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 CFA?
- For financial professionals, two of the most significant credentials to have are Master of Business Administration, or MBA, and Chartered Financial Analyst, or CFA.
- An MBA takes two years of full-time study in a program that will 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 more specific, focusing on investment analysis, portfolio strategy, and asset allocation.
- The average starting salary of those with MBAs is around $100,000, while those with a CFA designation might see an average starting salary of $83,000, according to recent reports.
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, 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. Not only are students paying for two years of full-time graduate school, or its part-time equivalent, but they're 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. In 2016, 14 of the 20 top-ranked business school submitted salary and debt information for full-time MBA graduates, and the average debt ranged from $73,178 to $121,822. Also, consider the effects of any wages 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. Average starting salaries for those with MBAs from the same 14 schools was more than $100,000. 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 life-long 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'd do well to at least consider getting an MBA. Health care is another field where mid- and upper-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 requires being a full-time student, while someone studying for a CFA can simultaneously hold a full-time job; but 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 charter holders, 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 over 30 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 standard fees are $700, $1,000 and $1,450 for early, standard and late registration for each test, 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. The first section, Level I, is offered in December and June, while sections II and III are only offered in June.
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 43% in a given year, making the CFA one of the most grueling tests 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 CPA exam. And that exam is hardly a cake-walk. Forum commentators on the CPA information and review site Another71 familiar with both exams generally view the CFA as the greater challenge requiring more study time. They note though, 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 $91,000, 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,” said Stephen Horan, Ph.D., CFA, CIPM, 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 non-traditional roles are the single largest category of charter holders.”
Some motivated individuals pursue both MBAs and CFAs. “An MBA and the CFA program are complementary in many ways,” Horan noted. “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. Most MBA programs teach principles of finance, particularly corporate finance, but do not delve deeply into sophisticated issues like derivative securities, hedging strategies, portfolio management, and wealth planning. The CFA program synthesizes application in these areas.”
Having both an MBA and CFA is especially valuable for portfolio and corporate management positions, Horan added. “Charter holders are increasingly working in corporate finance roles that would naturally be populated by MBAs.”
The average age of a CFA program candidate is about 28, 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.
The Bottom Line
In the end, both the MBA and CFA are valuable. The CFA, however, is widely coveted by professional investors who work at money managers and registered investment advisors, the types of firms that many financial advisors get their first jobs and initial training and background.
One of Another71's commentators summed it up well in noting that “all these certifications are just tools that help you stand out a bit. Don't forget, experience and networking trump most certifications by themselves.”