Chartered Financial Analyst (CFA) Guide

CFA Fast Facts (Level 1, Level 2, and Level 3)

^{*The testing dates are going to be different in 2021 due to the COVID-19 pandemic}

What is the Usefulness of the CFA Designation? 

There are varying opinions on the CFA program’s usefulness on the job and value to one’s career, especially when compared to an MBA.

At the end of the day, the weight of holding the CFA designation is very dependent on the career path being pursued.

Starting the CFA journey is a significant time commitment and not a decision to be taken lightly.

The exam series requires intense preparation and historically takes an average of 4 years to complete.

Typically, candidates spend around 323 hours studying for each level (with less than 50% passing).

Spread across 6 months, this equates to over 12 hours per week, leaving limited free time for full-time professionals.

^{Average Exam Preparation Time (Source: CFA 2019 Survey Report)}

Due to this level of commitment, potential CFA candidates must ensure they receive an appropriate return on the time invested by understanding how the CFA might help them reach their career goals.

What are the Benefits of Becoming an CFA Charterholder?

Below are some of the primary benefits of becoming a CFA charterholder:

Industry-Wide Recognition

The CFA exams are well-known to be difficult and most employers in the finance industry are aware of the time commitment, dedication, and intellect required to pass them.

In effect, becoming a charterholder signals to employers that you have the work ethic and analytical abilities that make you a valuable asset.

Comprehensive Curriculum

The CFA curriculum spans nearly all facets of finance from equities fixed income, derivatives and alternatives to accounting, corporate finance, economics, portfolio management, and ethics.

The program is intended to deliver foundational knowledge for the investment management industry and should be useful for anyone in an investment-related role.

The 900+ hours of study for the CFA program provide a masters-level education that will boost your technical skills.

Strong Local and Global Network

There are over 150 CFA societies around the world offering networking and professional development events. These networks can be invaluable for finding a new job, connecting with potential clients or partners, and learning about trends in the investment industry.

Career Advancement Opportunities

The benefits above translate into making you a more attractive candidate for competitive, high-paying jobs and promotions. Of course, you will still have to land and ace your Finance Interviews, but having the CFA charter (or even being a candidate) can give you a leg up.

In terms of salary, the median compensation for all US charterholders was $193,000 (and $480,000 for senior executives) according to the compensation report released in 2019 by the CFA Institute.

Ready to sign up? Not so fast! There are some areas of finance where the CFA is not as highly valued and is considered to have too high of an opportunity cost.

CFA vs. CFP: Pros and Cons

• The Certified Financial Planner (CFP) designation is the gold standard for financial planners and wealth management
• Narrow focus compared to CFA, which is applicable for both personal and institutional asset management
• One exam for CFP versus 3 exams for the CFA

CFA vs. MBA: Pros and Cons

• The CFA goes deep on quantitative and analytical skills, while business school (MBA) provides networking and general management / soft skills training that the CFA does not
• The cost of an MBA tuition is significantly higher than the CFA, even without taking into account the opportunity cost of lost wages
• The MBA is helpful for pursuing a career in investment banking, private equity, and corporate finance

CFA vs. CAIA: Pros and Cons

• The Chartered Alternative Investment Analyst (CAIA) designation focuses on the analysis of alternative investments, including private equity, hedge funds, real assets, and structured products
• Narrow focus compared to CFA, which also covers traditional equity and fixed income investments
• 2 exams for CAIA versus 3 exams for the CFA

CFA Designation: What Factors to Consider?

Here are a few important questions to ask yourself before pursuing the CFA:

Question 1: “Is the CFA relevant to the field you are pursuing?”

Although the CFA is broadly respected, its reputation can vary widely by the firm. This is the single most important factor to diligence before committing to the CFA.

Some organizations mandate taking the CFA to advance, while others discourage the program due to the time commitment or lack of content related to their field.

There are several ways you can figure this out.

1) Check if the professionals at your current (or dream) firm are CFA charterholders – the best way to figure this out is through LinkedIn.

