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The financial and investment industries are chock full of acronyms – for the investment products, professionals who work in the industry, regulatory bodies – the list goes on and on. But it’s vital to understand the specific accreditations and titles that certain financial professionals hold, like the Chartered Financial Analyst® (CFA®) designation. These titles provide valuable clues to the training and specific areas of expertise. Let’s look deeper into the Chartered Financial Analyst® designation.
What Is a Chartered Financial Analyst?
A Chartered Financial Analyst® – also known as a CFA® charterholder, is a financial expert studying, reviewing, and implementing investment products. The CFA Institute is a for-profit organization that manages and bestows the CFA® designation to those who meet all the requirements and pass three rigorous examinations. Chartered Financial Analysts® are held to high fiduciary, ethical, and professional standards in the financial industry. They are certified professionals with (usually) years of experience, sharp financial acumen, and subject-matter expertise.
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What Does a CFA® Charterholder Do?
A Chartered Financial Analyst® specializes in managing portfolios of investment securities like stocks, bonds, mutual funds, commodities, and derivatives. CFA® Charterholders are highly educated in portfolio management’s mathematical and computational aspects and well-versed in macroeconomics and sector, industry, and company-specific investment analysis. Moreover, some work in corporate finance, investment banking, consulting, and accounting. This isn’t an all-inclusive list, but the CFA® designation opens up many doors in the world of finance and business.
CFA charterholders absorb information across all financial markets to make the best risk/reward-based decisions possible for the portfolios they manage. They meet with clients to discuss the goals and return (performance) profiles of the assets the CFA® charterholders manages or advises upon.
What Is the Difference Between a CFA® Charterholder and CFP?
There are some similarities between the Certified Financial Planner (CFP) designation and the Chartered Financial Analyst®. Both financial professionals take on immense training and preparation, and both are held to the highest fiduciary standards when working on behalf of others.
Chartered Financial Analysts® are administered and monitored by the CFA Institute, while CFPs are administered and monitored by the CFP Board. Certified Financial Planners will focus on financial planning strategies in the face of their clients’ diverse investment, tax, retirement, and life goals. CFA® charterholders will focus mostly on investment choices, asset allocations, and portfolio management strategies. Certified Financial Planners do more work in the “front of the kitchen” with clients, while CFA® charterholders do more work behind the scenes. That said, you will still meet with clients routinely to talk about portfolio performance, asset allocation, goals, etc.
How Much Does the CFA® Exam Cost?
Obtaining a CFA® designation takes a couple of years to achieve, as the three exams (Level I, Level II, and Level III) are spaced out to only be offered every six months. And if someone doesn’t pass any level of the exam, they’ll have to go back, increase their studying, and take that part of the exam again.
There are several costs to consider that make up the overall cost of obtaining a CFA® designation. Each exam has a registration fee of between $700 – and $1200, depending on how early the registration is done in advance. At the outset, there is an initial CFA® enrollment fee of $450 (which will be reduced to $350 beginning in February 2023).
In addition to the exam registration costs themselves, CFA® test-takers will also need to buy a specific financial calculator that will run between $30-and $100. The CFA Institute, the group that administers the exams and the designations, also sells test curriculum books for each level that cost around $300 (add on $100 for physical copies). And there is a multitude of 3rd party test preparation companies that offer study materials for each of the three exams, costing anywhere from $500-$1500 per exam.
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Should You Pursue the CFA® Designation?
If you’re pursuing a career in finance, going for a CFA® designation can be a very smart move. The path is rigorous; most people in the industry would agree that the CFA® designation is the toughest designation to earn. Becoming a CFA® charterholder requires a deep knowledge base covering economics, financial markets, and every asset class under the sun. And it also requires an ongoing commitment to study new trends, topics, and investment strategies.
Whether a CFA® designation is right for you depends on what kind of work you want to do in the industry? Do you love studying financial markets every day? Do you like working on teams and interacting with clients? What about understanding portfolio asset allocation and correlation? This is what occupies most of a day for a CFA® charterholder. If you choose the path of the CFA® charter, it will take several years and a big-time commitment to get there, but the compensation packages for the average CFA® are well worth it for those who earn the title. Currently, the median compensation is $200,000 for CFA® charterholders in the United States.
