Do CFA Holders Outperform the Rest?

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When considering whether to pursue a credential such as a Chartered Financial Analyst (CFA) designation, the next question likely to come to mind after "Will it upgrade my job prospects or compensation?" is, "Will what I learn improve my job performance?"

A review of published research "reveals a patchwork of studies that don't uniformly and unequivocally show outperformance by charterholders," writes Christopher Wright in the January-February issue of CFA Magazine, published by the CFA Institute. However, "The studies finding that the charter produces demonstrably superior job performance so far outnumber the ones that don't. This may be a preponderance of the evidence but not clear and convincing evidence or proof beyond a reasonable doubt."

The question is more provocative than you might think. For one thing, the CFA Institute's own ethics rules specifically prohibit members from making statements such as, "CFA charterholders achieve better performance results," or "As a CFA charterholder, I am the most qualified to manage client investments." However, the institute is updating its Standards of Practice Handbook and expects to publish a revised version later this year.

One reason conclusions on performance differ is that researchers didn't necessarily examine similar data sets or use similar performance criteria. Studies focused on different fund types, time periods and countries, and varied in how they defined return, risk and other key measures.

The Numbers, and More

Out of 14 published research studies summarized in the article, nine concluded CFA holders outperformed their peers in terms of returns, volatility, tracking error, or earnings estimates and three concluded CFA status is unrelated or negatively related to performance. (Three of those studies also found MBA degree holders outperform managers without MBAs, while three others found MBA holders underperform.)

But it's not as simple as toting up numbers, the article notes. For instance, association isn't causation: if people who hold one or another credential were smarter than their peers to start with, then you shouldn't expect to become a better investor or trader if you go on to acqire that credential.

Aron Gottesman, a Pace University finance professor and co-author of a 2006 study that found mutual funds managed by CFA holders don't outperform but those managed by graduates of top MBA schools do, told CFA Magazine he nonetheless views the CFA charter as "very useful for obtaining a career in finance." The University of Toronto's Gus De Franco, who co-authored a study published last year that found CFA-holding sell-side equity analysts are ahead of the pack in their earnings forecasts, said employers see the designation as a signal of knowledge and commitment. And that, he said, is "very important for younger, less experienced professionals who want to enter or have just entered the investment community."