Are you thinking of taking the CFA exam? At some point, most finance students, graduates, and even professionals consider taking the CFA exam, and for good reason! The CFA credential improves employability for graduates and qualifies experienced professionals to work in senior roles in investment banking, risk management, asset management, and other areas.
Yet, the exam is known to be quite challenging which can be a concern for some candidates. So, is it worth it?
In this article, we'll talk about everything you need to know about the CFA program. We'll cover what CFA really is, career benefits, skills tested, sample questions, and preparation tips. Read on to determine if becoming a Chartered Financial Analyst (CFA) is right for you and how to take the first step if it is.
The Chartered Financial Analyst is a prestigious professional credential for finance and investment professionals. It's offered by the CFA Institute, and is one of the most respected designations in the industry.
To get the CFA designation, you need to complete the CFA Program which is a globally recognized professional certification program in finance. The program started in 1962 with the goal of creating professional standards and ethics in the investment management industry. Then the first CFA exam was administered in 1963 to 284 candidates.
The CFA program is primarily a series of three exam levels that you must pass to earn the CFA charter. Besides the exam, the CFA Institute provides a comprehensive curriculum that helps in preparing for the exams. The CFA exam has a low pass rate of 40-45%. This is part of the reasons why the charter signifies a high level of competence and integrity. So, you must be ready to put in the time and effort to be among those who pass.
To qualify for the CFA designation, you must meet the following criteria:
Taking the challenging exams and getting the CFA designation can benefit your career in many ways, especially if you want to advance to senior and executive positions in finance. It gives flexibility in career paths, increases qualification for management roles, provides comprehensive knowledge, enhances professional credibility and offers more networking opportunities.
Up next, we'll show you the career benefits that come with getting a CFA charter:
1. Enhanced Career Opportunities
One of the ways in which the CFA charter enhances your career opportunities is by increasing credibility. It's often a strong signal to employers that you have a deep understanding of investment principles, analytical skills and ethical standards. It also shows you are committed to the profession.
Also, the CFA designation is seen as the "gold standard" in the industry. Thus, many employers, especially those in buy-side firms, like asset management companies, prefer CFA charterholders for investment-related roles. You can secure or switch to positions in competitive fields such as:
If you're considering a career in finance, these articles could provide valuable insights:
👉 What Is Investment Banking?
2. Increased Earning Potential
If you have a CFA charter, it's easier to negotiate higher salaries and compensation packages. There are several surveys done to compare the compensation for CFA members and those without the certification. In almost all cases, chartered financial analysts see salary increases as they progress through the levels of the exam.
👉 Want to know what you can earn as an investment banker? Then check out our article about Investment Banking Salaries!
3. Global Recognition
If you desire international career mobility, CFA can be useful. Finance professionals all over the world do the same exam, and the CFA charter is respected in various financial markets, including the US, Europe, and Asia. So, the CFA charter you earned in Europe could still be a preferred qualification by employers in the USA.
4. Comprehensive Knowledge and Skills
The reality about the CFA exams is that they are tough to pass. You can look at that in two ways. One, you may be discouraged from joining the program. We hope you don't take that direction because it also means you won't enjoy the benefits it comes with. The other option is embracing the challenge and doing what it takes to pass.
The reason the CFA exams are tough is because the material is extensive and up-to-date with graduate level knowledge in finance. This means if you take the program seriously, it will boost your confidence and equip you with the skills necessary to make informed investment decisions.
5. Networking Opportunities
Once you become a member of the CFA Institute, you join a global network of over 200,000 finance professionals. The Institute provides several means for connecting, such as:
Through such opportunities, you can advance your career or find new job roles.
👉 Read our article about How To Network Your Way Into Investment Banking for more insights!
6. Flexibility in Career Paths
The finance industry is broad and the qualifications for each career path may vary slightly. The CFA is particularly beneficial for investment-related roles. However, it also opens doors in other areas of finance, such as corporate finance, consulting, private equity and even academia.
The skills you'll acquire through the CFA program are transferable. So, you may switch to different roles within the financial sector as your career and interests evolve.
The CFA exam assesses key skills essential for financial analysts and investment professionals. It goes beyond theoretical knowledge, focusing on how well you can apply it. This includes evaluating your proficiency in investment analysis, portfolio management, and ethical decision-making.
These skills will be tested across various topics such as:
Here are the kinds of questions you might encounter at the CFA level I exam.
