Basics of Chartered Financial Analyst (CFA)

Jan 27, 2024

13 Min Read

1. What is the CFA designation and why is it important in the business world?

The CFA (Chartered Financial Analyst) designation is a professional designation awarded by the CFA Institute to individuals who have completed their program and passed rigorous exams. It is widely considered to be the highest standard of professional excellence in the investment industry.

Having a CFA designation demonstrates an individual’s expertise and knowledge in areas such as finance, economics, ethics, and portfolio management. It signifies that the individual has a strong understanding of complex financial concepts and is capable of making informed investment decisions. This makes them highly sought after by employers in the financial sector for roles such as financial analysts, portfolio managers, and investment bankers.

2. What are the requirements for obtaining a CFA designation?

To obtain a CFA designation, an individual must fulfill the following requirements:

1. Education: The candidate must hold at least a bachelor’s degree from an accredited institution or have equivalent education/work experience.

2. Work Experience: The candidate must have at least four years of relevant work experience in the investment industry or other related fields.

3. Pass three Levels of Exams: The candidate must pass all three levels of exams conducted by CFA Institute, which covers topics such as ethics, economics, financial reporting and analysis, corporate finance, equity investments, fixed income investments, derivatives, alternative investments, and portfolio management.

4. Become a Member of CFA Institute: After passing all three levels of exams and meeting other requirements set by CFA Institute, candidates become members of the organization.

5. Adhere to Ethics Standards: Candidates are also required to adhere to high ethical standards as set by the CFA Institute Code of Ethics and Standards of Professional Conduct.

After fulfilling these requirements and becoming a member of the institute, an individual earns their CFA charter and becomes eligible to use the title “Chartered Financial Analyst” after their name.

2. What are the eligibility requirements to become a CFA charterholder?

To become a CFA charterholder, one must meet the following eligibility requirements:

1. Education: Hold a bachelor’s degree (or equivalent) or be in the final year of a bachelor’s degree program.

2. Work Experience: Have at least four years of professional, full-time work experience in investment decision-making roles, such as financial analysis, portfolio management, or investment research.

3. Membership: Become a member of CFA Institute and join a local CFA society.

4. Pass the Exams: Successfully complete all three levels of the CFA exams, which cover topics such as economics, ethics, financial reporting and analysis, equity investments, fixed income investments, derivatives, alternative investments and portfolio management.

5. Adherence to Professional Conduct: Agree to abide by the CFA Institute Code of Ethics and Standards of Professional Conduct.

6. References: Obtain two professional references to attest to your work experience.

7. International Requirements: For candidates who are based outside the US and Canada, additional requirements may apply for visa purposes.

8. Good Standing with Regulatory Bodies: Disclose any disclosures or sanctions related to professional conduct by regulatory bodies or other organizations.

9.Track Record of Honesty & Integrity: Applicants must have not have any violations or pending investigations related to their past professional conduct that would discredit their reputation for honesty and integrity.

Note that meeting these eligibility requirements does not guarantee a candidate will earn the charter – in addition to passing the exams and adhering to ethical standards, there is also an application process that includes an assessment of work experience and review by a board of governors.

3. How many levels are there in the CFA program and what topics are covered in each level?

There are three levels in the CFA program – Level I, Level II, and Level III. Each level covers a different set of topics.

Level I: This is the first level of the CFA program and focuses on building a strong foundation in finance, investment tools and asset valuation. The topics covered at this level include ethics and professional standards, quantitative methods, economics, financial reporting and analysis, corporate finance, equity investments, fixed income, derivatives, alternative investments and portfolio management.

Level II: The second level of the CFA program dives deeper into applying the concepts learned at Level I to real-life situations and problems. It covers topics such as ethical and professional standards (continuation), quantitative methods (continuation), economics (continuation), financial reporting and analysis (continuation), corporate finance (continuation), equity investments (continuation), fixed income (continuation), derivatives(continuation) alternative investments (continuation)and portfolio management(plus ‘methods of estimating inputs used in estimating inputs in analysis’).

