May 25, 2022

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Chartered Financial Analyst (CFA) Explained

A chartered financial analyst, or CFA, is someone who has completed the CFA Institute’s CFA Program, acquired the program’s experience requirements, and passed the rigorous three-part CFA exam to demonstrate expertise in investment tools, valuation, portfolio management and wealth planning.

The CFA is considered one of the hardest certifications to obtain in the financial industry. Only about 45% of candidates make it through all three exams. For financial professionals who aspire to an analytic role, you can’t do much better than a CFA charter. Investors looking for the best investment manager for their money might keep an eye out for this acronym on business cards.

While the CFA charter is known as an investment management certification, CFAs can apply their knowledge in a variety of careers. Some of the most common fields where CFA charterholders work include financial analysis and research, investment strategy and consulting, portfolio management, and risk analysis and management. CFA jobs can range from data scientists to accountants and auditors to relationship and wealth management roles to chief investment officers. You’ll find CFAs in the investment banking, financial planning, sales and trading fields.

Within their role, CFAs tend to focus on the analysis or corporate side of finance rather than working face to face with clients. A CFA is more likely to handle portfolio construction and the daily trades in an account than help a client create a holistic financial plan. That said, CFAs can also be financial planners. In fact, having your CFA may make you an even more effective financial planner because of the depth of investment knowledge provided by the training.

Since CFAs can hold such a broad range of jobs, the average salary for a CFA varies. It’s also important to note that many investment professionals earn considerable bonuses on top of a base salary. So while the median base salary for a CFA in a portfolio manager role is around $126,000 per year, the total compensation including bonuses is closer to $177,000 per year. This is considerably more than the median salary earned by financial advisors in the U.S. of $89,330.

There are four criteria to become a CFA: You must complete the CFA Program and pass the CFA exams, meet the work experience requirement, provide two to three letters of reference and apply to become a member of the CFA Institute. You will also need an international passport to sit for the exams. Most CFA applicants already have a background in finance, accounting, economics or business, but career changers or students are also welcome to take the program.

To enroll in the CFA Program, you’ll need to meet one of the following requirements:

  • Have a bachelor’s degree or equivalent degree from a college or university.
  • Be an undergraduate college student within 11 months of graduation.
  • Have a combination of 4,000 hours of work experience and/or a combination of work experience and higher education.

The CFA exams are some of the hardest exams in the financial industry. Expect to study for upward of 300 hours for each of the three exams. The exams must be taken sequentially, with each lasting about four and a half hours broken into two sessions. The average pass rates between 1963 and 2021 range from 42% on part one to 56% on part three.

To meet the work experience requirement, you’ll need to have spent at least 4,000 hours in 36 months working in an investment-management-related role. You can complete the CFA work experience requirement either before, during or after the CFA Program, but you won’t get to earn the charter until this requirement, along with the two to three professional reference letters, have been met.

The financial industry boasts an astounding number of professional certifications. The Financial Industry Regulatory Authority recognizes more than 200 professional designations. With such an alphabet soup after many professional’s names, it’s worth knowing about the most noteworthy qualifications.

Whether you’re a financial professional considering the next step in your career or an investor looking for the best professional to partner with, the CFA designation is one to consider. Someone with their CFA has demonstrated a thorough understanding of investment management and the dedication to complete one of the hardest tests in the industry.

  • Educational advancement: The CFA Program teaches advanced investment analysis and management techniques.
  • Demonstrates dedication: Completing the rigorous requirements of the CFA Program and tests demonstrates your dedication to your field.
  • Broad application: The CFA can help you advance a career in a variety of investment management roles.
  • Globally recognized: The CFA charter is a globally recognized designation.
  • Self-study: The CFA Program is a self-study course you can complete at your own pace.

  • Time consuming: To pass the CFA, you’ll need to commit about 300 hours of study time for each of the three tests.
  • Limited test availability: The three tests, which must be taken sequentially, are only offered during certain times of the year.
  • Cost: Expect to pay a one-time enrollment fee of $450, exam registration fees of $700 to $1,000 plus the costs of study materials.
  • Low pass rates: There is a good chance you may need to retake at least one of the tests, which means paying another enrollment fee and studying again because the test changes each year.

The CFA designation is provided by the CFA Institute, a global nonprofit association of investment professionals. CFA is an independent association that works to set standards for investment management professionals.

FAQs

Getting your CFA requires a lot of time and study. Whether the CFA is worth it will depend on your goals. Financial professionals who want to distinguish themselves in asset or investment management or analysis may find that the skills and authority gained by the designation can help them excel in their careers.

A CFA is more likely to focus on investment management and may work for primarily corporate clients, while a certified financial planner will concentrate on helping individual clients create holistic financial plans.

While a CFA is not necessary to have a career in investment management, it can help accelerate that career by demonstrating your knowledge and dedication. For individual investors, working with a CFA can bring the reassurance that the professional you’re partnering with has the expertise necessary to manage your portfolio. That said, it’s not necessary to work with a CFA for investment guidance.