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CFA or MBA: Which is best for a finance career?

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Both an MBA and the Chartered Financial Analyst (CFA) qualification have the potential to advance your financial services careers. There are pros and cons to each, but can one really help propel you up the career ladder?

The MBA is the traditional route into an investment banking job, particularly in the U.S., but job opportunities have been squeezed as firms cut back on hiring in recent years. The CFA charter is the gruelling badge of honour that requires 300 hours of study for each of its three levels, de rigueur in asset management, heavy on technical knowledge but keen to show its value on the sell-side.

Here’s how to decide which is right for you.

Cost versus earning potential  

The CFA is very much the cheap option – depending on when you register for the exam, it comes in at $1,000-$1,700 (the earlier you sign up, the less expensive it is). By contrast, tuition fees at top business schools come in at $65-$100k and you can easily add further a $40k on books and accommodation costs – and this is before other living expenses are factored in.

The CFA Institute doesn’t track how much its members earn currently, but societies occasionally give an indication of what to expect. Figures tracked by the Canadian CFA society suggested average earnings of around $240k in 2012, but this is across all job functions at varying levels of seniority.

In financial services average earnings for MBAs in the US were $107.5k, according to figures from QS, and $128k in Western Europe. It takes, on average, around three and a half years to get back into the black after an MBA, it says. There are always outliers, though, with research from Poets and Quants suggesting that MBAs from Columbia, Harvard and Yale were being offered over $350k as a base salary to go into a private equity role.

Career options for MBAs and CFAs

Most business schools demand between four and five years’ work experience from those they take on to their MBA programmes. The CFA is usually undertaken by people at an early stage of their career or, increasingly, according to Kate Lander, head of education for the Europe, Middle East and Africa region at CFA Institute, by undergraduates or those studying for a Masters in Finance qualification.

Below is a breakdown of the sectors where all 115,000 CFA charterholders work. It still suggests a heavy weighting towards buy-side careers, with the vast majority working in equities or fixed income and only private equity or hedge funds getting a look in elsewhere. However, the largest proportion (21%) of people studying for the CFA currently are students, just 11% work as analysts and 7% are in corporate finance.

CFA-employment

“Our figures have been composed over 52 years since the CFA launched,” says Lander. “Over the past five years, though, there’s been a growing proportion of people studying from the sell-side. We’re also finding CFA candidates are getting younger, while MBAs have remained in the older age bracket.”

Investment banking is still the most popular career choice within finance for MBAs, but the gap is closing, particularly as more firms are reluctant to bring in MBAs to their sales and trading business.Figures from the eFC database suggest that 11% of MBAs are working in investment banking, compared to 10% in asset management and 6% in private equity positions.

London Business School typically provides around 40% of MBAs recruited into investment banks in EMEA, according to Richard Bland, head of employer engagement there. Even here, the proportion of students going into the sector is shrinking – in 2010, 23% of students going into finance joined an investment bank, a figure that fell to 13% last year. Asset management, private equity and wealth management all made gains.

“The number of people being hired by the investment banks each year is in the early teens, it’s incredibly competitive and most being hired go through the formal associate programmes still,” says Bland. “Private equity firms and hedge funds only hire one or two MBAs on an ad hoc basis and it’s arguably even harder to get in.”

Demand for MBAs versus CFAs

In theory the CFA remains an exclusive club, largely on Wall Street – of the 115,000 members globally, around 72,000 are in the US. The fastest growing region is EMEA, where member numbers have grown by 10% over the past five years, but there are just 22,716 people with the qualification under their belt.

MBAs are, of course, a vocation for elite students who can afford the fees, but there are still over 100,000-150,000 enrolling in business schools in the U.S alone each year. Not all will enter finance, of course, but our own figures suggest that the CFA is still (marginally) in greater demand.

There were 24 CVs for every job asking for the CFA qualification on eFinancialCareers over the last three months, compared to 27 people with an MBA for every role requiring the qualification. However, most financial services firms only hire from the elite schools (defined as London Business School, INSEAD, Harvard, Wharton, Columbia or IESE) from which there were only six candidates for every job.

“People think an MBA will automatically open doors, but people really need to go to the best school they possibly can,” says Bland. “The good schools have the connections with employers across a range of industries and top firms are actively recruit our graduates.”

Technical know-how versus strategists

The CFA is keen to talk up the value of the ethics proponent of the course as financial services firms focus more on culture in the wake of the financial crisis. The reality is, though, that it’s highly quantitative, equipping students with the tools they need to do the job. Lander, an ex-fund manager and banker herself, says this means CFA charterholders can seamlessly move between functions within the financial sector, because the depth of knowledge acquired through the qualification allows them to do so.

By contrast, MBA programmes tend to offer a few corporate finance or fund management modules in their curriculum and instead focus on general business and management topics. This can cause issues in investment banks, with analysts resenting being managed by a newly-minted associate MBAs with little banking knowledge and poor modelling skills.

This misses the point, though, argues Bland. Investment banks don’t hire MBAs because of their technical knowledge and modelling skills: “Seeing the bigger picture about the growth prospects of a company, sector expertise, softer and broader management skills as well as the ability to build relationships are all developed during an MBA. Investment banks are increasingly asking for these over technical skills.”

The downside, however, is more limited options elsewhere in the business. Investment banks have switched their graduate recruitment for markets (sales and trading) to an undergraduate level, and only really want MBAs for advisory functions, he says.