Question 1:
According to Modigliani-Miller propositions with taxes, a firm that increases its debt-to-equity ratio from 0.3 to 0.5 would most likely experience:
A: A decrease in its weighted average cost of capital (WACC) due to the tax shield effect
B: No change in overall firm value since capital structure is irrelevant with taxes
C: An increase in its cost of equity that exactly offsets the benefit of cheaper debt financing
Solution: A - With taxes, higher leverage leads to a tax advantage through interest deductibility, which lowers the WACC and increases the firm's value.
Question 2:
Assuming constant market yields, which statement is correct about a 91-day Treasury bill that was purchased at a discount?
A: The Treasury bill's yield to maturity will decrease as it approaches maturity
B: The Treasury bill's price will steadily increase as it approaches maturity
C: The Treasury bill's market price will remain stable throughout its lifetime
Solution: B - Treasury Bills are issued at a discount and gradually move toward their face value over time, as they are ultimately redeemed at their full value.
Question 3:
A bond has a modified duration of 6.35 and a convexity of 47.82. What is the approximate percentage price change for a 15 basis point decrease in yield?
A: 0.946%
B: 0.952%
C: 0.958%
Solution: A - The approximate percentage price change of a bond can be calculated using the following formula:
Question 4:
The primary difference between a professional organization's code of ethics and its rules of professional conduct is that the code of ethics most likely:
A: Describes specific disciplinary procedures for violations
B: Articulates broad moral principles guiding the profession
C: Lists step-by-step instructions for common workplace scenarios
Solution: A - A code of ethics defines general moral principles, while professional standards include specific regulations and disciplinary measures.
We have mentioned a few times in this guide that the CFA exams are challenging. That’s why you must prepare thoroughly and utilize proven methods. These strategies include creating a study plan, using CFA study resources, exploring further learning materials, reviewing results of mock tests, and taking care of yourself.
Here are our detailed tips on how to effectively prepare for the CFA exam.
1. Understand the exam structure.
The first step in preparing for the CFA exams is to know what each level focuses on. Here’s a quick overview of each level:
2. Create a study plan.
Most people who have taken the CFA exam recommend doing it in your junior years of finance career when you have fewer responsibilities. That’s because you will need to invest a lot of time. Generally, the CFA Institute recommends about 300 hours of study for each level. You can of course take a longer or shorter time-frame depending on your background and familiarity with the material.
Break down the 300 hours into manageable weekly goals, such as 11-12 hours per week over six months. You can plan to maybe study two hours on weekdays and invest more time during the weekends. Utilize free study planners available online to structure your study sessions effectively.
The amount of time needed for preparation means you’ll need to start at least four months before the exam date. It allows you to cover all reading materials and have ample time for revision and practice.
3. Utilize CFA institute resources.
Once you register for the CFA program, you will have access to the official CFA Institute's curriculum. Review it carefully to understand key topics and their weightings in the exam. Since it also includes all the necessary readings and practice questions, take it as your primary source of study material.
Utilize the mock exams provided by the CFA Institute. These will help you familiarize yourself with the exam format and timing.
4. Supplement with additional study materials.
While the CFA Institute materials are your primary source, consider supplementary resources. These include CFA prep courses or study guides that reinforce learning and provide different perspectives on complex topics.
Many candidates find success using third-party study materials which condense the curriculum into more manageable formats. They also provide structured learning and additional practice questions for more confidence.
5. Focus on weak areas.
After completing each reading, do the end-of-chapter questions to identify areas where you need more practice. If you note weak areas, give yourself more time to study such. Don’t forget to track your results to monitor your progress.
Also, allocate time for practice questions throughout your study plan, especially in the weeks leading up to the exam.
6. Simulate exam conditions
In the last month before the exam, focus on reviewing key concepts and taking practice exams. Simulate exam conditions by timing yourself and taking breaks as you would in the actual exam.
Don’t neglect the Ethics section. It is crucial for passing the exam and can be studied in shorter sessions throughout your preparation.
Is the Chartered Financial Analyst designation ideal for you? Well, if you are in any of the following groups, the answer would be yes.
Have you made up your mind on whether to take the CFA exam? Becoming a Chartered Financial Analyst is a process that requires time and effort investment. Ideally, you should start preparing for the exam at least four months before the exam date. You’ll have a maximum of six attempts per exam level, but it’s great if you can do everything necessary to pass on the first attempt.
This includes creating a study plan, utilizing CFA Institute’s resources, supplementing with third-party study materials, focusing on weak areas and simulating exam conditions. If you do pass, the CFA credential can enhance your career opportunities, increase earning potential, give you global career mobility, increase your knowledge, provide networking opportunities, and allow for job-switching.
