Should Financial Advisors Pursue the CFA?

The Chartered Financial Analyst (CFA) designation is one of the most respected and sought-after designations in the finance and investment worlds.

What Is the CFA Designation?

The CFA designation is awarded by the CFA Institute to candidates who pass a set of rigorous exams and meet other specific requirements. The program gives candidates and CFA charterholders a strong foundation of advanced investment analysis and portfolio management skills. The emphasis is on real-world application and not academic theory. It is considered by many to be the top investment management designation available.

The CFA designation curriculum includes 10 major topic areas. Overall, candidates are required to learn the analysis tools, apply the tools and concepts to value a variety of investment securities, and synthesize the entire curriculum, enabling them to use it in real-life portfolio management and wealth planning situations. The topic areas are: ethical and professional standards, quantitative methods, economics, financial reporting and analysis, corporate finance, equity investments, fixed income, derivatives, alternative investments, and portfolio management and wealth planning.

Pass Rate and Testing Requirements

To earn the CFA designation, a candidate must first pass three levels of exams in sequential order. The first exam is administered twice a year, once in June and once in December. The other two levels are administered only one day per year in June. The 10-year historical pass rate for the level-one exam is 43% and the 10-year historical pass rate for the level-two exam is 45%. The 10-year historical pass rate for the level-three exam is 56%. When looking at these pass rates, it is important to note that all candidates taking the level-three exam have already passed levels one and two. Beyond passing the three exams, a candidate must have at least 36 months of qualified work experience, become a member of the CFA Institute and pay annual dues, and sign off annually on the CFA Institute code of ethics and standards of professional conduct.

CFA Designation Pros and Cons

Earning the CFA designation undoubtedly increases a candidate’s knowledge of investments. If a financial advisor is employed in a larger organization such as a bank or other financial institution, earning the CFA designation can bring career advancement opportunities, as the candidate becomes more valuable to the organization. Considering that it takes approximately 300 hours of study per level, and about four years to obtain the designation, if an employed financial advisor has the time to complete the designation, there are almost no drawbacks. The candidates’ personal investment knowledge skyrockets and this translates to better, more efficient solutions for their employers.

If the financial advisor is self-employed and building a practice outside of an organization, then a more critical analysis of the decision must be made. The designation will certainly increase the advisor’s knowledge, but there is a large opportunity cost in terms of time. That time may be much better spent prospecting for clients, building the business and making operations more efficient. Plus, it is important to keep in mind that the CFA designation is solely focused on investments. Successful financial advisors are proficient in much more than investments. They are masters of insurance planning, risk management, investments, tax planning, estate planning, retirement planning and employee benefits planning.

While the CFA is the best designation to pursue in terms of investment knowledge, it certainly does not cover all of the aspects of financial planning. In very general terms, however, the CFA designation may help those in the corporate world more than those starting their own financial planning business.