Flexibility versus time commitment

If you wonder why so many people tend to fail the CFA at the first attempt, Lander offers  something of an explanation. The “time commitment” – 300 hours of study for each exam – is similar to that of an MBA, she suggests. But most people have to study while holding down a full-time job.

The MBA, by contrast, requires usually two years of solid commitment without any income. MBA candidates are banking on a boost to their earning potential and career prospects once they graduate, which could be considered a gamble as the number of opportunities in the financial sector have diminished in recent years.

What the CFA does have going for it, though, is flexibility: “We have a lot of candidates who do level I in the UK, level II in Asia and finish it in the U.S – they’ve travelled with their job while studying. There’s no deadline for completion and you can retake the exams if necessary – that flexibility works for a lot of people,” says Lander.

Career path versus exit options

More than ever, financial services firms are looking for knowledge of complex products, argues Lander. Candidates are starting the CFA even before they enter the financial sector because a tighter job market means employers are no longer likely to take a punt on an academically excellent candidates with little technical knowledge. Candidates are often armed with internships, undergraduate degrees, masters degrees and a CFA, she says.

The CFA provides a handy visual guide to how taking the qualification has led to some less than linear career paths for its members, who have switched from equities to tech advisory functions, or private equity back into corporate finance.

The MBA, particularly those from elite schools, offer something else – exit options. Bland says that students have to demonstrate commitment to investment banking or another part of the financial sector to be considered for a role currently, but this doesn’t mean it’s the only option. Such is the gravitas of the qualification that employers will happily swoop on MBAs during the campus recruitment schedule.

“We’ve had people who started out trying to get into investment banking or private equity, but ended up working for Shell,” he says. “An MBA offers that unrivalled diversity of career options.”


Comments (9)

Comments
  1. “We’ve had people who started out trying to get into investment banking or private equity, but ended up working for Shell,” he says.

    Translated: Students thought they can get an MBA and waltz (back?) into IB or move to PE, they failed and now have to work for Shell. After paying for fees, life expenses and losing 2y in income, bonuses and perks. “Unrivalled diversity of career options” means that you’ll be happy with any management job becouse now you’re in debt up to your eyeballs.

  2. The MBA is irrelevant for most financial services jobs. The only reason banks hire them is because associates leave for private equity.

  3. Stating that all MBA’s lose 2 years of work is a fallacy for those of us that had to work full time and finish our PMBA’s. CFA’s do mote learning and once they pass the exam, they lose much of the knowledge if you do not get your IB or PE job soon after certification, then your skills are limited in a year or 2. The CFA is designed to make the founders of the certification rich and for the hiring managers that hirer them to justify their own choices of paying thousands of dollars to take an exam that any of the information covered can now be found on the internet within seconds. Any type of financial technical skill can be learned through the various resources online for free. It is purely elitism. The MBA at my uni was $65k + and digging out of that debt has taken much longer than 3 years. A CFA is a cheaper alternative with just as much weight as a MBA with a focus on advanced fixed income as the one I took, so take the CFA. Good luck getting a CFA to sponsor you though if you do not have the contacts to get a job in IB or PE. It is a dying breed and the layoffs are horrendous.

  4. Nice comment MBA2xpensive. As mr Miyagi’ve said in karate kid movie you cannot learn karate from book and same goes for finance. CFA nor MBA won’t make you expert it is just inflated ticket to get your ass in finance industry, once you there its up to your talent and commitment, luck and several other factors to make good buck.

  5. meh. if you can get in a hbs, Wharton or booth tier business school do it. it’s not that expensive and you’ll make the tuition back in less than a year.

  6. would not say so. value of each is dependent on time, site and chance. it can not be rationally estimated its further opportunities..

  7. Definitely go to grad school. The CFA exam is curved. A lot of those candidates, including the ~60% of candidates who do not pass, retake the exam. Some say the minimum passing score is re-calibrated to generate future revenue. Others call it a glorified pyramid scheme. Depends who you ask. CFA means you most likely failed twice and spent so much time studying you decided to take the exam again and again. You definitely learn a lot…

    According to the CFA Institute, approximately 25% of candidates are not admitted to the exam on exam day by 3rd-party minimally trained proctors (hired by CFA). And no refunds (~$1600/exam + approx 300 hours of study).

    This does not include the people accused of cheating during the exam. The exam is not recorded or monitored in any way other than sketchy part-time proctors who barely speak English. If you’re suspected of cheating or “give the appearance of cheating”, you’re SOL. There are more CFA horror stories than successes.

  8. Definitely go to grad school. The CFA exam is curved. A lot of those candidates, including the ~60% of candidates who do not pass, retake the exam. Some say the minimum passing score is re-calibrated to generate future revenue. Others call it a glorified pyramid scheme. Depends who you ask. CFA means you most likely failed twice and spent so much time studying you decided to take the exam again and again. You definitely learn a lot…

    According to the CFA Institute, approximately 25% of candidates are not admitted to the exam on exam day by 3rd-party minimally trained proctors (hired by CFA). And no refunds (~$1600/exam + approx 300 hours of study).

    This does not include the people accused of cheating during the exam. The exam is not recorded or monitored in any way other than sketchy part-time proctors who barely speak English. If you’re suspected of cheating or “give the appearance of cheating”, you’re SOL. There are more CFA horror stories than successes.

  9. 24 CVs for every job asking for the CFA qualification on e-Financial Careers over the last three months, compared to 27 people with an MBA for every role requiring the qualification. However, most financial services firms only hire from the elite schools (defined as London Business School, INSEAD, Harvard, Wharton, Columbia or IESE) from which there were only six candidates for every job.

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