How to Earn a CFA® Designation
To earn a CFA® designation, you’ll need to prepare for and take three exams, as well as meet their initial criteria of:
- Achieve qualified work experience in the financial industry. This work needs to be either directly related to investment analysis or produce work that adds value to investment management. This work can be done while taking the exams and waiting for the next step in the exam process.
- Candidates must have at least 4,000 hours of (relevant) work experience, completed in a minimum of 36 months. Qualified hours must be related to the investment decision-making process.
- Provide 2-3 professional reference letters to the CFA Institute on your behalf that speak to your professionalism and personal character.
- A Bachelor’s Degree is required.
- Hold an international passport.
Level I Exam
The CFA® Level I Exam consists of two sessions, each lasting 2 hours and 15 minutes, with an optional break between the two sessions. Each session contains 90 multiple choice questions, covering investment tools and analysis topics, and professional and ethical standards. Generally, candidates should be scoring more than 70% on practice examinations before walking into the real exam. Only 15% of candidates who take the Level I examination become CFA® Charterholders. This metric isn’t to scare you, but to remind you that the examination will require discipline and hard work.
Level II Exam
The CFA® Level II Exam consists of 88 multiple-choice questions administered over 4 hours with a break in between. The test format includes vignettes that describe certain investment, mathematical, and economic concepts. 4-6 multiple choice questions follow each vignette.
Again, successful candidates traditionally score a 70% or better on practice examinations before they sit for Level II of the CFA® exam. The Level II Exam is demonstrably more difficult and rigorous than Level I, requiring test-takers to grasp various economic, asset class, valuation, security, and portfolio management topics.
Level III Exam
The CFA® Level III Exam incorporates all the collated knowledge required in the first two exams to test applicants on wealth management and advanced portfolio management strategies, including derivatives and alternative assets.
The test is given in two parts during a full day, with some of the answers being provided in essay form. It is important to note, that there is a strong focus on ethical and professional standards throughout the entire CFA® examination process.
How Long Does it Take to Become a CFA® Charterholder?
Most Chartered Financial Analysts® take between 3-5 years to pass all three exams and earn the designation once they initially enroll. The fastest it could be done is 48 months due to the 48 months of relevant work experience required for the CFA® and because each exam is only offered once every six months. Given the upfront cost of about $5,000 for a median compensation package of $200,000, the CFA® designation is worth it. More importantly, it will open up more doors and will teach you sought-after valuable skills.
Also, keep in mind that the study and preparation time are immense – most test-takers who passed on their first try reported spending over 300 hours studying and preparing for each exam.
Is the CFA® Exam Worth It?
It’s worth asking whether the CFA® exams are worth the cost when there is some heavy expense involved in enrolling, taking the exams, and purchasing curriculum books or study preparation materials. But salary statistics indicate that the cost is worth it for people committed to the financial industry as a career path.
If we look at people with similar lengths of work experience, CFA® Charterholders earn about 50% more than people in the same positions who have not passed the three CFA® exams.
Is it Safe to Use a Chartered Financial Analyst?
Yes! A Chartered Financial Analyst® is held to the highest ethical and fiduciary standards and is bound by law to act in your best financial interests. They are safe to use and to share your sensitive personal information with.
Who Should Use a Chartered Financial Analyst?
People with larger investment portfolios and diversified holdings would be best suited to working with a Chartered Financial Analyst®. Younger investors – or those with smaller investment holdings – might be best suited to just having a one-time consultation with a CFA® charterholder, then purchasing some index market funds to grow portfolio assets.
Bottom Line: What Is a Chartered Financial Analyst (CFA®)?
A CFA® charterholder is a professional financial expert at selecting securities and assets for inclusion in a diversified portfolio to provide their clients with long-term income generation and strong returns. It is a rigorous, but rewarding exam that will propel your career endeavors.