Level III: This is the final level of the CFA program that focuses on synthesizing all the concepts learned at Levels I and II to develop a deep understanding of portfolio management. Some specific topics covered at this level include ethical and professional standards for private wealth management professionals, economics for investment decision making, behavioural finance, asset allocation & related decisions in pension plans/portfolio management techniques for equity/alternative asset portfolios-related decisions-making skills used when developing investment policy stmts/(as applied to alternative investments)/related decision-making skills used when evaluating any managers’ performance/, evaluation /of effective allocations/’& ‘tools’-effective teaching- ((e.g. risk budgeting)), advanced equity portfolio management strategies-(i.e., hedging(RRMC’sor)multi-factor models/anlaysis/RM/diversification(beta value influencing/diversifying/lightly-concentrated(including-inclusion/stated-high-long-short/equityormarket-neutral-(incl. objectivity)etc.-

Some other topics covered in Level III include fixed income portfolio management, risk management, alternative investment strategies (e.g. real estate, commodities), and performance evaluation and attribution. Overall, the focus of Level III is practical application of investment theories and techniques to manage a client’s wealth effectively.

4. Can non-finance professionals benefit from earning a CFA designation?

Yes, non-finance professionals can benefit from earning a CFA designation. While the program is primarily targeted towards finance professionals, the knowledge and skills gained through the CFA program can also be useful for individuals working in other industries, such as marketing, consulting, or risk management. The rigorous curriculum covers a wide range of topics including ethics, economics, financial reporting and analysis, portfolio management, and investment tools. These skills can help individuals make more informed decisions in their respective fields and provide a deeper understanding of financial markets and instruments. Additionally, earning a CFA designation can demonstrate to employers your commitment to continuous learning and professional development.

5. How does the CFA program differ from other professional finance certifications such as CPA or CAIA?

1. Focus on Investment Management: The CFA program is specifically designed for professionals in the investment management industry, while certifications like CPA and CAIA have a broader focus.

2. Global Recognition: The CFA designation is widely recognized and respected globally, with more than 167,000 charterholders in over 164 countries. On the other hand, CPA is primarily recognized in the US and CAIA has a smaller global reach.

3. Comprehensive Curriculum: The CFA program covers a broad range of topics such as ethics, economics, financial reporting and analysis, portfolio management, equity investments, fixed income, derivatives and alternative investments. This makes it a well-rounded certification for professionals looking to pursue a career in investment management.

4. Self-Study Format: Unlike other professional certifications that often require classroom attendance or specific training programs, the CFA program is self-study based, allowing candidates to study at their own pace while working full-time.

5. Rigorous Exam Process: To obtain the CFA designation, candidates must pass three levels of exams that are known for their rigor and difficulty. The pass rates for each level are typically around 40-60%, making it a highly respected and prestigious designation.

6. Experience Requirement: In addition to passing the exams, candidates must also have four years (or equivalent) of professional work experience in order to obtain the CFA charter. This requirement ensures that charterholders have practical experience in the field of investment management.

7. Continuing Education Requirements: Once awarded the charter, CFA charterholders are required to complete a minimum of 20 hours of continuing education every year to maintain their designation.

8. Focus on Ethics: One unique aspect of the CFA program is its emphasis on ethical standards for investment professionals through its Code of Ethics and Standards of Professional Conduct. These standards are reinforced throughout the curriculum and exams.

9. Specializations within Investment Management: Aspiring professionals can choose to specialize in specific areas of investment management such as portfolio management, equity research, wealth management, or corporate finance by selecting electives within the program.

10. Prerequisite for Certain Jobs: Many employers, particularly in the investment management industry, consider the CFA designation as a requirement for certain roles and positions. Having a CFA charter can open up career opportunities and enhance job prospects for professionals in this field.

6. Is there a specific order in which the three levels of exams must be completed?

Typically, a candidate will start with the Level I exam and then progress to Level II and finally Level III. However, some candidates may choose to take the exams out of order or even skip a level if they have relevant experience or education. Ultimately, it is up to the individual’s personal preference and career goals.

