CFA squeezes the costly MBA
Qualifying as an MBA is costly. Top schools charge as much as 40,000 (€63,000) in fees, to which must be added living expenses and the opportunity cost of up to two years' lost remuneration.
There was a time when investment banks made this sacrifice worthwhile; in 2000 Donaldson, Lufkin & Jenrette was offering some MBAs $700,000 a year (€700,000) within two years of graduation.
In the current market, however, spending money on the MBA qualification is more difficult to justify. Tough conditions mean that some European banks are not recruiting MBAs in Europe in 2002.
The big US banks that hire the bulk of MBAs into investment banking have cut numbers by as much as a third, according to an HR executive. Suddenly only MBAs with previous banking experience are said to look attractive. "Interest in MBAs is slackening," says the head of recruitment at one US investment bank. As a result, even students at top schools are finding it hard to make the move into investment banking.
Chris Bristow, head of the careers centre at the London Business School (LBS), says MBA students are "concerned and disappointed" at the lack of opportunities in the industry. Many are considering alternative careers as a result.
Current difficulties are perhaps inevitable with the investment banking industry in the middle of a severe downturn. But the MBA qualification may also be overrated during the good times.
An article in the Academy of Management journal cites a US study of the employees of one investment bank.
The study, undertaken in 2001, found the qualification did nothing to boost earning power, though other studies have found that MBAs increase their earnings substantially after graduation.
If an MBA might not improve career prospects, what are the alternatives? One answer may be the Chartered Financial Analyst (CFA) exams. Unlike most MBA courses, which focus on general management techniques, the CFA is a specialist financial qualification.
Its popularity has soared in recent years. Global CFA candidate numbers rose from 58,477 in 1999, to 101,787 at the last exam sitting of June 2002.
Maricar Obieta, a training and development manager at Citigroup in London, says the CFA is considered valuable in an increasingly wide range of positions. People working in investment management were traditionally expected to have the charter, but it is now valued in everything from relationship management to investment banking, she says.
Robert Johnson, senior vice-president for curriculum and examinations at the Association of Investment Management and Research (AIMR), which administers the CFA, says: "The CFA covers everything from equity and derivatives analysis to corporate finance and is increasingly taken by everyone from asset managers to corporate financiers, equity researchers and treasury specialists."
The CFA also has the advantage of being cheaper than an MBA. The charter is divided into three parts, which can be acquired over three consecutive years. Exam fees for all three units are little more than $1,000, plus a small charge for study materials and training courses as necessary.
Individuals can also prepare for the exams in their spare time, allowing them to continue in employment. Some people study for an MBA in the same way.
Marc King, a director at BPP Hyperion, which trains people for CFA and other exams, says the benefits of the CFA are now widely appreciated. "An awful lot of individuals who might have considered an MBA are going straight for the CFA. It is cheaper, more specialised to the financial services industry, and adds global credibility that all but the top MBA courses do not really have."
Although most people taking the CFA exams are sponsored by their employer, an increasing number are paying for themselves, says King.
MBA courses have plenty of defenders, however. Heidi Plant, head of recruitment at UBS Warburg, says students from top MBA colleges have a valuable sense of confidence. "We recruit MBA holders for their interpersonal skills, presentational polish and strong network of contacts, not because of the subjects they've studied," says Plant.
Such attitudes help explain why applications to do an MBA at Insead business school in Fontainebleau are up 30% in the last year, and those to IMD in Lausanne rose more than 40%.
Vivienne Dykstra, head of graduate recruitment at Deutsche Bank, says investment banks' demand for MBA holders has deep roots.
"There is a strong cultural bias in favour of MBAs. Recruiters like the broad experience that the MBA qualification brings as well as the good mix of nationalities on offer at top MBA schools."
Dykstra says an MBA leads to a wide range of opportunities, while the CFA will restrict holders to positions in certain areas, notably research and corporate finance. Nevertheless, there are situations where a CFA is preferable: "It's better to study for a CFA than to do an MBA at a little known school," she says.
Best of all is gaining both CFA and MBA qualifications. The AIMR's Johnson says: "The CFA is complementary to the MBA. I would encourage CFA holders to go out and get an MBA as well."
