Becoming a Chartered Financial Analyst: Everything You Need to Know About the CFA Charter
Becoming a CFA (Chartered Financial Analyst) is a worthwhile goal for those planning to work as investment management professionals. But before you decide to become a CFA, you must learn all about the CFA charter, particularly the benefits and requirements. Additionally, you should know how it compares to the CPA certification, which is arguably the most important accounting designation. Thankfully, you can get all of that information here.
Table of Contents
- What Is the CFA Designation?
- What Types of Jobs Do CFAs Hold?
- How Much Do CFAs Make?
- Why Become a CFA?
- What Is the CFA Exam Like?
- How Hard Is the CFA Exam?
- How Much Does the CFA Exam Cost?
- What Are the CFA Requirements?
- How Does the CFA Compare to the MBA?
- How Does the CFA Compare to the CPA?
- What’s Next?
What Is the CFA Designation? CFA Charter
The CFA designation is a professional credential that provides individuals with a strong understanding of investment analysis and real-world portfolio management skills. The CFA Institute (CFAI) launched the CFA and administers the CFA exam. Obtaining the CFA charter signifies the highest distinction in the investment management profession. And the CFA exam is also the most challenging exams in the global financial industry.
Over 150,000 professionals around the world hold the globally-recognized CFA charter. In order to become a CFA, candidates must pass 3 levels of exams covering investment management across 10 key areas. For this reason, the CFA exam prepares individuals to be effective and ethical investment management professionals in the industry.
What Types of Jobs Do CFAs Hold? CFA Careers
While obtaining the CFA does not guarantee any particular job, the designation is helpful in separating those with the charter from those without. Simply put, the CFA charter is a great differentiator, especially when the candidate pools are large.
Based on the CFAI’s latest survey, portfolio management and research remain the 2 most popular career paths.
This survey allocated weights to the most commonly held CFA jobs:
- Portfolio Manager: 23%
- Research Analyst: 16%
- Chief Executive: 7%
- Consultant: 7%
- Risk Manager: 6%
- Corporate Financial Analyst: 5%
- Financial Advisor: 5%
- Relationship Manager: 5%
Research Analysts (Buy/Sell-Side)
Research analysts are responsible for researching, analyzing, and valuing securities of companies in particular industries to provide investment recommendations to portfolio managers. They collect and interpret financial statements, company data, and management presentations to facilitate their recommendations. Additionally, research analysts develop and write research reports and publications to be presented to various stakeholders. Financial modeling of companies is at the heart of the role of a research analyst. They perform research from a variety of industry sources, industry trends, alternative data, and more. Research analysts also use financial modeling to create forward-looking assumptions about what the company and its securities are worth.
Portfolio Managers
Portfolio managers are responsible for investing and managing either an institution’s or individual investor’s money. The types of portfolio managers vary greatly, and each portfolio manager may have a particular investment objective, philosophy, or style.
For traditional asset managers, the investment professional will do the following for their clients:
- Determine a client’s objectives
- Set a strategic asset allocation and tactically adjust weights
- Manage risk
- Measure performance
- Look to generate alpha returns above market beta for clients.
Generally, portfolio managers are compensated based on the number of assets under management and their alpha over and above a stated benchmark. Other portfolio managers running an absolute return strategy. However, they will be evaluated on an absolute basis.
Relationship Managers
Relationship managers develop existing and new relationships for the firm. Additionally, they market a full range of investment strategies and products in a diversified manner to both institutional and retail clients.
Institutional clients will include:
- Pensions
- Foundations
- Endowments
- Sovereign wealth funds
- Insurance companies
- Asset managers
In contrast, retail clients will include:
- Home offices
- Registered investment advisors
- Private banks
- Financial advisors.
Some of the top employers by the number of CFA charterholders and candidates include JP Morgan, Bank of America, HSBC, PWC, UBS, Citi, EY, KPMG, Barclays, and Morgan Stanley. These companies tend to be large full-service financial institutions or Big 4 accounting firms. Other firms that value the CFA are funds of funds, hedge funds, private equity, and family offices.
