CAIA vs. CFA: What's the Difference?

It can be difficult for finance professionals to keep up with the alphabet soup of potential professional designations, especially when many programs seem to cover much of the same information. Such is the case between the Chartered Alternative Investment Analyst (CAIA) and the Chartered Financial Analyst (CFA), two attractive options for those committed to a career in the field of financial analysis.

CFA and CAIA exams are both designed for analytical professionals, and both require passing a series of exams from a reputable organization in the industry. Most of the similarities between the two are superficial; content and future applications have less in common.

Generally speaking, the CFA covers a broader range of financial topics and has a larger membership base. The CAIA can still be a useful title for the right professional, but its application and focus are narrower.

It takes a long time and a lot of money to complete each program. The CAIA, administered by the CAIA Association requires an estimated 200 hours of study time per level for a total of 400 hours and $2,900 in standard registration and exam fees.

Specific topics for the CAIA include manager research and due-diligence techniques specific to hedge funds and private equity, asset allocation models considering the illiquidity and fat tails of alternative investments, the implications of appraisal-based pricing of real estate and private equity for asset allocation and risk management, as well as investments in areas such as intellectual property, insurance-linked securities, and equity-linked structured products. 

Data show that 75 percent of candidates who earn their CAIA charter do so in 12 to 18 months. Each test is administered twice per year, and pass rates are high for both Level 1 (63 percent in 2017) and Level 2 (59 percent).

There are no prerequisites to take the CAIA exam, although it's best to at least have a working knowledge of financial and investment concepts. After passing the Level 1 and Level 2 exams, a bachelor's degree and one year of relevant work experience—or else four years of relevant experience without a degree—are required to claim the CAIA title officially.

The CFA Institute recommends 300 hours of study per level (900 hours total) and charges $3,300 for its exams. 

The CFA test material covers much more than just alternative investments, but it devotes far less time to that topic (about 8 percent of the CFA exam). This makes the CFA broader and more shallow, whereas the CAIA is very focused and deep. Both tests cover professional standards and ethics.

CFA topics include general economics, financial reporting and analysis, corporate finance, equity investments, fixed income, portfolio management, and quantitative analysis.

CFA exams are more difficult and are spread further apart. There are three tests, Levels 1–3, and only Level 1 is administered more than once per year. The most expedient path to earning a CFA takes three years, but most take longer because of the exam difficulty. Only 43 percent of CFA test takers pass Level 1, with 47 percent passing Level 2 and 54 percent passing Level 3.

The CFA Institute is more selective about its designation. No applicant may take the Level 1 exam without a bachelor's degree, or without at least being in the final year of a bachelor program, or without having any combination of work experience and college equal to four years. Once applicants pass the Level 3 exam, they must have four full years of relevant work experience before earning the CFA title.

Very few career investment professionals would be ill-served with a CFA title next to their names. Some financial advisors and brokers can survive without it, as can certain analysts, but every analytical position can benefit from the CFA designation.

Since the CAIA covers investments that aren't equities or bonds, the title could be considered superfluous for most financial professionals. However, the CAIA does have two very specific, comfortable and lucrative homes—private equity and hedge funds—and a number of potential others. With alternative investments important in many institutional investment portfolios, the CAIA is also relevant to financial professionals who want to focus on that area at pension funds, foundations, sovereign wealth funds, and the like.