Over the years, many asked me about the CFA designation, so I discuss in this article, which can serve as a good reference to deflect future questions on the subject matter.
The Chartered Financial Analyst program is a professional certification program that is well-known in the finance industry globally. It entails passing three 4.5-hour examinations, acquiring relevant work experience and letters of reference from current CFA designation holders (also known as “Charterholders”) to be accepted into the club.
In the context of investment research, as someone who has partially gone through the program, I believe CFA is a poor use of your time, with a few exceptions.
Why CFA is not a good use of time
- CFA is about breath and theory, not depth and applicability: For example, the exam teaches you formulaically how to analyze financial statements, but it does not educate on the nuances of dealing with companies changing reporting segments or identifying shenanigans in footnotes. Frankly, many FinTwit accounts do a better job on sharing applicable skills.
- CFA is a huge time and money commitment: Per CFA website, a candidate needs at least 900 hours of studying to pass all 3 levels of the exam that costs $3,600 in fee (price just increased to $1,200 per exam from $1,000) and a $450 one-time enrollment fee. I suggest instead allocating the time and money to a good financial modeling course and great investing books.
- For those already in “front office” finance (ie. revenue generating functions such as Investment Banking or Sales and Trading), CFA adds no incremental credibility. It’s all about job performance once you are in.
- Supply of Charterholders could skyrocket in the future as the CFA Institute (the “non-profit” organization behind the CFA designation) offers the exams more frequently. It’s hard to verify, but if we know how many of them are reconciling trades instead of analyzing stocks or managing portfolios, you would know CFA is not a magic bullet to your dream job.
Some counterpoints to my view
The exam has good breath. For a non-finance professional who wants to be perceived to speak the finance language, having “CFA exam candidate” on resume can improve interview response rate (though how much incremental I am not sure).
Many investing legends have a CFA designation: To name a few (pictured above, from left to right) – Bill Gross (bond king of PIMCO), Howard Marks (legend value/distressed investor at Oaktree) and Mario Gabelli (another legend value investor). It’s a good club to be in. That said, they are famous because of the value they created for investors. I highly doubt they are respected just because they have a CFA.
Should you do the CFA?
No, if you think
- Having three letters behind your name makes you cooler - It doesn’t.
- CFA boosts your MBA application profile. No, it doesn’t help nearly as much as a higher GMAT score, or stronger professional accomplishment. CFA is also an overkill after getting an MBA.
- CFA helps you get into a hedge fund. No, the only thing that matters is: Can you make money?
- You are an outsider to finance. Passing first two levels of CFA signals that you speak the language and have the basic technical skills (the third level pertains to more portfolio management concepts, irrelevant to fundamental research work). However, once you get the interview, you need to demonstrate on-the-job competency to get the offer, which the CFA does not provide.
- You work in multi-asset roles, where the knowledge on a broad range of financial products (eg. Equity, fixed income, derivatives, etc.) is valued. I think CFA in this case provides a great foundation, but becoming a true expert requires more on-the-job training (tying back to how the CFA lacks depth and applicability.)
- You need it to be promoted. Many mutual fund companies (the long onlys) require the CFA designation to be promoted to senior analyst or portfolio manager. Rumors have it that allocators check off boxes of allocating to long only portfolio managers who have a CFA, maybe the letters correlate to better performance or better ethics? My hunch is neither. If you want to progress, do what you have to do.
The world doesn’t need more people who have three letters but cannot do the job. The world needs more people who can do the job so that they don’t need any letters.
This is particularly relevant today where so many credible investors are sharing their investment process publicly online, so no one can make an excuse of not knowing where to start on self-teaching skills. It’s not the $4,500 that hurts the most, but the 900 hours that you (and I) will never get back in life. So please think long and hard about why you are pursuing the CFA designation (or any designation or professional degree.)
If you are interested in learning more about professional equity investing (the "buy-side"), I have two other great articles for you:
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