^{Sample Equity Research Analyst @ J.P. Morgan from LinkedIn}

2) Search for job postings on sites such as Indeed or LinkedIn for the specific roles that you want to land, and confirm that CFA is listed as a desired qualification.

^{Sample Hedge Fund Analyst Posting on Indeed}

3) Network! Ask around your firm to see if they recommend that you take the CFA – if so, the firm will more often than not reimburse you for the CFA exam feeds and/or the membership dues.

CFA Designation: Examples of High-Relevance Industries

The CFA is the gold standard qualification for traditional asset managers. Investment professionals (i.e. research analysts and portfolio managers) focused on long-only equities and fixed income, as well as asset allocation and manager selection often hold the CFA designation.

Non-investment staff at asset managers, such as distribution, risk, and operations professionals, are also often encouraged to pursue the CFA. The CFA may be particularly useful if they have expressed interest in transitioning from the back office into a front office investment role.

Beyond asset management, the CFA is highly valued at consulting / valuation firms, certain departments in banks (e.g. equity research, risk), certain corporate functions, and most functions that touch the public markets.

^{2019 CFA Survey – Respondent Organization Type (Source: CFA Institute)}

CFA Designation: Examples of Low-Relevance Industries

The CFA is far less common to see among traditional investment banking to private equity professionals.

This is for a variety of reasons:

1. Investment bankers (especially 1st / 2nd-year analysts) and PE associates work intense hours and simply have insufficient time to prepare for the CFA
2. Most senior professionals at these firms have MBAs and encourage business school over the CFA, which is understandable given the relationship-driven and execution-focused nature of these roles

However, one exception to this rule would be professionals that cover the asset management industry, as well as non-direct investment professionals at PE firms.

The time-consuming, self-study nature of the CFA program is what makes it challenging and not for everyone.

The CFA program makes the most sense for asset management professionals and roles related to investing in the public markets.

If you are working in a highly-demanding job such as investment banking, you will have to be willing to give up nights and weekends for an extended period.

The CFA exams are intense so it is critical to be strategic and think about the cost-benefit when making the decision to sign up.

Question 2: “Given your current schedule, can you handle the time commitment to adequately prepare?”

First, your schedule should be predictable and allow you to have sufficient time to study consistently.

Understand that preparation for the CFA has the potential to negatively impact your performance on the job.

So, if your main priority is your current role, it may not be the right decision for you to knowingly increase your workload.

As such, a CFA may not be feasible or preferable, and going back to school for an MBA would be the better option.

One group that should have adequate time to prep for the CFA is college seniors. In fact, 23% of CFA test-takers in 2019 were students.

Participating in the CFA program during college demonstrates dedication to the field of finance and provides a base of knowledge that may be useful for recruiting or starting a new job.

^{Employment Status of CFA Test-Takers (Source: CFA 2019 Survey Report)}

In addition, it is recommended to take the CFA earlier in your career, rather than later, as there may be more time available to study and the benefits to your career can accrue over a longer period.

For the costs associated with taking the CFA exam, the total cost typically ranges between $2,500 and $3,500 to register for and take the CFA exams, depending on timing and the need to retake any levels.

Charterholders must also pay annual dues of $400 to the CFA Institute and their local society.

Nevertheless, the CFA is a bargain compared to business school tuition, which can cost up to $150,000.

Moreover, most large companies will reimburse CFA costs and also pay for additional prep materials.

Question 3: “If taken as an undergraduate student, would the CFA improve the competitive profile of a candidate?”

In terms of students taking the CFA, Level I in particular would be useful to build a base of knowledge and demonstrate an interest in the finance industry.

However, the importance of having work experience within the finance industry cannot be overstated.

As with most degrees and designations, including an MBA, the lack of relevant work experience causes a decline in value and the benefit to ones’ candidacy becomes marginal.

Put another way, the CFA cannot be used as a replacement for legitimate work experience with a high degree of relevance to the role that you are interviewing for.

Given the competitiveness of interviewing for front-office positions in finance, mundane work experience is insufficient (even if considered to be part of the financial services industry).