How Much Do CFAs Make? CFA Salary Range
So, how much do CFAs make? CFA salaries will vary by company, position, and level of seniority. When looking at the CFA Society’s Salary Trend, the average self-reported compensation figures are as follows:
CFA Salary: Average/Median
- 2017: $142/125K
- 2016: $139K/$130K
- 2015: $153K/$140K
- 2014: $142K/$127K
Total CFA Compensation: Average/Median
- 2017: $247/170K
- 2016: $211K/$161K
- 2015: $236K/$175K
- 2014: $262K/$170K
Of the respondents, a majority work in asset management, wealth management, commercial banking, mutual funds, and financial advisory. Of these, the majority of the respondents were portfolio managers or research analysts. Furthermore, the additional respondents were CIOs, directors of research, and consultants. The average number of years of work experience was 15.5 years with a median of 13 years.
Why Become a CFA? Other Benefits of Becoming a CFA
Good news: There are many CFA benefits. Before committing to the designation, you’ll want to ensure that the benefits to you outweigh the costs.
CFA Prestige
The CFA is the most prestigious designation in the finance and investment industry. And, fewer than 1 in 5 candidates become a charterholder. However, when aiming to pursue investing or related roles, many employers search for candidates with the CFA as a preliminary screen. Additionally, these same employers also highly encourage their investment and sales teams to pursue the CFA as part of their existing roles. So, because the CFA has the strongest reputation of any professional financial designation offered today, it is highly regarded across areas of both investment management and banking.
CFA Training
The CFA program trains individuals to master the art and science of securities analysis and asset allocation. CFA candidates also attain expert-level portfolio management skills and an ability to design investment strategies for a number of investors. Particularly, the CFA charter provides a strong foundation for research analysts and asset managers who are investing assets on behalf of large institutions or private investors.
Those who have achieved the CFA designation exhibit:
- A level of mastery of the material
- Rigorous technical skills
- High intellectual capacity
- Overall commitment and dedication to the industry
Professionals in other fields pursue the designation as a way to either broaden their knowledge base or as a bridge to show their commitment to moving into the field.
CFA Networking
Participating in the exam also provides unique networking opportunities throughout the industry. The CFA program provides are multiple opportunities to get involved with CFA societies covering a wide variety of interests such as fintech, alternative investments, and sustainable investing, to name a few. Furthermore, you can attend a number of events at which you can learn more about a specific, relevant trend in global markets. The organization provides a number of resources including job postings, industry events, and training. Moreover, individuals can build strong networks as they progress throughout their careers.
CFA Global Recognition
With ~150,000 charterholders around the world representing 165 countries, this global designation allows for individuals to foster relationships with other professionals with common interests.
What Is the CFA Exam Like? Overall Structure of the CFA Exam
The CFAI has split the CFA exam into 3 levels: Level I, Level II, and Level III. Furthermore, the administration of the CFA exam includes a 3-hour morning portion and a 3-hour afternoon portion for each level. The CFAI allows candidates to take CFA Level I every June and December and CFA Levels II and III once per year in June. So, because the exam is only available twice a year, it’s important to pay attention to the CFA deadlines.
Each level of the CFA exam has 120 multiple-choice questions with 3 answer choices. In addition, Level 3 also includes a morning essay portion. On average, the pass rates are around ~40-50% of all the individuals who take the exam globally.
How Hard Is the CFA Exam? CFA Exam Pass Rates for June 2018
|
CFA Exam Level |
2018 Pass Rate |
|
I |
43% |
| II |
45% |
| III |
56% |
CFA Level I addresses a basic understanding of a wide variety of finance and finance-related topics. CFA Level II covers the same topics but with more specialized coverage of deeper analytical, formula-driven, and in-depth scenario questions. Additionally, CFA Level II heavily weights questions about financial reporting and analysis. CFA Level III is application-based and dedicates a large portion of questions to portfolio and wealth management topics as well as institutional investors. CFA candidates receive confirmation of their CFA exam results via email and CFAI’s online platform, but the CFAI never discloses the CFA passing score. So, keep that in mind as you review the CFA exam pass rates.
CFA exam topics include:
- Ethical and Professional Standards
- Quantitative Methods
- Economics
- Financial Reporting & Analysis
- Corporate Finance
- Portfolio Management & Wealth Planning
- Equity Investments
- Fixed Income
- Derivatives
- Alternative Investments
How Much Does the CFA Exam Cost? CFA Exam Costs
Compared to other forms of higher education, the CFA is one of the most economical options for those looking to stay within the finance industry. But, the exam fee for Level I, II, and III varies depending on when you register.
