What is a CFA (Chartered Financial Analyst)?
Chartered Financial Analyst (CFA) Definition
Chartered Financial Analyst (CFA) is a designation for investment and finance professionals that certifies their expertise across a wide range of finance- and investment-related topics.
The designation is awarded by the CFA Institute.
An individual who has gone through and passed the institute’s rigorous program for certification is said to be a CFA charterholder.
The CFA designation boosts career prospects and results in tangible gains, such as higher salaries, for charterholders.
CFA charterholders can pick from a broad array as far as choice of career is concerned.
They can work in various sectors of finance, from banking to investment management to corporate mergers, as well as in different industries, such as technology and arts.
What Are the Duties of a Chartered Financial Analyst?
A CFA designation covers all aspects of the finance industry. Hence, CFAs are most closely-associated with the banking and investment industry.
Their roster of duties may consist of equity analysis, ensuring legal and regulatory compliance, risk management, and managing a portfolio of assets.
A typical career path for an analyst may start in a junior financial analyst position and culminate in either becoming a CEO or managing a large portfolio of stocks and other assets.
They can also function as accountants or auditors, responsible for checking accounting books and making sure they are in compliance with existing regulation.
Because finance is a pervasive function across all industries, a CFA’s job prospects are not limited to the industries above.
They can also find employment in other industries.
For example, they can work as a journalist covering business news because they understand the arcane and complex world of banking and investment.
CFA charterholders who demonstrate excellent people management and leadership skills can also move through the ranks to become CEOs of their respective organizations.
How to Get a CFA Certification
Becoming a CFA charterholder requires intensive study and is expensive.
According to various estimates, it can take approximately 250 hours to 300 hours of preparation per year and cost anywhere between $2500 to $8500.
Candidates aspiring to become a CFA charterholder must fulfill either one of the three eligibility requirements to be eligible for the exams.
They must either have an undergraduate bachelor’s degree or must be in the final year of their degree.
Alternately, they must have four years of professional work experience.
According to a factsheet on the CFA website, it takes four or more years to complete the entire program.
Since it offers a comprehensive perspective of the finance industry, the CFA exam tests candidates on a broad range of topics.
Aspiring CFAs are expected to study from the Candidate Body of Knowledge (CBOK).
The areas of study for CFA include ethical and professional standards, quantitative methods, economics, financial reporting and analysis, equity investments, fixed income etc.
There are three parts or levels to the CFA exam.
The Level I exam is conducted four times a year in February, May, August, and November.
Up until now, it was conducted in a paper-based format across various locations around the world.
Starting 2021, CFA exams will be offered in computer formats in two sessions, each with a duration of two hours and fifteen minutes.
The number of questions per exam has also been reduced to 180 questions from the current 240 questions.
Levels II and III are both conducted in June and are available in 250 cities.
While Level I and Level II are entirely multiple-choice, Level III also has an essay question.
Both Level II and Level III have a duration of six hours in their paper-based format.
Like Level I, both will also move to an entirely computer-based format in 2021 and their duration will become 4.5 hours.
To become a charterholder, candidates must pass each exam in sequence i.e., they must successfully complete Level I in order to qualify for Level II and so on.
What Are the Benefits of CFA Designation?
A CFA designation is a much sought-after title and confers substantial benefits to its holders.
Because passing the exam requires rigor and breadth of expertise across multiple topics, CFA charterholders are considered disciplined and bright.
A charterholder is likely to receive a career bump once he or she passes the eligibility exam.
CFAs are also generously paid.
Depending on their position in the company hierarchy and years of experience, CFAs can earn as much as $344,000.
The starting salary for a financial analyst is around $80,000, which is not a shabby figure for someone who may be just out of college.
Another added benefit of the CFA designation is the opportunity to work across industries.
As mentioned earlier, the finance department is an essential component of all companies.
In that sense, a CFA is a generalist who can work and custom craft their job function to the industry that they work in.
For example, a CFA charterholder’s career may start in investment banking and progress onto technology where, after several years of getting to know the business, they may start their own company or lead an organization.
A Brief History of CFA
The National Federation of Financial Analysts Societies (NFFAS) is considered a precursor to the current CFA institute.
It was founded in 1947 by representatives from 11 analyst societies in Boston, Chicago, New York, and Philadelphia.
That time coincided with a greater awareness of the importance of managing money.
Benjamin Graham had already published his famous tomes – The Intelligent Investor and Security Analyst – and the nation was in the beginning years of a postwar prosperity boom.
Analysts had refined the techniques used by newspaper journalists, who covered business, established a discipline.
But their profession was still considered on the margins of mainstream society and did not have the recognition of, say, a physician or an engineer.
One of the tasks of the analyst societies that came together to form NFFAS was to provide education and training to members.
As a start, they began offering evening classes at Northeastern University. Graham had already suggested a designation for qualified analysts, called “Quantified Security Analyst”.
In 1953, NFFAS commenced the process of defining expectations and course content for charter holders.
Members of the Chicago Society came up with the idea to test analysts in a three-stage series of eight exams.
A. Moyer Kulp, a senior vice president of Wellington Management, in Philadelphia is credited with setting the guidelines for CFA charterholders.
The Institute of Chartered Financial Analyst (ICFA) awarded its first CFA charter to George Hansen of Boston in 1963.