7. How long does it typically take to complete all three levels of the CFA program?

The average length of time it takes to complete all three levels of the CFA program is approximately 2.5 to 4 years. However, this may vary depending on personal study habits and experience in the industry. Some candidates may choose to take all three levels back-to-back while others may take breaks between levels.

8. Are there any exemptions available for certain topics or levels of the CFA exam?

There are no exemptions available for the CFA exams. All candidates must successfully complete all three exams (Level I, II, and III) in order to be awarded the CFA charter.

9. Can one start working in the finance industry without being a registered CFA charterholder?

Yes, one can start working in the finance industry without being a registered CFA charterholder. While being a CFA charterholder may provide a competitive edge for certain roles in the finance industry, it is not a requirement for all positions. There are many other qualifications and credentials that can be obtained to enter and advance in the finance industry. Additionally, gaining relevant experience through internships or entry-level jobs can also be valuable in starting a career in finance.

10. Are there any continuing education requirements to maintain a CFA charter?

Yes, CFA charter holders are required to continue their education throughout their careers. This includes completing 20 hours of continuing professional development (CPD) each year, including at least two hours in the topics of ethical and professional standards, as well as submitting an annual attestation of compliance with the CFA Institute Code of Ethics and Standards of Professional Conduct. Additionally, all charter holders must complete a minimum of 40 hours of CPD every two years and submit to a triennial ethics assessment.

11. What career opportunities open up with a CFA designation?

There are a wide range of career opportunities open up to individuals with a CFA designation, including:

1. Portfolio Manager: A CFA charter holder can work as a portfolio manager, responsible for managing investment portfolios and making strategic investment decisions.

2. Financial Analyst: With the knowledge and skills gained through the CFA program, one can work as a financial analyst, conducting research, analyzing financial data and making recommendations for investments.

3. Investment Banker: Investment banks often seek out individuals with a CFA designation for roles such as equity research analyst or M&A analyst.

4. Wealth Manager/Financial Advisor: Many high net worth individuals and institutions prefer to work with wealth managers or financial advisors who hold the CFA credential due to their credibility and advanced knowledge in investments.

5. Risk Manager: As risk management becomes increasingly important in the finance industry, CFAs are sought after for roles such as market risk analyst or credit risk manager.

6. Hedge Fund Manager: With strong analytical skills and knowledge of investment strategies, CFAs are well suited for roles in hedge funds.

7. Private Equity Analyst: Private equity firms value CFAs for their ability to perform in-depth analysis of potential investments and assess their potential risks and returns.

8. Investment Research Associate: The skills acquired through the CFA program make charter holders attractive candidates for roles as investment research associates at asset management firms or investment banks.

9. Derivatives Specialist: Due to their expertise in complex financial instruments like derivatives, CFAs are often sought after by banks or consulting firms specializing in this area.

10.Corporate Financial Analyst/Finance Director/CFO: Many corporations look for employees with advanced financial knowledge when making hiring decisions for roles such as corporate financial analyst, finance director or CFO.

11.Financial Consultant/Planner/Advisor: With their comprehensive understanding of investments and financial markets, CFAs can excel as consultants, planners or advisors at financial firms or independent practices.

12. Does holding a CFA charter guarantee job advancement or higher salary?

Holding a CFA charter does not guarantee job advancement or higher salary. While the CFA charter is a prestigious and globally recognized qualification, job advancement and salary are also dependent on an individual’s skills, experience, and performance in their role. However, having a CFA charter can demonstrate a strong level of expertise and commitment to the investment industry, which could potentially lead to career opportunities and higher compensation in the long term.