CFA Exam Registration Fees
Early registration fee: USD $650
Standard registration fee: USD $950
Late registration fee: USD $1,380
Along with the registration fee, you must pay a one-time program enrollment fee of $450 when you sign up for your first Level I CFA program exam.
What’s more, you must pay the $275 membership fee when you join the CFA program and every year after that.
And when registering for the exam, you will have the option to purchase the CFA Program curriculum in 2 formats: digital or print. While the CFAI includes the digital version for free, the print version will cost you. You can purchase the printed version of the CFA curriculum from Amazon.
Finally, you’ll need to bring a CFA-approved calculator with you to the exam, so you’ll want to factor this expense into your CFA exam costs as well.
CFA Exam Prep Fees
Furthermore, most individuals will purchase supplemental material summarizing the exam content in addition to the formal curriculum. These CFA exam prep courses provide practical resources (e.g., practice exams, laminated formula sheets, etc) that help you prepare better and faster.
However, most candidates who are committed to passing the exam on the first attempt opt for a full comprehensive CFA prep course. These courses include video instruction led by the industry’s top accounting and finance professors, plus large question banks (these are also called Qbanks).
Since the costs to sit for the exam are so high, we highly encourage candidates to invest in a CFA prep course to save on re-take fees (you have to pay re-take fees if you fail the CFA exam). Also, because it would be painful and de-motivating to have to re-study the material all over again, you want to give the exam your best shot every time. And a CFA review course would allow you to do just that.
Ways to Save on CFA Exam Costs
In many cases, employers will subsidize some or all of the costs of taking the exam and the fees to purchase additional material. Finally, there are CFA program scholarships you can apply for to reduce the cost of the program.
Additionally, you can get discounts on CFA prep courses. We have the best CFA prep course discounts on this site. Each month (or more often if new codes are sent to us), we update our CFA discount page with new codes. We want you to save money, so don’t pay full price for your CFA review course.
Surveying the market reveals a couple of CFA prep course behemoths (Schewser and Fitch), and while these courses seem may seem like the 2 best options, they are also the most expensive. And they don’t offer many of the features you can find elsewhere, so the value for your money isn’t very high. But thankfully, you can save more money and receive some of the best features and guarantee policies at the same time by going with a course like Wiley CFA Review.
What Are the CFA Requirements? CFA Exam and CFA Program Requirements
Taking the CFA exam and becoming a CFA charterholder both involve meeting certain requirements. The exam requirements differ from the program requirements, so you should review each set of requirements carefully.
CFA Exam Requirements
While knowing a certain amount of English isn’t a requirement, the CFA exam is in English. Therefore, a good command of the language is important.
You must have an international travel passport in order to register and sit for the exam, even if you live in the United States.
You also must meet the professional conduct admission criteria and live in a participating country.
CFA Education Requirements
In order to take the CFA exam, you must have a bachelor’s degree (any major qualifies). You can also substitute 4 years of work experience for a 4-year degree.
CFA Program Requirements
You must enroll in the CFA program and register for the CFA exam.
Then, you must pass Level I, Level II, and Level III of the CFA exam.
After you pass the CFA exam and meet the CFA experience requirements, you must join the CFA Institute as a regular member.
CFA Work Requirements
While the barriers to take the CFA exam are relatively low, the experience requirements are more specific and, therefore, for some candidates, more difficult to meet. What’s more, the CFAI is not very flexible with the experience requirements, so they are unlikely to accept any experience that does not meet the standard.
You will need 4 years of relevant experience, and this experience can be earned before, during, or after passing the CFA exam.
Relevant CFA experience, per the CFAI, is defined as experience that involves spending 50% or more of your time in the investment-making decision process.
How Does the CFA Compare to the MBA? CFA vs. MBA
The CFA is the most cost-effective higher-education option for individuals looking to rise up in the finance sector. The CFA’s cost-effectiveness is particularly apparent when comparing the CFA to an MBA. The CFA designation can cost anywhere from ~$3,000 – $9,000. This overall cost includes registration, CFAI study materials, and third-party review material and courses. While these figures represent a large initial financial investment, you can offset the cost by continuing to work full-time while participating in the program. In many cases, you can even receive a few days of PTO during which to study for the exam.
