So, You Want to Earn Your CFA?

It's pretty easy to bump into someone in the financial profession who is really excited about entering the chartered financial analyst (CFA) program. Sometimes they know what they are getting into, sometimes they don't. They may have no idea how much time it takes or exactly how having the charter may help or hurt them.

Make no mistake—earning the CFA designation is a grueling process, so before you commit, consider what it takes to earn it, how it will benefit you and your career, the negatives of going through the process, and whether the pros outweigh the cons.

The CFA Institute requires three steps to become a CFA. They include:

1. Pass all three levels of the CFA exam in succession
2. Acquire 48 months of "acceptable professional work experience"
3. Join the CFA Institute, which includes completing a professional conduct statement and becoming an affiliate of a local chapter. 

For many people, the most difficult part of earning a charter is fulfilling the educational requirements. The CFA program consists of three exams encompassing a "candidate body of knowledge" (CBOK) that the CFA Institute believes is necessary for those in the investment profession. 

The test for level I is given in December and June, while the exams for levels II and III are given only once a year in June. Candidates must pass each level before moving on to the next.

Pass rates tend to hover around half. In 2018, pass rates were 43 percent for the June Level I exam, and 45 percent for the December Level I. Pass rates were also at 45 percent for Level II. Of those who took the Level III exam, 56 percent passed.

The investment of time is crucial. The CFA Institute estimates the average candidate should expect to spend at least 300 hours preparing for each level. In fact, the average candidate spends an average of 322 hours preparing for each exam (304 hours for level I; 329 hours for level II; 334 hours for level III). 

Once you've considered the time required to pass the levels, you must next look at the professional requirements needed. Before a candidate can become a CFA, they must have accrued 48 months of acceptable work experience. Fortunately, the CFA Institute's definition of acceptable experience is fairly broad, encompassing such areas as trading, economics and corporate finance. For work experience to qualify, at least 50 percent of the time must be directly involved in the investment decision-making process or producing a product that impacts that process. However, there are a number of candidates who enter the program and are not in fields where anything they do can be construed to be within the realm of acceptable experience. Some of these candidates may find that while they are able to pass the educational requirements, they will not receive the designation because they do not have the required professional experience.

Finally, before candidates can receive their charters, they must join the CFA Institute. If you need help, the CFA Institute's website explains the process in detail.

To help you decide whether to pursue the charter, let's take a look at how it might be beneficial to you and your career.

First, there is the educational benefit; you will learn a great deal and add a great credential to your CV. Then, there is the boost to your reputation. People in the business know the time and dedication it takes to earn the charter. When they see you have earned it, they will likely believe you have the ability, dedication, ethical grounding and analytical skills necessary to do the job in question.

There also may be financial benefits. You may see your salary increase after you've become a CFA or you may surpass other applicants who don't have this designation when competing for a new job.The operative word here is "may." Hard work, skill, luck, dedication, political savvy and character have just as much to do with one's success in the investment profession as education, so don't view the charter as your golden ticket to financial paradise.

There are a number of financial fields in which having the charter is a substantial plus. The obvious one is investment management. As the investment industry continues to become more competitive and more commoditized, it will become almost imperative for any credible investment manager to earn the charter.

Outside of investment management, there are a number of other professions in which charter holders will benefit considerably:

1. Buy-side trader or other buy-side professional positions
2. Sell-side analyst, associate or other sell-side professional positions
3. Business school professor
4. Economist
5. Financial advisor or financial planner

Beyond this list, there are a number of professions in which having the CFA Charter helps, but where it is not a career roadblock if the financial professional does not have it.

The CFA charter is not a guaranteed path to riches and glory. Before taking the plunge, carefully consider several drawbacks to earning one.

Becoming a CFA is a huge investment in time - a minimum of 250 hours per year over three years. You will sacrifice time with family and friends and the pursuit of hobbies you enjoy. And after committing all that time, there is no guarantee that you will earn the charter.

While this factor may not be a major consideration, it is worth pondering. A level I candidate will pay a one-time program enrollment fee plus an exam registration fee. Level II and III candidates will pay a registration fee as well. There is also the cost of the books and study programs you'll have to buy. All together, you should expect to spend several thousand dollars each time you attempt the exams.

The CFA is not a panacea for an ailing career. If you're enrolling in the program to jump-start a stalling career, you may want to look at other reasons your career is not moving forward first. Perhaps before investing inordinate amounts of time and a substantial amount of money into building your pedigree, you might choose to improve your soft skills, such as work ethic and political suaveness.

A variation of the good old-fashioned cost-benefit analysis may be the best way to decide whether or not to undertake the program. On paper, plot out the costs versus the benefits of becoming a CFA. Your decision may change as your career changes. A lost promotion in five years may make earning the designation more worthwhile.