Chartered Financial Analyst (CFA) is a globally recognized professional designation given by the CFA Institute to investment professionals.  You will find CFAs conducting portfolio management, investment research, investment consulting, and advising on investment strategy.  These roles are found in firms focusing on institutional asset management, commercial banking, investment banks, and insurance.  However, because more and more CFAs practice in private wealth management firms working with individuals, individual investors should understand their role and value.

Requirements for CFA

To sit for the CFA, you need to have earned a 4-year bachelor’s degree.  To earn the CFA, you must pass three levels of curricula, each with an exam.  Level I exams concentrate on basic knowledge and comprehension questions focused on investment tools.  Level II delves into complex analysis and asset valuation.  Level III combines all these concepts and analytical methods applied to numerous applications for portfolio management and wealth planning.

All three levels focus on the same areas, but exam weights vary and are adjusted each year.  Topics include Ethical Standards, Quantitative Methods, Economics, Equity Analysis, Fixed Income Analysis, Derivatives, Alternative Investments, Corporate Finance Financial Reporting, and Portfolio Management.

CFA Institute does not offer any formal study programs.  They send out the study materials six months before the exam and expect test-takers to arrive prepared.  Necessary traits for successful test-takers include strong math skills, the ability to retain and recall vast amounts of information, and the self-discipline to study an average of 20 hours per week on their own time.

Exams are notoriously difficult, reflecting pass rates typically between 40 – 50%.  Of more than 1 million candidates who started with the Level I exam since 1963, 167,000 candidates have earned the CFA designation.

In addition to the exams, candidates must acquire 4,000 hours of work experience achieved over a minimum of three years.  The average completion time is four years because it is rare to pass all three tests on the first try.  Along with the MCAT (medical school admission test), civil service tests in India, and college admissions test in China, CFA is considered among the most challenging tests in the world.

Why hire a CFA?

There is no designation as rigorously focused on investment knowledge as the CFA.  CFA charterholders have demonstrated the commitment, knowledge, and ability to measure up to the complexity of client financial lives.  CFA charterholders find actionable solutions to complex problems other advisors might miss.  CFA charterholders wield a vast body of knowledge about investing and financial markets.  Most importantly, CFA charterholders dedicate themselves to placing client interests above their own.  CFA Institute has a record of revoking membership when charterholders violate the CFA Institute Code of Ethics and Standards of Professional Conduct.  As with other professionals, so long as client needs are communicated and matched well with advisors’ services, there is no downside to seeking expert advice from a CFA.

Typically, the cost for working with a CFA is calculated based on the level of assets under management (AUM).  Fees most often start at 1% of AUM.  Fees can differ based on the size of your portfolio or additional services offered.

Difference between Certified Financial Planner

While a CFA focuses on investment management, a CFP works around holistic financial planning.   Topics addressed by a CFP could include savings, income planning, when to draw Social Security, insurance, estate planning, and taxes.  It is becoming more common that both CFAs and CFPs are found at the same firm to address multiple financial needs from individual investors.

How to choose a CFA

The process of finding and working with a CFA is like that of seeking advice from any other professional.  Do your research, ask for referrals, meet with several candidates, communicate your needs clearly, and identify characteristics and traits that will support a good, personal working relationship.

If you hire a CFA and it does not work out, do not despair.  The problem is not the designation. It was likely a mismatch between the CFA and the client in their relationship or communication styles.