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The world of finance encompasses many specialties, job titles, functions, and practices related to money and investment. You'll often see a financial professional with one or more abbreviations following their name. This indicates they have completed additional training and specialization in specific areas of finance.
One of the highest distinctions among those who work within the investment industry is the CFA. Here is a closer look at what a CFA is and how one earns this designation.
CFA stands for Chartered Financial Analyst. It indicates that someone has earned a CFA charter from the CFA Institute, a nonprofit organization that aims to advance ethics, market integrity, and professional standards for investment management practitioners. CFA charterholders have completed the full CFA program, which includes meeting educational requirements, passing three exams, and gaining a set number of hours of work experience.
"Many in the financial services industry consider it to be the investment profession's most rigorous and esteemed credential, as it relates to investment valuation and portfolio construction," says Christopher Sorrow, vice president and CFA charterholder with Probity Advisors. "The designation signifies that the individual has successfully passed the academic curriculum and experience requirements that the CFA Institute has designed to illustrate investment management and finance proficiency."
A CFA charterholder is qualified to work in a range of senior and executive jobs in the investment industry. Professionals holding this designation help businesses and clients make investment decisions and trade securities. Common jobs where having a CFA charter provides an advantage include:
Those who pursue a CFA designation often already manage portfolios or wealth, research and analyze investments, make decisions regarding investments, or are finance students intent on moving into the investment field.
Pay for CFA charterholders varies based on region, type of job, and compensation incentives, such as bonuses. The CFA Institute lists the base salary for a portfolio manager with a CFA charter at around $126,000 and total compensation at $177,000, based on a 2019 self-reported survey.
There are several steps to earning a CFA charter. The first is meeting one of the following prerequisites for enrolling in the program:
Next, you'll have to pass three exams that are broken down into three separate levels and must be completed in sequence. To pass these exams, expect to complete more than 900 hours of self study of topics within 10 areas of investment and finance. Your scores will not expire, so you can plan out when you take each test to coincide with when you feel most prepared to pass.
The exams are notorious for their rigor.
"Overall, the CFA examinations are difficult," says Samuel Gottlieb, CFA and CFA senior content specialist with UWorld. "But candidates who study for more than 300 hours, use alternate prep resources, answer as many practice questions as possible, and create a systematic study strategy can improve their chances of passing."
Third, you will have to complete a minimum of 4,000 hours of qualified work experience. This can be attained before, during, or after your participation in the CFA program. Then, you'll need to apply for a CFA Institute membership, which will include providing letters of reference.
Once you've completed all of these steps, you can apply to become a CFA charterholder. Here's a closer look at each of these steps.
The CFA program provides a full curriculum to help candidates prepare for and pass three comprehensive exams: Level I, Level II, and Level III. Topic areas include:
The Level I exam is given over two sessions of 2.25 hours each. There are 180 multiple choice questions covering most of the topics above. Each topic area carries a different weight for scoring, and you'll only get a total score for completing the exam after both sessions are complete.
The Level II exam is also broken into two sessions, both 2.2 hours each. There are 88 total questions split between the two exams. While they are all multiple choice, the questions ask you to read a vignette and answer questions based on that specific information. You'll be tested on the same topics as Level I, but the questions are weighted differently.
"The highest-weighted topics for 2022 Level II with topic weights of 10 to 15 percent are: ethical and professional standards, financial statement analysis, equity investments, fixed income, and portfolio management," advises Gottlieb.
The Level III exam is markedly different from the other two. It's broken into two sessions that are each 2.2 hours long. There are 44 multiple choice questions and vignettes like with the Level II exams. But you'll also find questions that ask you to give a numerical response or provide an essay explaining your reasoning.
Results are available between 60 and 90 days of completing an exam. According to the CFA Institute, the 10-year average pass rate is between 41% and 52%, depending on which level you take.
"CFA Program exam results do not expire, and you are not required to enroll each year," Gottlieb says. "Candidates are permitted to take as much time between exams as they choose. There is no limit to the amount of time required to complete the CFA program."
Quick tip: The CFA Institute provides a comprehensive stable of resources and study support to help candidates earn a CFA charter. These include links to approved test prep courses, practice tests, readiness assessments, and study materials.
The CFA program requires candidates to complete at least 4,000 hours of qualified work experience over a minimum of 36 months. It must be directly related to the investment-decision making process or producing work that informs or adds value to the process, according to Gottlieb.
"Experience earned through full-time, part-time, or remote work arrangements—before, during, or after the applicant's participation in the CFA program—can qualify," Gottlieb says.
This kind of work experience is one of the criteria for enrolling in the CFA program, but this can be circumvented if you have the requisite education.
You will have to submit several letters of reference to qualify for a CFA charter. Plan on asking for two to three letters from professional sources who can speak to your experience and character regarding the investment decision-making process.
