What is a Chartered Financial Analyst (CFA)?
A Chartered Financial Analyst (CFA) is a globally recognized professional designation given by the CFA Institute (formerly AIMR (Association for Investment Management and Research)), which measures and certifies the competence and integrity of financial analysts. Applicants must pass three levels of exams covering areas such as accounting, economics, ethics, money management, and security analysis.
From 1963 to the first semester of 2016, 1,348,103 candidates took the Level I exam, with 209,561 candidates finally passing the Level III exam, representing a weighted average completion rate of 15.5 %. Over the past 10 years, the completion rate was just under 12.9%.
Historically, the pass rates on each exam have been less than 50%, making this series of tests one of the most difficult sets of financial certifications; a minimum of 300 hours of study is recommended for each exam.
- The CFA charter is one of the most respected designations in finance and is widely regarded as the gold standard in the field of investment analysis.
- To become a charter holder, applicants must pass three difficult exams, hold a bachelor’s degree, and have at least four years of relevant work experience. Passing the CFA program exams requires strong discipline and a large amount of study.
- Currently in 2020, there are more than 167,000 CFA charter holders worldwide in 164 countries and regions.
- The designation is awarded by the CFA Institute, which has nine offices around the world and 156 local member societies.
The Basics of Becoming a Chartered Financial Analyst
The CFA charter is one of the most respected designations in finance and is widely regarded as the gold standard in the field of investment analysis. The designation is awarded by the CFA Institute, which is a global, non-profit professional organization of more than 164,000 charterholders, portfolio managers and other financial professionals in more than 151 countries.Its declared mission is to promote and develop a high level of educational, ethical and professional standards in the investment sector.
Before becoming a CFA charter holder, a candidate must meet one of the following education requirements. The candidate must have four years of professional experience, a bachelor’s degree or be in the final year of the bachelor’s program, or a combination of professional experience and education totaling four years. For the undergraduate qualification, the bachelor’s degree program must be completed before registering for the Level II exam. In addition to the education requirement, the candidate must have an international passport, complete the assessment in English, meet the admission criteria for professional conduct, and live in a participating country.
After fulfilling the registration requirements, the candidate must successfully complete all three levels of the CFA program in sequential order. The candidate must then become a member of the CFA Institute and pay an annual membership fee. Finally, they must sign annually that they comply with the code of ethics and standards of professional conduct of the CFA Institute. Failure to comply with ethics and standards is a possible reason for revocation for life of the CFA charter.
Passing the CFA program exams requires strong discipline and a large amount of study. All three exams can be taken once a year in June, with the exception of Level I, which can also be taken in December.In 2020, the Level I, II and III exams will take place on October 20. Level I is also offered on December 5th.
While exams can be taken as many times as needed, each exam typically requires candidates to study more than 300 hours.Considering the considerable time that must be devoted to study, many applicants are dissuaded from continuing the CFA program after failing at any of the levels. To receive a charter, each candidate must pass all three exams and have four years of qualified professional experience in investment decision making.
The exams are difficult. Only 43% passed the level exam in June 2018, which is similar to previous years.Having the right plan and the discipline to follow the plan are essential skills for passing all three exams. Notably, 2018 saw a record number of applicants, according to the CFA Institute. The institute said more than 79,000 people took its Level I test in June, a 25% increase from 2017.The increase in the number of applicants came mainly from Asia. The Institute now has test centers in 43 countries around the world.
Level I exam
The CFA Level I exam is administered twice a year in June and December. It focuses on analysis using the tools of the 10 thematic areas of the candidate body of knowledge. These areas are ethical and professional standards, quantitative methods, economics, financial reporting and analysis, corporate finance, equity investments, fixed income securities, derivatives, alternative investments, asset management. portfolio and wealth planning. The exam format is 240 multiple-choice questions to be completed within six hours.The pass rate for the June 2018 Level I exam was 43%.
The 10-year weighted average CFA pass rate for level I is 40%.
Level II exam
The level II exam is only offered once a year in June. It focuses on the valuation of various assets and emphasizes the application of investment tools and concepts in contextual situations. Exam questions relating to financial reporting and analysis are generally based on International Financial Reporting Standards (IFRS). The exam format is 21 item sets (mini case studies) with six multiple choice questions for each set (120 questions in total).The pass rate for the June 2018 Level II exam was 45%.
The 10-year weighted average CFA Level II pass rate is 40%.
Level III exam
The level 3 exam is only offered once a year in June. It focuses on effective wealth planning and portfolio management by asking the candidate to synthesize all concepts and analytical methods from the entire program. The exam format consists of eight to 12 multi-part structured essay questions and ten multiple-choice questions to be completed in six hours. Handwritten responses are noted by hand.The pass rate for the June 2018 Level III exam was 56%.
The 10-year weighted average pass rate for Level III is highest at 51%.
Successful applicants take an average of four years to obtain the title.
Limits of the CFA Charter
The CFA charter is widely respected, globally recognized and a difficult undertaking to accomplish. However, it is not a guaranteed path to wealth and glory. Before taking the plunge, think carefully about several disadvantages to gain one. The CFA is not a quick fix for a struggling career. If you enroll in the program to start a lagging career, you may want to look at other reasons why your career isn’t moving forward first. Maybe before you invest a huge amount of time and money in building your pedigree, you could choose to improve your soft skills, such as work ethic and political smoothness.
Becoming a CFA is a huge investment of time – a recommended minimum of 300 hours per year over three years – or more if you fail and decide to retake an exam.You will likely sacrifice time with family and friends and the pursuit of hobbies you love. And after you’ve hired all that time, there’s no guarantee you’ll win the charter.
While the cost factor might not be a major consideration, it’s worth thinking about. A Level I candidate will pay a one-time program registration fee plus an exam registration fee. Level II and III applicants will also pay a registration fee. There is also the cost of the books and study programs that you will need to purchase. In total, you should expect to spend several thousand dollars each time you take the exams.