In contrast, an average MBA can cost anywhere between $60,000 – $200,000+ for a 2-year program. Additionally, this excludes any salary foregone and any potential interest accrued on student loans when participating full-time.
Therefore, if you know you will stay within the field of finance, pursuing the CFA makes financial sense, especially when compared to the cost to an earn MBA.
How Does the CFA Compare to the CPA? CFA vs. CPA
The CFA (Chartered Financial Analyst) and the CPA (Certified Public Accountant) are both highly respected qualifications in the industry. However, the most important distinction is that the CFA is for professionals within finance, whereas, the CPA is a designation for those in accounting. More specifically, candidates find that becoming a CPA is especially helpful if they are pursuing a career in public accounting. The CPA Exam costs are also generally less than those of the CFA, so this makes the decision slightly more challenging for budget-constrained candidates. For these reasons, it seems that many candidates consider both designations, as the CFA vs. CPA comparison is something CFA candidates ask me about on a weekly basis.
CFA vs. CPA: Requirements
The United States has 55 accountancy jurisdictions, and each jurisdiction grants the CPA license individually. However, all 55 jurisdictions require CPA candidates to take the Uniform CPA Examination created by the American Institute of Public Accountants (AICPA). Otherwise, each state or territory has its own set of CPA requirements.
For example, candidates must have a 4-year bachelor’s degree to sit for the CPA Exam and 150 credit hours to earn the CPA license. With such strict requirements, qualifying to sit for the CPA Exam is challenging, especially for international CPA candidates. But these more difficult requirements help keep the CPA pass rates relatively high since candidates are generally more prepared.
The CFA Institute, a global non-profit organization, grants the CFA designation. The CFAI’s mission is to generate value for core investment management professionals, so it has launched 3 regional CFAI offices and 200 local chapters around the world.
CFA candidates must have a bachelor’s degree or 4 years of practical work experience to sit for the exam. Therefore, the CFA barriers to entry are much lower when compared to the CPA requirements.
CFA vs. CPA: Exam Content & Format
The CPA Exam consists of 4 sections:
- Auditing & Attestation (AUD)
- Business Environment & Concepts (BEC)
- Financial Accounting & Reporting (FAR)
- Regulation (REG)
Once you pass a single section, you will have 18 months to pass the remaining 3 sections. The exam is fully computerized and includes multiple-choice questions, task-based simulations, and, for BEC only, written communications. In contrast to the CFA exam, you can sit for the CPA Exam sections much more often each year. The CPA Exam testing windows are
- January 1-March 10
- April 1-June 10
- July 1-September 10
- October 1-December 10
Whereas with the CFA exam, candidates can only sit for the exam twice a year (in June and December).
The CFA exam consists of 3 levels, with each level involving a 3-hour morning and 3-hour afternoon session. You can only take the next exam level after you have passed the prior exam level. The CFAI administers the exam in the traditional pencil and paper format. Additionally, Level III provides candidates with a booklet in which to answer the CFA essay questions. Therefore, candidates sitting for Level III can expect to receive both a scantron for the multiple-choice questions and a paper booklet for the essay portion.
CFA vs. CPA: Time Investment
You can pass the entire CPA Exam in 6 months to 1 year, so long as you use a CPA review course and dedicate yourself to preparing to pass each exam on the first attempt. Then, prior to licensure, you must meet the experience requirement, which is 1 year of accounting work for many state boards. What’s more, a U.S. CPA must verify and/or supervise your accounting experience (this requirement varies by state).
The CFA exam takes much longer to complete. Candidates could spend as little as 18 months on the exam portion if they take the Level I exam in December, the Level II exam in June, and Level III exam the following June. However, in order to complete the CFA exam quickly, candidates will need to pass each exam on the first attempt. Finally, to become a charterholder, candidates must also have 4 years of relevant experience. Therefore, becoming a CFA can take much longer, especially if you don’t already meet the experience requirements prior to taking the exam.
What’s Next: Becoming a CFA
If you’ve decided to become a CFA, that’s great! Provided that you meet the requirements to sit for the exam, the next step will be to register for the CFA exam. At this time, you will also want to purchase your CFA prep course so that you can begin studying. Since the exam process can be long, you should get started right away once you’ve committed to the designation.
If you have any questions for me regarding the CFA, CPA, CMA, CIA, or any other designation/exam (hello, LSAT!), please don’t hesitate to leave a comment for me!
