The CFA exams are the world’s favourite financial services qualifications. This year, 139,900 candidates globally enrolled for the June sittings.
Given its inordinate popularity, you might think you know everything there is to be known about the CFA Institute, its exams, and the CFA Charter. Maybe.
However, there are some less publicised facets of the CFA which it would do good to familiarise yourself with.
They are as follows:
1) Even if you pass all three levels of the CFA exam, you can’t necessarily become a ‘charterholder’
In order to become a bona fide charterholder and put the letters CFA after your name, you’ll also have to meet the work experience criteria.
The work experience criteria say that you have to have at least four years’ relevant work experience which is, ‘directly involved in the investment decision-making process and engaged in responsibilities and/or producing a work product that informs or adds value to that process.’
Internships don’t count. Nor does investing your own money.
“There are thousands of charters sitting in Charlottesville which have never been claimed because their owners don’t have the requisite
experience to apply for membership,” says Nicola Ralston, a former Governor of the CFA Institute.
2) Even if you pass all three levels of the CFA exam and satisfy the experience requirements, you still won’t be able to automatically put CFA after your name
Before you can call yourself a CFA, you’ll also need to pay up to become a member of the CFA Institute. Annual membership fees are currently $425. These are usually paid by employers and are therefore no big deal. However, paying the fees can be an issue during times of unemployment.
“If you want the letters after your name, you have to pay,” says one charterholder. “I’ve got friends in India who can’t afford it.”
3) You don’t actually have to do the CFA exams to become a member of the CFA Institute
If your main purpose in passing the CFA exams is networking with CFA holders, there’s a shortcut. The CFA Institute offers affiliate membership to anyone who’s been working for more than a year, has two qualified sponsors, signs up to the ethics code, and pays the fees.
4) Not that many senior people in the UK are CFA charterholders
The CFA Society of the UK was only formed in 2000. Prior to that, UK portfolio managers passed exams run by the UK Institute of Investment Management and Research.
Following the merger, people who’d passed UK IIMR exams were allowed to become members of the CFA Institute, but they weren’t allowed to call themselves CFA charterholders.
For this reason, there aren’t all that many people in the UK who’ve been working for more than 10 years and have a CFA charter. The charter is particularly rare amongst equity researchers. “Doesn’t that stand for, ‘Can’t fail at all?,” says one, jokingly.
5) In future it will be far more necessary to have a CFA to get ahead
Even if not many senior people in London have a CFA charter, a large proportion of junior people in equity research and portfolio management now study for one. “We use it as a proxy for an inhouse training scheme,” says one senior analyst.
The effect of this is likely to be self-perpetuating. People with CFAs will hire other people with CFAs, ad infinitum.
6) Level II is supposed to be hardest; Level III is supposed to be easiest
Folklore has it that CFA Level II is by far the most difficult and CFA Level III is by far the most easy.
This is partially borne out by recent pass rates. In 2010, the pass rates for Level I were 42%; for Level II they were 39% and for Level III they were 46%.
However, the CFA Institute denies that this is typical. It says the pass rate for Level II is generally higher because candidates are, “more prepared and focused on succeeding.”
They draw attention to this pdf, which shows that, on average, more people pass II than I. Even more people pass III than II, however.
7) No one has got the faintest idea about the pass rate
The pass rate for CFA exams is calculated using an arcane process known only to a few select CFA Institute Insiders.
“It is important to keep in mind that exam pass rates are based on a standard-setting process that considers what a qualified candidate needs to know to practice in the current environment, rather than a set passing score or rate,” says Tom Robinson, managing director of education for CFA Institute, cryptically.
“No one knows what you need to do to pass,” says one charterholder. “The general understanding seems to be that you need to score at least 70%, but most people seem to end up in a borderline situation.”