Jonathan Maroko, CFA and consulting CFO with Burkland, advises going with two references if one is an active regular member of the local CFA society to which you are applying and three if none of them are.
"I don't think you need to worry about having the 'most impact,' the same way you might if applying to graduate school," Maroko adds.
Note: Local CFA societies provide a range of educational, networking, and career development opportunities. Membership in them is voluntary.
To become a CFA charterholder, you're really applying to be a CFA Institute member. You will have to complete all of the steps detailed above, then apply for membership. Once approved, you will be a CFA charterholder.
Here are the costs you can expect to pay on your path to becoming a CFA:
"Candidates should also budget for miscellaneous expenses like CFA study materials, a CFA-approved calculator, travel and accommodations to reach a testing center, and potential exam retake fees if they fail a section," says Stephanie Ng, CPA, CFO, and author of "I Pass Finance Exams."
Before you get sticker shock from all these fees, remember it will take at least three years to complete all the requirements needed to qualify for a CFA charter. You can go at your own pace, so you can also spread out the costs.
Quick tip: The CFA Institute offers scholarships to enable more people to earn a CFA charter. These awards waive the program enrollment fee and reduce the cost of exam registration.
Earning the CFA designation can open up many new possibilities, giving the charterholder the ability to work in several different fields. As stated previously, these include:
Earning this designation could open the doors to job opportunities that provide higher compensation in terms of both salary and bonus. It could also enable the charterholder to take part in more sophisticated work.
Governments around the world, including 40 countries, formally recognize the CFA charter. Regulatory bodies in the U.S., U.K., and Canada, for example, recognize various requirements involved in attaining the aforementioned charter, as they can be counted toward the regulatory requirements that certain financial professionals must meet to perform specific roles in those jurisdictions.
The comprehensive training involved in studying for the CFA exams can provide a participant with a far more sophisticated knowledge of investment management. The aforementioned training is considered rigorous, and the exams are considered by many to be rather difficult, having a high failure rate.
By reviewing several subtopics involved with investment management, and obligating charterholders to abide by strict ethics, the CFA program can ensure that those who receive this designation hold high standards.
Portfolio manager is one of the positions most frequently held by CFA charterholders. However, interested parties should keep in mind that obtaining this particular position frequently requires one to secure several years' worth of experience as an analyst.
Individuals who follow this career path can eventually get promoted to positions like Chief Investment Officer or Head of Portfolio Management.
The CFA curriculum covers many different areas that can be leveraged in real-world investment analysis. Regardless of whether the individual currently works in investment management or wishes to get involved, the CFA program can help them get there.
Wealth management careers are another popular destination for those holding the CFA charter. Professionals who work in wealth management focus on helping investors who are mass affluent, high net worth or ultra high net worth individuals.
While you may be learning about the CFA designation for the first time, you might already be familiar with another widely recognized financial certification: the CERTIFIED FINANCIAL PLANNERTM, or CFP®. Those who are CFP® professionals can also be CFA charterholders although it's not a requirement.
The CFP® certification program focuses on a broad range of topics related to financial planning, advising, and management. Similarly to the CFA program, candidates are required to complete extensive coursework, pass a rigorous exam, and have thousands of hours of professional experience.
The biggest difference between a CFP® and a CFA charterholder is that the CFA program is focused on the investment area of finance, while CFP® professionals concentrate on financial planning, with investing being one component of that.
"Financial planners, wealth managers, and financial advisors are typical CFP® jobs," Gottlieb says. "While these certificates are prevalent, the CFP® is more common for a financial advisor because it is better geared to individual financial planning."
"CFAs are experts in financial analysis, with the two most popular jobs being portfolio manager and research analyst and, in addition, working with people who need assistance with investing and asset allocation."
On average, it takes individuals more than four years to complete all the requirements, although they can technically be completed in less than two years.
What makes the CFA designation stand out in the finance industry? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Obtaining the CFA requires meeting strict requirements, including passing three exams that have high failure rates and frequently require hundreds of hours' worth of studying.
Are there any prerequisites for enrolling in the CFA Program? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Interested parties must complete specific requirements involving education and/or work experience to enroll in the CFA program.
What areas of finance does the CFA curriculum cover? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
The CFA curriculum covers several areas of finance, including financial statement analysis, quantitative methods, economics, ethical and professional standards, equity investments and alternative investments.
What are the career benefits of becoming a CFA charterholder? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Obtaining a CFA charter can open up doors to new areas of specialization in finance and greater compensation. It can also help industry professionals obtain greater credibility and position themselves as experts in the field.
Robin Kavanagh is a freelance writer based in South Carolina. She has spent the last 20 years writing about personal finance, health, business and lifestyle topics for The New York Times, Yes! Magazine, Next Tribe, Parenting and various trade magazines.
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