There are many different professional certifications held by financial advisors. In the investment management world, the CFA charter carries the most weight. This is because charterholders must demonstrate a comprehensive understanding of a Global Body of Investment Knowledge so voluminous that just a listing of the topics takes up 85 full pages.
The process required to attain the CFA credential begins with a series of three qualifying examinations. It can take more than 300 hours of self-study to prepare for each level. The CFA Institute provides candidates with a list of approved exam prep providers, who follow strict guidelines to adhere to the CFA Program curriculum.
Candidates are not required to use an approved exam prep provider. However, the chances of passing the test are substantially diminished otherwise. The tests are so arduous that, according to the CFA Institute, nearly a quarter of enrolled candidates don’t even show up for the test.
The CFA Institute analyzed candidate exam results from 1963 through June 2019 and found that more than 50 percent of candidates typically fail the first two levels. Candidates who successfully complete these hurdles then face a 43 percent chance that they will fail the Level III exam.
The CFA exam is scored as “pass” or “fail” with an aggregate score of 70 percent or better representing a passing grade. Candidates never know their raw score but are given an indication of their performance across subject areas broadly defined as investment analysis, securities valuation, and portfolio management.
Because the failure rate is so high, the CFA Institute shows candidates what their strengths and weaknesses are to help prepare them to retake the exam. Candidates are shown whether they correctly answered less than 50 percent, between 50 and 70 percent, or more than 70 percent of the questions in each of the topics tested.
In the final analysis, what makes the CFA charter so special is that it is so difficult to attain. Fewer than one in five candidates for the charter ever earn it.
What Are the Steps Necessary to Become a CFA?
Beyond successfully passing the three qualifying examinations, the CFA Institute imposes a number of other prerequisites on candidates before they can qualify for the charter.
All CFA candidates must have either an undergraduate college degree or four years of professional experience. A combination of the two totaling four years also fulfills this requirement. The professional experience must be in a field such as securities trading, corporate finance or economics and can be satisfied before, concurrent with or after passing the three exam levels.
Candidates who have completed all of the prerequisites must apply for the CFA charter. The application must include proof that the education and work-experience requirements have been satisfied. The candidate must be a regular member of the CFA Institute and must include at least two letters of reference in the application.
In general, letters from supervisors who can describe and attest to the candidate’s responsibilities in the investment-making decision process are preferable — and more impactful. In addition to commenting on work experience, references should discuss the candidate’s professional ethics and character. Ideally, references should be CFA charterholders.
Three reference letters are required if no one among the references is a member of the local CFA Society to which the candidate belongs or is applying to.
What Does a CFA Do?
The typical path to a successful career on Wall Street includes obtaining the CFA charter. This is true for those aspiring to work in the highly competitive fields of investment banking, corporate mergers and acquisitions, hedge fund management, securities research analysis and investment management.
Typical jobs include:
- Buy-Side Research Analyst
- Chief Investment Officer
- Corporate Financial Analyst
- Equity Portfolio Manager
- Fixed Income Portfolio Manager
- Investment Banker
- Sell-Side Research Analyst
Most CFA charterholders are employed at big investment banks and mutual fund companies. About five percent of them work as financial advisors who may be managing client assets at a different level or in a different capacity than those with the CFP® designation or the PFS credential.
How Much Money Does a CFA Make?
CFAs are among the highest paid professionals in their fields, with average total compensation nearing $300,000 annually. Employers know that CFA charterholders have spent many years working in the industry and have spent hundreds of hours studying for and completing one of the most intellectually-challenging exam processes in the financial services sector.
Why Become a CFA Charterholder?
For those considering a career in the financial services industry, a CFA charter can open many doors. Worldwide recognition of and regard for the CFA charter can provide coveted career opportunities to charterholders. And clearly, CFAs earn a very respectable living.
Attaining the CFA charter can provide one with a higher long-term return on their education investment. Compared with attending business school and earning an MBA, the CFA charter is a bargain.
The cost of a postgraduate education can total well more than $100,000. Studying and sitting for the three CFA exams will cost somewhere in the neighborhood of $10,000. And you can offset that by earning money while working toward obtaining the charter.
Ultimately, the CFA charter gives you options. It allows you to determine your own career path in the financial services business in a way that other professional designations cannot. With that comes prestige and the satisfaction of accomplishing an achievement that many find unobtainable.