We are approached by many MBA applicants with queries related to the popular CFA certification. Some of them have already cleared CFA Level 1, 2 or 3 exams. Others are still in the process of thinking whether to start with it. Some are already working in finance roles, others are from unrelated fields (like engineering).
Some of the questions we get:
- Is a CFA worth it? Should I go for it?
- Is a CFA good for engineers?
- How easy / hard is it to get a CFA?
- Will my CFA help me during MBA applications?
- Is CFA and MBA a good combination for jobs?
In this article, we cover these frequently asked questions about the CFA exam.
What is CFA?
For the uninitiated, the full-form of CFA is Chartered Financial Analyst. It is a professional accreditation accorded by CFA Institute headquartered in Virginia, USA.
As described by the official website, this is a self-study, graduate level program that equips candidates with advanced knowledge of various finance topics most notably on investment analysis and portfolio management.
In essence, it is something that can spell success or a foot-in-the-door for those seeking a career in the broader field of investment management.
CFA Exam structure, syllabus and logistics
Like out home-grown Chartered Accountant (CA) qualification, CFA too has levels – 3 in this case.
The Level 1 exams are conducted in June and December every year while for the subsequent levels, they are in June. Technically, one can complete the Level 1 in December, followed by the other two levels in consecutive June months making for a total duration of about 18 months. That is no mean task though (read next section).
As a pre-requisite to taking the exam, you either need 4 years of full-time professional experience OR a combination of education and work experience. In terms of education, they require a bachelor’s equivalent or a final-year student. This means that even those without much/any professional experience can take the exam.
To get an official CFA Charter though, it is required to have 4 years of full-time experience. This qualifies you for a formal membership to the CFA Institute with a caveat that at least 50% of your experience should be in investment decision-making roles (managing your own/family investments does not qualify).
The CFA syllabus covers 10 topics:
- Quantitative methods – statistical techniques/time value of money etc
- Economics – supply/demand/inflation etc
- Financial reporting and analysis – international accounting standards/debt etc
- Corporate finance – capital structure
- Equity investments – types of equity instruments/portfolio building
- Fixed income – fixed income securities / portfolio building
- Derivatives – forwards/futures/options etc
- Alternative Investments – real estate / Private Equity (PE) / commodities
- Portfolio management and wealth planning – this last part is the primary focus for Level 3 while the previous two levels have a more balanced distribution in terms of weights across all the 10 topics.
How difficult is the CFA exam?
The CFA program started somewhere in 1990 or so and as per the official website, there are only about 150,000 professionals globally who have the CFA credential. That looks like a fairly elite class to begin with. Let’s look at things a bit more microscopically though.
The pass percentage for level 1, 2 and 3 were 43%, 47% and 54% respectively. Those look pretty sizeable at the face of it. But if one multiplies them all, then the pass rate for all levels combined goes down to a lowly 11%.
To put this into perspective, though maybe not the best of comparison, the acceptance rate at Harvard Business School in 2017 was the same – 11% (and much lower at Stanford at 6%).
As per a 2017 new article, about 189,000 candidates took the test across all 3 levels. Some other sources put the number of candidates taking level 1 at about 90,000 and level 3 at about ~30,000 or so. You can do the math to get an approximate idea of candidates at each level but suffice it to say that the curriculum is tough and requires dedicated effort.
As per the official website, it requires 300 hours of study and about 2000 pages of curriculum for each level – that’s no mean feat by any standards!
Despite the effort, India has the 3rd highest number of test takers after US and China with Mumbai leading the pack from a local spread perspective. There are no figures of CFA charterholders by geography that we got hold of but assuming the previous pass % applies, one can expect a healthy population of CFA charterholders building up in the country.
Does CFA help in your MBA application?
Right, so now we get to the crux of this post. Does having a CFA add to your profile when applying to an MBA programs?
The answer, in more ways than one, is a fairly resounding yes. Over the years, the credibility, popularity and relevance of CFA has been increasing. The course content, at least from a theoretical perspective, mimics what one would learn in Finance courses during an MBA; in some cases, maybe even more advanced.
The vital difference being ‘theoretical’ – MBA programs score in making this a lot more real through case based pedagogy. A CFA charter usually indicates to the adcom that you are proficient with your financial basics, are good with numbers in general and have the potential to do well with the analytically intensive MBA curriculum – CFA curriculum as we already covered is fairly intensive too.
Some schools even go to the extent of waiving off the GMAT requirement the best known example of which is Rotman in Canada. The waiver is more common for masters in finance programs, the most famous amongst these being the one in London Business School where even a Level 1 can get you the waiver.
Is the CFA worth it?
Many engineers who aren’t in finance jobs go for CFA certification, hoping it’ll give their MBA (and career change plans after the MBA) a huge advantage. But is it really an effective or useful strategy?
Doing a CFA just to get some brownie points in your MBA application is unlikely to be a great idea. It is too much of effort for gains that are not necessarily documented or acknowledged.
In that sense, it is akin to volunteering just to get a tick mark in your application, without having any passion/interest in the field. More likely than not, you would end up not doing justice to the intended learning experience and may come out frustrated at the end of the process.
When it does make sense is if you are aiming for a career change – before and/or after MBA. Doing something like CFA is a clear indication to your potential recruiters (yes, adcoms too) that you mean business and you are willing to prove your interest into something you may not have done.
For investing related careers, it can only marginally complement an MBA with a Finance specialization. So, if you were wondering whether a CFA and MBA combination will get give you a big advantage while job hunting, you may be disappointed.
Another time when CFA could be a good thing, provided it meets your career aspirations, is to improve your academic profile. If for instance you are from a non-technical/analytical background, say an Arts major and/or your undergrad performance has been nothing great to write about, a CFA charter can add some gloss to an otherwise lacklustre academic evaluation.
Here’s one story of how a BCom graduate with CFA got multiple MBA admits with scholarships.