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Seven things you should know about the CFA before you start it

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.”

Comments (24)

  1. “Before you can call yourself a CFA”. Suggest you do a little more research on what is wrong with this….

  2. @CFAPedant – I appreciate it should really be ‘before you call yourself a CFA charterholder’, but I thought I’d abbreviate it.

    Sarah, Editor, eFinancialCareers Reply
  3. CFA = waste of time.

  4. Amusingly pedant is right, this is a typical general ethics question they could pick up on at any of the 3 levels.
    Having started on the program a couple of years ago, it is not quite what I expected…there really are tricks all along the way, so you really have to understand the material. As more candidates sit the exams, they appear to be making them harder to pass? Yes, this maintains some value to holding the charter and obviously doesn’t hurt the finances at the CFA institute either.

  5. @cfa-Pedant much appreciated but people holding the CFA charter should much more worry about delivering a positive performance for their clients rather than being worried about such imo useless things.

  6. This comes back to the same old story – Companies are asking for it because they can, not because it is necessary and most of the older (and better) traders don’t have either this, an MBA or any other such qualification, a qualification that resolutely failed to prevent holders from selling things such as morgages to people who didn’t have money, structured products that really where not AAA rated and buying crap masquerading as a valuable and valued asset.

    The more finance just becomes a matter of getting a qualification the less sensible people we are going to have practicing it.

  7. CFA-Pedant is right. If you are interested by the CFA, those thinks are important. A large part of CFA “ethics” is how to use the CFA letters correctly and not at all about the standard acceptance of the term. It used even to be in a “use of academic title” section of the ethic while CFA is really not an academic title! At least they changed that…

  8. Some more things about the CFA that people may or may not know:
    8) The CFA is actually not all that difficult, particularly if you’re an ACA. There is massive overlap between a number of the topic areas and the accounting element, which is pretty large, is a doddle compared to an ICAEW financial reporting paper. (I am both an ACA and CFA Charterholder)
    9) Loads of candidates take it as proof of their “business English”
    10) Despite being straightforward the exams are time pressured so you need to be organised for the whole 6-7 hours.

  9. Perhaps the harshest part about it – nobody really cares that much until you have the letters! That means in most cases 3-4+ years where you study hard but cannot from a glance at your business card alone be better than the next guy. And nobody puts ‘passed levels 1 and 2 of the CFA examination’ on profiles. My recommendation is to start early, or the motivation may be difficult to gather later. Or to get the IMC. Having IMC after your name is also quite an achievement, I hear.

  10. I think this is a very intelligent choice in such a competitive global economy. We need such experts for crucial financial advice. It is advisable to do CFA if you have the capacity of doing so.

  11. Nick is an unusually smart individual, couldn’t agree with him more. The most successful people in life have no qualifications or possess ones that are unrelated to their field of activity. The same applies to finance. CFAs are morons who don’t see the opportunity cost of this qualification.

  12. Nick. The article is right… many senior executives don’t hold the CFA charter. In fact, the former management board of RBS – including Fred the Shred – didn’t hold a single financial qualification between them. Obviously they were very succesful–at pocketing a lot of cash for themselves–but ruined their shareholders and left taxpayers (ie. the whole country) picking up the bill for their idiocy and recklessness. The CFA charter tries to instill a prudent and disciplined approach to investment selection, which should have been in more abundance over the last few years… if you think that’s moronic, then I’d suggest you are the moron. Did you fail the exam? I sense some bitterness in your comments.

  13. Sane 2 – If Fred the Shred had held a CFA his behaviour would have been exactly the same. The CFA shows prudent investment selection methodology but as you should know, knowing somthing and actually carrying it out are two different things, moron.

    And, I am not going to attempt the CFA.

  14. I’m not looking to belittle the CFA but some people do think having a qualification is a substitute for common sense. All this spiel about instilling a sense of ethics is junk, I had the same rubbish with ACA. A training course or qualification will not markedly change your behaviour or instincts. This is demonstrated perfectly by an individual like CFApedant who despite spending years studying for this difficult qualification is still quite clearly a pedantic moron. Indeed I speculate that in his/her case the CFA may actually have exacerbated his moronic traits.

  15. I did the CFA early in my career because I thought there would always be a job for me somewhere in the investment business if I had one.

    After more than a decade of hideous markets, I have managed to stay employed and grow professionally throughout. I think that earning a CFA charter has been instrumental in creating opportunities for me and building a stury base of knowledge that has served me very well in my professional capacities.

    There is a very worthwhile payoff for those who commit to the program and follow through.

  16. “Fact” 6 has been untrue for many years.

