The Must Know Lowdown on the CFA Designation

Featured article by User avatar Alejandro Escamilla

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The finance industry offers its professionals endless opportunities for advancement, from accounting to wealth management. One of the ways financial professionals achieve this advancement is through specialized designations, namely, becoming a CFA. This designation is one of the most revered in the industry, and can be the key to better employment and higher earnings potential, specifically in the arenas of wealth management and investment research. While a worthy investment of time and money, this designation can be hard to achieve; only one in five people that start the CFA program make it through the exam and complete all requirements to receive their charter. If you’re considering pursuing a CFA, consider the following facets of this prestigious designation.

What does the CFA entail?

The CFA Institute, formerly known as Association for Investment Management and Research, gives out the CFA designation in 174 countries. In order to receive this distinction, and individual must complete a variety of requirements, including:

• Acquire at least 48 months of professional work experience in the finance industry.
• Commit to the CFA Institute’s Code of Ethics and Standards of Professional Conduct
• Pass three exams over the course of several years

The CFA Exam

The most intimidating aspect of pursuing a CFA designation is the exam. This exam is divided into three portions, known as Levels I, II, and III. Level I is administered just twice a year, once in June and once in December. Level II and Level III are only given once a year, both in June. According to the CFA, candidates should dedicate at least 250 hours of time to study for each level of the exam, and in general, with the combination of CFA study materials and test fees, expect to spend around $3,600 to complete all the exams. You may qualify for a CFA scholarship to help cover these costs.

Level I: The first exam contains 240 multiple choice questions that are split up between two 3-hour test sessions, first takes place in the morning, and second takes place in the afternoon. The CFA recommends candidates take no more than 90 seconds for each multiple choice question, but this can vary on individual. The questions come in two forms: complete a sentence with the correct choice, or answer a full question with the right choice. Level I tends to have the lowest passing rate, and many find they must take it multiple times before moving onto other portions of the test. CFA Level 1 study material covers ethical and professional standards, quantitative methods, financial reporting and analysis, corporate finance, and portfolio management, along with numerous other topics.

Level II: This exam is structure with 20 item set questions, involving 120 questions composed of 20 vignettes that include 6 multiple choice questions each. This is also given in two sessions, morning and afternoon. Level II largely deals with asset valuation, and asks candidates to apply tools and concepts covered in the Level exam to certain situations. This exam covers quantitative methods, financial reporting and analysis, corporate finance, equity valuation, and alternative investments, among many other things.

Level III: The third and final portion of the CFA exam consists of 10 to 15 essay questions, and candidates have six hours to complete this level. Topics included in study materials should involve behavioral finance, individual investors, and institutional investors, asset allocation, capital market expectations, risk management, portfolio management, and fixed income and equity portfolio management.

After completing all portions of the CFA exam successfully, an individual must have four years of hands-on experience in investing work. While the guidelines for this experience are broad, candidates should generally have worked with statistical or economic analysis of securities. Most candidates acquire the essential experience during their years of study for the exam.

The Benefits

CFAs are in demand; if you’re looking to work for large mutual fund companies like Fidelity Investments, you’ll be hard pressed to make your way in without this designation. Being part of the CFA institute also has its perks; you’ll receive access to local networking groups, gain entry to educational opportunities, receive exclusive investment-centric publications, and find many other resources. The Institute will also provide you with a personal website, which can make a significant difference in your networking capabilities. If you’re considering pursuing your CFA, consider the responsibilities and costs related to this endeavor, and determine if it’s the right move for your financial career.

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