13. What are some common job titles held by those with a CFA designation?

Some common job titles held by those with a CFA designation include:

1. Investment analyst
2. Portfolio manager
3. Research analyst
4. Financial advisor
5. Chief Investment Officer (CIO)
6. Fund manager
7. Equity analyst
8. Fixed Income analyst
9. Risk manager
10.Rating agency analyst

14. Is it necessary to obtain work experience before beginning the CFA program?

While it is not necessary to have work experience before beginning the CFA program, having some relevant work experience can be extremely beneficial in understanding and applying the concepts learned in the program. The CFA Institute recommends that candidates have a minimum of four years of professional work experience, ideally in a role related to finance or investment management. However, if you do not have work experience, you can still enroll in the CFA program and gain the necessary knowledge and skills through self-study and preparation for the exams.

15. Is there an official code of ethics that all CFAs must adhere to?

Yes, the CFA Institute has a Code of Ethics and Standards of Professional Conduct that all CFAs must adhere to. It outlines principles and rules that govern the behavior and responsibilities of CFAs. Violation of these standards can result in disciplinary action by the CFA Institute, including revocation of the CFA designation.

16. How much weight do employers typically place on candidates who have passed all three levels of the CFA exam?

Employers typically place a significant amount of weight on candidates who have passed all three levels of the CFA exam. This is because passing all three levels demonstrates a high level of commitment and dedication to the finance profession, as well as a strong understanding of several key areas such as financial reporting and analysis, equity investments, and alternative investments. Employers view individuals who have completed the CFA program as highly qualified and capable in their field, making them more competitive and desirable for job opportunities. Additionally, having the CFA designation may also lead to higher salaries and faster career advancement opportunities compared to those without it.

17. Are there any notable benefits to joining a local society or chapter as part of being a CFA charterholder?

Joining a local CFA Society or Chapter can offer many benefits to a CFA charterholder, including:

1. Networking Opportunities: Being part of a local society or chapter gives you the opportunity to connect with other finance professionals in your area. This can help you expand your professional network, build relationships, and potentially open doors for career opportunities.

2. Continuing Education: Many local societies and chapters offer educational seminars, workshops, and conferences that count towards the CFA Institute’s continuing education requirements. This can help charterholders stay up-to-date on industry developments and maintain their professional knowledge.

3. Professional Development: Local societies often offer mentorship programs, leadership opportunities, and volunteer activities that can help charterholders develop new skills and advance their careers.

4. Industry Recognition: Joining a local society or chapter can enhance your professional reputation within the industry. It shows a commitment to the finance profession and attests to your dedication to ethical standards and continuing education.

5. Job Resources: Many local societies have job boards or career centers that provide access to job postings from reputable employers in the finance industry. They may also offer resume reviews and networking events specifically geared towards job seekers.

6. Community Involvement: Local societies often engage in community service initiatives, allowing members to give back while also building relationships with fellow charterholders in their area.

7. Social Events: Most societies host social events throughout the year that allow members to socialize and network in a more casual setting. These events may include happy hours, charity events, golf outings, or family-friendly picnics.

Overall, joining a local CFA society or chapter allows charterholders to stay connected with fellow professionals in their area while providing valuable opportunities for career development and industry recognition.

18. Can one sit for multiple levels of the exam at once, if they feel confident enough in their knowledge?

No, it is not possible to sit for multiple levels of the exam at once. Each level must be completed in sequential order and a passing score on one level is required before moving on to the next level. Additionally, it is recommended that candidates have at least two years of work experience between levels in order to fully prepare for the next level.

19.Let’s say someone fails one level of the exam, do they have to start over from scratch for that particular level or can they retake only that specific portion?

It depends on the specific exam and the policies set by the administering body. In some cases, a retake may only be allowed for the failed portion, while in others the entire level may need to be retaken. It is important to clarify with the administering body beforehand about retake policies for a better understanding of what would happen in case of failure.

20.Can one become a self-study learner for the CFA program or is it recommended to use a study course?

It is possible to become a self-study learner for the CFA program, and many candidates have successfully completed the exam without using a study course. However, it is generally recommended to use a study course or other resources to supplement your self-study in order to fully understand and master the vast amount of material covered on the exam. A study course can provide structured lessons, practice questions, and support from experienced instructors that can greatly enhance your chances of success on the CFA exams.


Stay Connected with the Latest