    Folklore may say that level II is the most difficult and Level III is the easiest. And this folklore could be accurate if were talking about the CFA exams of 20 years ago, when the level I, II, and III pass rates were respectively 60%, 60% and 75%.

    But nobody that’s written the exams in the last several years would rank the difficulty of the three levels in that order. (I wrote levels I, II and III in 2008, 2009, and 2010).

    At the present, the level I, II and III pass rates hover around 40%, 40% and 50% respectively.

    Due to the weeding that happens at level I and II, the caliber of candidates writing the level III exam is much higher than the calibre of those writing the level II exam, and much much much higher than the calibre of those writing the level I exam.

    Besting 50% of level III candidates is VASTLY more challenging that beating 40% of level I candidates. Besting 50% of level III candidates is also harder than beating 40% of level II candidates.

  17. All very interesting comments….what is the main differences between CFA & IMC?

  18. I honestly don’t understand the bitterness that some people show against a qualification. I have seen it a number of times on this site with people rubishing uni degrees such as MBA or Ivy league schools and industry programs such as the CFA.

    The fact is that no program will guarantee success as both highly educated and street smart people have failed in life. Remember that Benjamin Graham was one of the founders of the CFA and its not like his teachings did not work.

  19. Whoever hires somebody on a formal qualification rather than his own judgement and common sense, will get the staff that they deserve. Have seen many examples of that happening….

  20. Good to see a mentioning of the IIMR qualification in your article – Thanks Sarah.

    The IIMR exams are much tougher than the CFA designation. The IIMR is also very relevant for portfolio management and/or investment research and is held by a lot of senior UK analysts/fund managers.

  21. The world is growing and labour markets are becoming more competitive, so while professional designations by no means guarantee success, people use them as filters out of necessity. It’s silly, but that’s just how life works. If you want to get a decent job in finance you either need connections or some kind of ‘filter’, be it your school, university, or professional designation. I work in PE and we literally get over 1000 applications for every role – of course I want to choose the guy with ‘the most common sense’ but there is no way of finding him from a pile of 1000 CV’s. I’ll pick 10 guys that went to a WISH-list business school with decent M&A experience (GS, MS) and then find the one with the most common sense among them. And if I meet you in a bar with just a university degree and I think you’re smart, I’ll also put you on the shortlist. I just don’t get out that much these days… Get it? So, depending on the industry, while CFA is arguably pretty useless in terms of practical knowledge, it definitely still has (relative) value. If you don’t believe in pretentious corporate cr*p like this, become an entrepreneur…

    ACA+CFA+topMBA Reply
  22. To the comments on ethics and code and standards. I sorta agree with the dude that was saying how a CFA doesn’t stand for good judgement in ethics. I’m taking the CFA in 4 days, and obviously have to study ethics. But the answers on the test are completely opposite to what u would really do. I mean cmon man. Heres an example problem….ur in an elevator and overheard a conversation that some firm’s earnings in ur building are lower this quarter from the CFO, you get off the elevator and according to standard II(A), Material Nonpublic Information. you are not allowed to sell ur stock. Man, cmon, what are you really gonna do, ur gonna call ur broker right away n have him sell that stuff…does the CFA Institute really expect you to look at ur account holdings the next morning drop in value because your not allowed to sell on that type of a scenario information. Ur gonna do what ur have to do, at the end of the day, all anyone really cares about is if u can afford that cruise u were planning on taking or that car for ur daughter, or that trip to italia with the wife, etc. I think its a bunch of rubbish you have to regurgitate on exam day. ….Period

  23. A lot of the content of the CFA is a good idea. However, before I take it seriously or believe that people should be forced en-mass to sacrifice their evenings and weekends on top of a 12-hr working day, I have two points to make:

    (i) Experience should always count for more than a scrap of paper. Unfortunately from speaking to a few mindless recruitment agents, not having CFA is becoming another excuse not to get pushed in interview process. Not that I’m bitter or anything but half of these guys match the ‘dots’ so if you don’t have CFA you make that process harder for them.

    (ii) Really, for the CFA to have any real intrinsic value, CFA charterholder’s investment performance should be superior to non charter-holders. If this is not the case then it risks lowering the quality of candidates in the investment arena. Back in my day great academics plus Oxbridge/Imperial etc. meant you had ‘proved yourself’ and these people are more likely to generate investment return on average in my view. Whereas you don’t have to be that bright to do CFA, you have to be a mindless drone who memorizes and regurgitates ‘facts’. CFA actually dilutes the achievements of high achievers!

  24. Don’t get me started on MBAs … :p

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