis, portfolio strategy, and asset allocation. It is less general than an MBA and quite coveted by investment professionals. Regulatory bodies in more than 28 countries recognize the charter as a proxy for meeting certain licensing requirements, according to the CFA Institute, which administers the test and awards the certification.
Financially, getting a CFA designation is cheaper than earning an MBA, as the program is based on self-study and not going to class. The only required expense is exam fees. These costs vary depending on how early you register, but program fees are $700 and $1,000 for early and standard registration, respectively, plus a one-time enrollment fee of $450.
CFA Is Grueling and Prolonged
While affordable, the time required to earn a CFA is substantial. CFA exams have three sections, which take six hours each. You must pass each section before proceeding to the next. For 2022, the first section, Level I, is offered each quarter, while Level II is offered in February, August, and November, and Level III is only offered in May and August.
That means if a candidate passes every part in their first attempt, pursuing the CFA is still at least a 19-month journey. Indeed, the CFA Institute says candidates spend an average of 300 hours of study for each section and that the average candidate takes four or five years to pass every section. The pass rate for each section has hovered around 45% in a given year, making the CFA one of the most grueling tests that you're likely to face.
In fact, the general consensus is that the CFA exam is harder to pass and requires more study than the certified public accountant (CPA) exam. And that exam is hardly a cakewalk. Forum commentators on the CPA information and review site who are familiar with both exams generally view the CFA as the greater challenge requiring more study time. It’s worth noting that as the CFA exam includes audit problems, those with an accounting background have an advantage in taking it.
Some very motivated individuals get both MBA and CFA credentials, giving them training in both the broad and more specific aspects of business, wealth, and portfolio management.
Who Gets a CFA?
Payscale puts the national average salary for a CFA at $97,000, according to its surveys. What sort of professionals might choose to get a CFA? “The most traditional career paths for which the CFA charter has been most relevant are for research analysts and those who might go on to be portfolio managers,” says Stephen Horan, Ph.D., CFA, CIPM, the former managing director and co-lead for education at the CFA Institute. “The charter, however, is a generalist investment credential. Increasingly, it is a useful resource for a wide range of careers, such as traders, brokers, academics, risk managers, regulators, and chief executives. These nontraditional roles are the single largest category of charterholders.”
Some motivated individuals pursue both MBAs and CFAs. Horan notes that MBAs and CFAs can be complementary to each other: “Traditional MBA programs are broader than the CFA program, covering topics such as management, marketing, and strategy, while the CFA program provides deeper coverage of investment management than typical MBA programs.”
Having both an MBA and a CFA is especially valuable for portfolio and corporate management positions, Horan adds. Charterholders are increasingly working in corporate finance roles that would be naturally populated by MBAs.
The average age of a CFA program candidate is about 28, according to a report of 2018 CFA Institute data. However, these days, younger students frequently enter the program in their last year of school or shortly thereafter. Some graduate schools teach the CFA program within their MBA coursework, allowing students to both obtain a degree and prepare for the certification at almost the same time.
Is the Master of Business Administration (MBA) good for a career in finance?
Compared to the Chartered Financial Analyst (CFA), a Master of Business Administration (MBA) provides a broader overview of business principles. An MBA teaches students valuable analytical and leadership skills that prepare them for opportunities across a number of sectors and careers in finance. For instance, MBA graduates may go on to pursue careers as consultants, chief financial officers, financial analysts, or financial managers.
Is the Chartered Financial Analyst (CFA) good for a career in investment banking?
The CFA serves as a valuable credential for those interested in a career in investment banking. Its rigorous curriculum involves financial modeling skills, corporate finance, ethics, and financial analysis, to name a few. Along with investment banking, CFA charterholders often pursue careers in commercial banking, consulting, and asset management.
MBA or CFA: Who earns more?
According to Payscale, the average base salary of an MBA graduate is $91,000, while the average for those holding a CFA designation is $97,000.
What is the cost of an MBA vs. a CFA?
Typically, an MBA will cost from $80,000 to more than $100,000. By contrast, a CFA designation will cost significantly less: under $5,000.
How long does it take to complete an MBA vs. a CFA?
Typically, an MBA will take two to three years of study, although some programs offer one-year MBAs. The CFA includes three exams—levels I, II, and III—which take an average of four to five years to complete.
The Bottom Line
In the end, both the MBA and the CFA are valuable. Not only does an MBA enhance job prospects and earning potential and help build a broader network, but in some cases, firms will require an MBA for certain leadership or management roles.
The CFA, however, is widely coveted by professional investors who work at money managers and registered investment advisors, the types of firms where many financial advisors get their first jobs and initial training and background.