One of the most sought-after credentials for financial professionals is the Chartered Financial Analyst (CFA) designation. Obtaining a CFA charter, on the other hand, is not for the faint of heart or the indifferent.
The road to becoming a CFA charter holder is rigorous, and it requires not just subject knowledge but also perseverance, diligence, and determination.
According to the CFA Institute, the present program is best described as a self-study, distance-learning program that highlights the highest ethical and professional standards while taking a generalist approach to investment analysis, valuation, and portfolio management.
What Is a Chartered Financial Analyst (CFA)?
A chartered financial analyst (CFA) is a globally recognized professional certification conferred by the CFA Institute, previously the AIMR (Association for Investment Management and Research), which assesses and certifies financial analysts' competence and integrity.
Candidates must pass three tiers of exams covering accounting, economics, ethics, financial management, and security analysis.
More than two million applicants took the Level 1 exam between 1963 and the first half of 2022, with 291,500 of them passing the Level III exam, representing a weighted average completion percentage of roughly 11%. The passing rate was slightly lower in the last ten years, at 9.6%.
Becoming a Chartered Financial Analyst (CFA): The Fundamentals
The CFA charter is widely recommended in the field of investment analysis and is one of the most renowned distinctions in finance.
The CFA Institute, a global nonprofit professional organization with over 164,000 charter holders, portfolio managers, and other financial professionals in over 151 countries, awards the credential.
Its claimed mission is to promote and strengthen the investment industry's educational, ethical, and professional standards.
An applicant must meet one of the following educational qualifications before becoming a CFA charter holder.
The applicant must have four years of professional job experience, a bachelor's degree or be in the last year of a bachelor's degree program, or a four-year mix of professional work experience and education.
The bachelor's program must be finished before applying for the Level 2 exam for the undergraduate qualification.
The candidate must also have an international passport, complete the examination in English, meet the professional conduct admission standards, and reside in a member nation.
The candidate must pass all three levels of the CFA program in order after satisfying the enrolment requirements. After that, the candidate must join the CFA Institute and pay annual obligations.
Lastly, they must certify every year that they are abiding by the CFA Institute's code of ethics and professional conduct. Failure to follow the principles and standards may result in the CFA charter being revoked for life.
Completing the CFA Program tests necessitates a high level of discipline and substantial study. Except for Level 1, which can also be taken in December, the three tests are only offered once a year in June.
Although the tests can be taken as many times as necessary, each exam normally needs more than 300 hours of study time. Many applicants are discouraged from continuing the CFA Program after failing one of the levels due to the significant amount of time required for studying.
Each candidate must pass all three tests and have four years of recognized job experience in investment decision-making to acquire a charter.
The exams are challenging. In June 2018, only 43% of students passed the level exam, which is similar to prior years.
Passing all three examinations requires having the correct plan in place and the determination to stick to it. According to the CFA Institute, 2018 had a record number of test participants.
The Institute reported that more than 79,000 persons took the Level 1 test in June, up 25% from 2017. Asia accounted for the majority of the rise in test-takers. The Institute now has examination centers in 43 different countries.
Levels of the CFA program.
The CFA program is divided into three levels: Level 1, Level 2, and Level 3.
Candidates for the CFA designation must pass each of these tests and complete the CFA Institute's job criteria.
The CFA exams are similarly tough to pass; in November 2021, only 27% of Level 1 exam candidates passed, compared to an average Level 1 pass rate of 45 percent from 1963 to 2021.
Each of these three levels' curricula is designed to assess a wide range of abilities that are most important to investment professionals.
In June and December of each year, the CFA Level 1 examination is conducted.
It is anchored on analysis using the tools from the Candidate Body of Knowledge's ten topic areas.
Ethical and professional standards, quantitative methods, economics, financial reporting and analysis, corporate finance, equity investments, fixed income, derivatives, alternative investments, portfolio management, and wealth planning are among the subjects covered.
The exam consists of 240 multiple-choice questions that must be answered in six hours.
Only once a year, in June, is the Level 2 exam offered. It stresses the use of investment tools and concepts in relevant circumstances and focuses on the valuation of diverse assets.
Financial Reporting and Analysis exam questions are usually based on International Financing Reporting Standards (IFRS).
The exam is divided into 21 item sets (small case studies), each set containing six multiple-choice questions (120 questions total).
Only once a year, in June, is the Level 3 exam offered. By challenging the candidate to synthesize all of the concepts and analytical methodologies in the whole curriculum, it focuses on successful wealth planning and portfolio management.
The exam consists of eight to twelve multi-part structured essay questions and ten multiple-choice questions, all of which must be completed in six hours. The handwritten answers are graded manually.
Is the CFA Level 3 Examination difficult?
Because of the time and thinking required to effectively answer the constructed responses, many CFA charter holders perceive the Level 3 CFA Exam to be the most challenging.
While the Level 3 CFA Exam has the best success percentage of all the CFA Exams, only about 56% of CFA candidates pass it.
To aid in the implementation of problem-solving abilities when studying for the Level 3 CFA Exam, it is a good idea to properly comprehend the theories and concepts involved with the exam.
Also worth noting is that the exam evaluates a candidate's portfolio management skills as well as their capacity to solve difficulties that may happen in real-world scenarios.
Candidates should not believe that passing the Level 2 Exam will make the Level 3 Exam simpler.
Due to the obvious open-ended form of the constructed response part, the Level 3 CFA Exam may be the most difficult for many.
Tip on how to pass the CFA Examination
Regardless of which CFA Level Exam you are taking, preparing with an effective study plan is critical to passing the exam.
Passing any level of the CFA Exam necessitates a well-structured study schedule that balances work, school, and personal obligations. Irrespective of a candidate's specific condition, it is vital to keep track of any additional study time.
Some candidates make the mistake of assuming they can study after work or on weekends if they don't first sit down and write a record of all their tasks from the minute they get up from bed until they go to sleep.
It is very difficult to keep oneself accountable for the hours required to pass the CFA Exam without sticking to a concrete timetable.