What is a Chartered Financial Analyst (CFA)?

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Definition:

The Chartered Financial Analyst (CFA) designation is an internationally recognized certification for investment-management professionals, indicating they’ve met requirements for financial knowledge and application of ethical and professional standards.

🤔 Understanding CFAs

The Chartered Financial Analyst (CFA) designation is an official certification for investment-management professionals like portfolio managers, investment bankers, and securities analysts. It’s an internationally recognized, prestigious credential among investment professionals, indicating they’ve met requirements for financial knowledge and application of ethical and professional standards. To gain CFA certification, which is administered by the nonprofit CFA Institute, candidates must pass three levels of exams as well as have four years of relevant professional experience. The process demands rigorous training and study; it requires at least three years to complete the CFA program - an average of more than 300 hours of study per level - and less than half of CFA candidates pass.

Example

A Chartered Financial Analyst (CFA) certification is an official credential attesting that the holder has met standards of high-quality work, academic rigor, and ethical behavior in the investment-management field. It’s analogous to credentials in other professional trades, such as the Certified Public Accountant designation in accounting. The holder is known as a CFA charterholder, and can attach the credential to their name professionally - e.g., “John Smith, CFA.” Achieving the CFA designation can help a current professional looking to advance their career in investment management, or a finance student looking to start a career in that industry.

Takeaway

The Chartered Financial Analyst (CFA) credential is like a membership in a very exclusive club…

Some clubs are very hard to get into. You may have to jump through hoops, pay some expenses, and complete some tasks. Once you get in, people know how much effort you put into it. Likewise, a CFA credential is hard to get - less than half the people in the program pass, and they spend an average of four years completing it, studying more than 300 hours for each of the three exams.

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What is a Chartered Financial Analyst (CFA)?

The Chartered Financial Analyst (CFA) designation is a professional credential for people in the investment management industry around the world. The CFA designation, issued by the nonprofit CFA Institute, is held by more than 167,000 professionals, known as CFA charterholders, as of April 2020.

To become a CFA charterholder, a CFA candidate must complete the three CFA exams - Level I, Level II, and Level III - as well as gain four years of relevant work experience. It isn’t easy: it takes an average of four years to complete all three CFA tests, in addition to the work experience. From 2010 to 2019, the average pass rate on CFA exams was only 44 percent.

What does a Chartered Financial Analyst do?

Chartered Financial Analyst (CFA) charterholders work in the investment management industry - typically investing money, or analyzing or providing advice on potential investments. They may be money managers, also known as portfolio or fund managers, who make investment decisions for an individual or organization. They may be investment analysts, researching and checking the information used to make investment decisions. They may be financial advisors who assist customers with investing and managing their money and reaching their financial goals.

How do you become a CFA charterholder?

A CFA candidate becomes a charterholder by passing the CFA exams, completing the relevant work experience, and meeting other requirements.

Pass the CFA Level I, Level II, and Level III exams

To enroll for the first CFA exam, the Level I exam, you must either have a bachelor’s degree, be close to completing one, or have four years’ full-time professional experience, not necessarily in the investment management industry.

The CFA Institute offers the Level I exam in June and December; starting in 2021, it will expand to four times a year. The Level II and III exams are given only once a year, in June. It takes an average of over 1,000 hours of study to pass all three exams.

Once you register to take an exam, the CFA Institute allows you to attempt that exam up to two times. If you don’t pass on those attempts, you must re-register to take it again.

Complete relevant work experience

To gain the CFA designation, you must complete at least 48 months of full-time work experience as an investment professional or in a related field. The CFA Institute requires that at least half of your work experience either has a direct connection to investment decision-making or contribute to that process.

Other requirements

You must apply to the CFA Institute and to your local CFA Society - there are more than 65 local societies in the United States. You must also submit two professional references - three, if none of your referrals are active members of your local CFA Society.

What is on the CFA exams?

The CFA exams help establish that an investment professional has the required level of knowledge and skills to work competently and ethically. The exams cover the CFA Institute's Candidate Body of Knowledge (CBOK), 10 topic areas covering finance, economics, investment, and professional conduct. These are the 10 areas and about how much of each exam is devoted to each area:

Topic AreaLevel ILevel IILevel III
Ethical and professional standards15%10-15%10-15%
Quantitative methods12%5-10%0%
Economics10%5-10%5-15%
Financial reporting and analysis20%15-20%0%
Corporate finance7%5-15%0%
Equity investments10%15-25%5-15%
Fixed income10%10-20%10-20%
Derivatives5%5-15%5-15%
Alternative investments4%5-10%5-15%
Portfolio management and wealth planning7%5-10%40-55%
Total100%100%100%

(Source: CFA Institute Reports)

Every year, the CFA Institute reviews the CBOK and makes necessary adjustments for the next year’s exams.

When are the CFA exam dates?

Typically, the CFA Institute offers all three exams in June, and the Level I exam again in December.

Due to the COVID-19 pandemic, the CFA Institute has postponed the June 2020 CFA exams. The organization plans to offer all three exams in December 2020.

Additionally, the CFA Institute plans to offer the Level I exam four times a year starting in 2021.

Is the CFA credential better than an MBA?

Whether you should get a CFA credential or a master’s in business administration (MBA) degree is a personal decision that depends on several factors, including your career goals and requirements from your current or prospective employer.

The CFA is often a professional requirement for senior-level positions in the investment-banking industry. If you’re seeking to advance a career in investment banking, the CFA credential may be a better option than an MBA.

What are the limitations of the CFA charter?

The investment profession is evolving significantly, because of rapid technological advances and other factors. Fintech innovations are lowering the cost of investment advice, for instance. A CFA charterholder may need to supplement their knowledge of the information offered through the CFA process with other knowledge and skills.

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Sign up for Robinhood and get your first stock on us.Certain limitations apply

The free stock offer is available to new users only, subject to the terms and conditions at rbnhd.co/freestock. Free stock chosen randomly from the program’s inventory. Securities trading is offered through Robinhood Financial LLC.

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