For example, a candidate with internship and real-work experience directly applicable to the role being interviewed for could have an edge over another candidate that holds the CFA designation but only has work experience in an otherwise unrelated field in finance.

In addition, the CFA should not be viewed as a “placeholder” for having the practical skills used on-the-job, nor should one neglect the technical knowledge required to stand out in interviews.

How is the CFA Exam Administered? (Post-COVID)

In August 2020, there were many notable changes announced regarding how the CFA exams will be administered for the time being.

The CFA exams will no longer be paper-based and instead will switch to computer-based starting in 2021.

This means no more crowding into the Javits Center in New York City or ExCeL in London and having one shot in June to make months of studying worth it.

^{Pre-COVID CFA Testing Environment (Source: Bloomberg)}

Candidates will now be able to take Computer-Based Exams with a broader choice of testing centers and exam dates. Level I candidates will have four windows to take the exam (previously single-day testing in June and December).

Level II and III candidates will have two windows (previously single-day testing only in June). There are still strict rules on when candidates can take or retake each exam, but the changes should be welcomed by new candidates as they increase flexibility and can potentially shorten the CFA journey to less than two years (for those inclined to put in the hours).

Once you decide to move forward with becoming a CFA charterholder, it is important to understand the changes to the exams and budget the 300+ hours needed to prepare for each level.

What is the Format of the CFA Exam?

The new computer-based format shortens the CFA exams to 4.5 hours each, but the curriculum and question types remain the same. There are 3 types of questions: standalone multiple-choice questions, item sets (vignettes) of multiple-choice questions, and essay questions:

• Level I: 180 standalone multiple-choice questions spread over 4.5 hours
• Level II: Item sets of multiple-choice questions spread over 4.5 hours
• Level III: Item sets of multiple-choice questions and essays spread over 4.5 hours

Candidates have an average of 90 seconds for each multiple-choice question, so time management is a critical part of passing the CFA.

The topics tested vary by level and the typical weights are shown below, along with a description of each topic area:

^{CFA Tested Topics (Source: CFA Institute)}

What Topics are Tested on CFA Exams?

• Ethical and Professional Standards: ethics, related challenges to ethical behavior, and the role of ethics and professionalism play in the investment industry
• Quantitative Methods: quantitative concepts and techniques used in financial analysis and investment decision making, such as statistics and probability theory
• Economics: fundamental concepts of supply and demand, market structures, macroeconomics, and the business cycle
• Financial Reporting and Analysis: financial reporting procedures and the standards that govern financial reporting disclosures, including the basic financial statements and accounting methods
• Corporate Finance: corporate governance as well as evaluating investing and financing decisions
• Equity Investments: an overview of equity investments, security markets, and indexes, as well as valuation methods
• Fixed Income: fixed income securities and their markets, yield measures, risk factors, and valuation measurements and drivers
• Derivatives: an overview of basic derivatives and derivative markets, as well as the valuation of forward commitments and the concept of arbitrage
• Alternative Investments: an overview of alternative asset classes, including hedge funds, private equity, real estate, commodities, and infrastructure
• Portfolio Management and Wealth Planning: fundamentals of portfolio and risk management, including return and risk measurement and portfolio planning and construction for both individual and institutional investors

Who are the Top CFA Exam Prep Training Providers (2023)?

As part of your registration, the CFA Institute provides a full textbook-like curriculum, practice questions and mock exams to help you prepare.

Although the CFA curriculum is quite broad, it does not cover the management training and soft skills that MBA programs teach. In addition, all calculations are done by hand or on a financial calculator, and the curriculum does not cover the Financial Modeling Skills required on the job.

In addition, extra support such as study guides, additional mock exams, and classroom instruction is available from a variety of exam prep providers.

While attempting to pass the CFA exams using only CFA Institute materials is possible, most candidates (and the recommended approach) choose to supplement their preparation with third-party materials.

Below we list the most well-known CFA training providers, which all offer a self-study program with some combination of videos, printed materials, practice exams and question banks, and all fall roughly in the $300-$500 ballpark depending on how many bells and whistles you want.

Note: Most CFA training providers also offer in-person training options, which were not included in the table above.