We met with Bob Johnson, a managing director at the CFA Institute, the organization behind the Chartered Financial Analyst (CFA) Charter, the world's most gargantuan financial services qualification.
Over 100,000 sit the three levels of the qualification annually, in locations as far afield as Dublin and Shanghai. Johnson promotes the Charter as a great way of kick starting a financial services career. - Read to the bottom to see whether recruiters agree.
Q: Who should be thinking of taking a CFA? Is it only relevant to fund managers and equities analysts?
A: It's for anyone working in the investment management industry, broadly defined. As well as fund analysts and money managers, our candidates include people working in investment banks as corporate financiers and equities analysts. We also find plenty of people in the corporate finance functions of major corporations studying for the charter.
Q: What are the advantages to having the qualification?
A: Being a charter holder demonstrates a high standard of professionalism and integrity. Some organizations require their employees to have the charter, and will curtail employment without it. Over time, it also makes a difference to earnings. - Our recent survey of 16,000 members of the CFA Institute showed people who have the charter typically earn 54% more than those who don't ($180,000 vs. $116,000).
Q: Will having a CFA help me to land a job?
A: Money management is a tough business and is an especially tough business to break into. It's good to have as many arrows in your quiver as possible, and in this kind of environment the CFA charter can increase your options. It's a signal to people that you have mastered a comprehensive and rigorous curriculum and that you also have high ethical standards. Another advantage is the kinship CFA charter holders feel with one another - as more and more CFA charter holders assume positions of responsibility in organizations they're more likely to give a job to a fellow CFA charter holder than someone without.
Q: Can someone who's not currently working in financial services use the qualification as a route in?
A: Sure. We don't actually award the charter in full until you have accrued four years' relevant work experience. But you can study for all three levels of the charter in your own time, and then apply for a job on the basis that you're committed to the industry and have passed the exams. Out of 7,000 people who passed level three last year, around 1,000 were so-called 'charter pendings' of this type. Many of these were likely accountants who want to move into money management.
Q: How long does it take to get the charter?
A: It typically takes four years, and the median candidate fails once. As a CFA charter holder I studied 300 hours a year for over three years. The minimum time it takes to earn the charter is 2 years.
Q: At 34%, the pass rate for Level One is very low. - Why?
A: Our surveys suggest that candidates simply aren't putting in the amount of study time necessary to be successful on the examinations. In addition, people increasingly have an entitlement mentality. They think that by paying for their tuition they should get a qualification, even if they don't put the effort in. That's not what we're about. What we find when we look at successful and unsuccessful candidates is that successful candidates study diligently; unsuccessful ones don't.
Q: There have been complaints that the criteria for passing the CFA exams are unclear. - What's the minimum passing score?
A: It varies each year - we can't set exams that are exactly the same level difficulty and the passing score changes to take account of this. Our board of governors (who are also CFA charter holders) sets the minimum passing score using several inputs. One of the inputs is a standard setting process whereby approximately 30 standard setters from all over the world judge how hard the paper is and advise on a fair minimum level of achievement.
Q: So the pass rate isn't relative - you don't aim to have at least 35% of candidates passing each year, for example?
No. Our board of governors sets the hurdle score and how ever many candidates meet or exceed that score determines the pass rate.
Q: Which is best: CFA or MBA?
A: The MBA and the CFA are complementary educational programs. If one wants to work in the investment management business, broadly defined, I would say the CFA charter. It's fundamentally different to an MBA. The CFA is based upon what practitioners say is necessary to do their job well. One measure of the CFA's success is that business schools like Boston University, Concordia University and the University of Reading are increasingly incorporating elements of our curriculum into their courses. Another is the fact that our survey showed CFA holders with 10 years experience out-earn MBAs by 18%.
Q: Where are the next big growth areas for the CFA?
A: India and China. Five years ago we had 400 candidates in China and 381 in India. This year we expect to have 10,000 in China and 3500 in India. I would add that the pass rates in China at Level I are among the highest in the world - candidates there have a huge incentive to do well - being a charter holder can make a huge difference in terms of pay and ultimately standard of living.
We thought we'd check the marketability of the CFA with recruiters before sending would-be asset managers and bankers off to start studying level one. They roughly agreed with Johnson .-
Connie Thanasoulis in campus recruiting at Merrill Lynch in the US said it's 'absolutely' worth completing one or all the CFA exams if you're trying to break into the asset management profession: "It's your card to come and talk to us," she says, "It proves you're serious about wanting to work in asset management."
Marianne Montgomery, a consultant at the Sandton Group, a London asset management recruiter, said the CFA designation would put job seekers a rung above people who don't have it, but wouldn't be sufficient to enable a career shift: "It's useful to have, but won't guarantee a job," she said, "You'll also need client relations, marketing and sales skills."
Paul Ferrari, a consultant at London asset management recruiter Shepherd Little, was less positive: "I've never seen a fund manager hire a CFA with no industry experience," he said. "An accountant with a CFA might be able to move into a fundamental research role, but it would be very unusual."
Using a CFA as a launch pad for a career in corporate finance or sell-side equity research is likely to be harder still. - "A CFA won't open the same doors in investment banking", cautions Thanasoulis at Merrill.
Don't expect a CFA to open doors into investment banking careers. "The MBA is still the preferred route for most people," says the head of recruiting at a US bank in London. "We have a programme for recruiting MBAs, but there's no official route in for CFAs," he adds.