Reflections on the CFA

In honor of not sitting for the CFA exam this coming weekend, I thought I would post a little bit about the CFA.

Questions about the CFA (Chartered Financial Analyst designation) have surfaced in discussion among GSB admits and it occurred to me that the same folk who might be looking for MBA admissions advice might also be interested in the CFA. I found (4 years ago!) when I was starting the CFA process that there wasn't as much info out there regarding the value of the CFA and how best to prepare as there tends to be for the MBA process and I thought I'd put my two cents in here.

Disclaimer: since I'm done with the testing process, I'm not completely up to date on all the criteria and latest study format. Seems like the CFA Insitute has been revamping various things and you should check their website for more definitive criteria regarding attaining the charter, fees, dates, etc.

What is the CFA?

CFA stands for Chartered Financial Analyst. (Not "certified" and not "financial advisor", learning how to correctly use the terminology is part of the first exam but I still always feel like I'm breaking their copyright laws each time I try to refer to it!) I know investment bankers, sales and trading, and even someone at an energy company with the designation, but for the most part the value is for folks on the buy-side or in sell-side research. It's geared toward folk who make a living analyzing securities, primarily equity and fixed income.

In order to attain the charter you must pass 3 exams (held every June and now some in December) and have a certain number of years industry-specific work experience. Check the website for the latest requirements. The exams cover ethics, statistics, asset valuation, economics, portfolio management. This is not Series 7 stuff but far more rigorous and time consuming. If you have a background in the subjects tested, the tests will be much easier. But if you don't, prepare to give up your life for a good 4-5 months prior to the test. Pass rates are less than 50% for the first level.

There are a few additional hurdles after passing all the exams before you get the charter (need one or two people with the charter to vouch for you, essentially) and you have to pay annual dues. Again, check the website for specifics.

What's the CFA good for?

There are many opinions on why one may or may not want the CFA designation. I did it because my employer at the time suggested I do it and was going to pay for the exam fees and I was bored and a glutton for punishment ... I had no idea what I was getting myself into!

In my opinion, it's a minimum requirement if you are serious about a career in sell-side research or in many areas of the buy-side. If you take 2 equivalent candidates, one with the CFA designation and one without, I can't imagine why an employer would choose to hire the latter over the former. To a certain extent is just signals that you're serious about the industry, have some work experience and are willing to sacrifice your free-time for 3 years or so. Ultimately, your job titles and education will really distinguish you in the field but the CFA is an important credential to get on your resume. I don't believe it's an empty credential but there are certainly plenty of not so impressive folks out there with the charter.

I actually found, as someone from a liberal arts undergrad, that the study process was critical to my career progress. I learned a lot (such as how to read a balance sheet, duh, but you got to start somewhere) and liked being plugged into the networking opportunities and financial community that comes along with the charter. If you are trying to break into the industry and don't have a lot in your undergrad or work experience to impress employers with, having "CFA Level xx candidate" on your resume can help you get noticed.

Some (especially among the anti-MBA camp) feel that the CFA is more valuable then an MBA but that's debatable. The CFA Institute puts out a compensation survey every year or so that is worth checking out.

How do I prepare for the CFA?

I passed Level I in June 2004, Level II in June 2005 and Level III in June 2006. When I began studying for Level I I was out of undergrad for about a year and a half and had never taken any coursework in accounting or finance. So if you have coursework in these areas you will not need as much study as I did.

Lots of people seem to find the exams much easier than I did. I found the whole process miserable and immensely time consuming, but maybe that's just me.

My employers paid the registration and exam fees. I paid for prep material and didn't like to spend too much money if I could help it.

This was my method of prep:

Books - I exclusively used the official books from the CFA Institute. You used to have individual books to buy but I think they're making study packets now and may even be making purchase mandatory (?) bc candidate preparation has allegedly been quite poor lately. For Levels II and III, I supplemented the books with Schweser materials that were passed down to me. I found these resources helpful as a backup - sometimes the examples were more clear - but would not have used them for my primary study source. Again, if you have a acctg/fin background they may work just fine.

Flash cards - were the key to my study plan. I actually made a flashcard for every LoS (broke up large LoS into several cards) as I was reading the material and then just reviewed the flash cards thereafter (going back to the book only if my flash card was confusing). I found this was a more expedient way to get through the reading since much of it is superfluous and let me quickly hone in on my weak spots and not study any more than necessary. I know you can get pre-made flashcards but found it valuable in terms of learning to make my own. (And cheaper!)

CD's - I inherited the Schweser CDs for Level II and found them so invaluable that I bought them new for Level III. The pack came with both a CD and MP3 format. I listened to them in my car and put them on my ipod. Very helpful if you're doing a lot of travelling.

Practice - I discovered a strange little website during Level I (http://www.analystnotes.com/) that is super cheap (was initially free, strangley) and had tons of practice questions. Not the most perfect site but I found it quite helpful. The Boston CFA Society puts out a practice exam that I bought through my local society each year. Coworkers helped hook me up with Schweser and other assorted practice questions. I found doing practice questions and tests the most important part of my prep. I think the CFA Institute makes old exams available ... check there too.

Classes - I didn't take a class but my local society offered one that was actually a virtual version of something a California Society was offering so I could have accessed it remotely. I didn't want to spend the money though. Check local universities and societies for offerings.

Time committment - declined with each level! I started in December for Level I, Jan/Feb for II and March for III. Not bc the tests were getting easier for me but bc it was just getting harder to find the time. If you have a fin/acctg background 2-3 months is probably fine. If you don't, then it really doesn't hurt to start earlier. My time committment each week varied tremendously. I tried to keep it to weekdays only to start and then include weekends only toward the end. If I got 8 hrs in during the week that was pretty remarkable. Usually much less. I would make an outline in Excel of the material I needed to cover and number of LoS per reading and just mark things off as I went. I could see how I was progressing and make adjustments as needed. (Sometimes I worked straight through the study guide, other times jumped around.) I thought it about it more in terms of covering material than hours spent and the flashcards helped me keep focused on the big picture. (The more flash cards I had, the closer I was to the end!) Again, I think the time committment just depends on your background. But make sure to pace yourself and keep moving. There's a lot of material to cover for each level.

Lastly - the material on each level shifts. Level I seemed to cover a little of everything, heavy on accounting. Level II seemed all about accounting. And Level III was very heavy on portfolio management, barely any accounting. If you are strong/experienced in any of these areas than that level would be easier for you. Curriculum is in flux, so check the study guides for the latest iteration, but just keep in mind that you may find one level very challenging but others not so much so. (And all the accounting is super easy, for folks who actually know that stuff.)

Again, lots of info can be found on the official website.

Happy studies!