A thousand hours of study needed to join elite group of CFA graduates

It’s notoriously difficult – only one candidate in every five signing up will complete the programme. It’s not cheap – it will set you back more than $1,000 (€743) for each of the three exams, and more if you have to repeat. And it takes at least four years to complete.

Yet, while post-crash opportunities in the financial sector may not abound, some candidates are forgoing the traditional MBA and looking to become a chartered financial analysts (CFAs) instead. But what is the CFA and does it mean the days of an MBA are numbered?

Launched in the US in 1963, the CFA has slowly come to prominence as one of the world's most respected and recognised investment qualifications. It first came to Ireland in 2000, and since then hundreds of candidates have embarked on the course, a mixture of academic theory, current industry practice and ethical and professional standards, all in the quest of joining more than 100,000 charterholders worldwide.

Designed as a self-study course, the CFA programme, which consists of three levels covering topics such as ethics, financial accounting and reporting, equity investments and derivatives, is estimated to take 1,000 hours of study to complete.

However, Caitriona O’Brien, fund manager with KBC Asset Management, and president of the CFA Institute in Ireland, says surveys in Ireland show candidates say it takes “significantly in excess” of that.

This may be why just 20 per cent of candidates who embark on the programme walk away as charterholders, having completed all three levels.

“People start and don’t realise the degree of difficulty for what they have signed up for. They sign up and only realise the magnitude when they get the books, or they don’t feel they have prepared enough for the exam and so they decide not to sit it,” says O’Brien.

Exclusivity

It is this exclusivity, however, that makes it a club to which people want to belong.

"It can only be a plus for you, as there is a very elite group of people who have it," says Louise Parkinson, recruitment and banking consultant with Morgan McKinley, of the career prospects for CFA charterholders.

Back in 1989, just 1,062 charters were awarded globally. This peaked at 10,045 in 2006 before falling off to fewer than 5,000 as the financial crash took hold. The number is growing again, however, and some 9,275 professionals became charterholders in 2013.

In Ireland, there were just 64 charterholders back in 2004, but fast forward to this June and some 490 candidates took the CFA exams across three levels in Ireland, an increase of 8 per cent on last year.

These candidates will get their exam results on August 12th, and some will be hoping to join the 300-plus charterholders in Ireland. It's a trend that's likely to continue, given, as O'Brien says, it can help young graduates stand out, and some universities such as Trinity College Dublin are partnering with the CFA Institute to cover some of the course work in formal masters' programmes.

Specifically designed for those working in investment management and financial markets, Parkinson says the types of roles a CFA charterholder would look to working in include investment analysis, portfolio management, equity analysis, fixed income, trading desks and treasury.

While an individual sitting the exams might baulk at the enrolment fee of $440 (€327), plus exam fees of up to $1,170 (€869), as well as a further outlay for exam preparation courses and tuition aids, these costs will be defrayed if the candidate's employer sponsors him or her. And these costs shrink in comparison when compared with an MBA – at UCD Smurfit for example, you can expect to pay €29,500 for a full-time MBA, while TCD charges the same, and University of Limerick levies a slightly lower €27,200.

Opportunity cost

In addition, there is an opportunity cost associated with taking a year or two out of paid employment to complete an MBA. A CFA, on the other hand, can give you the prestige of a qualification but at a much lower cost and allow you to remain in your day job.

And the difficulty – and specific nature perhaps – of a CFA makes it more exclusive: about a million people globally claim to hold an MBA, compared with a little over 100,000 CFA holders.

However, for all its relative strengths, it's unlikely that, as the Financial Times recently proclaimed, the CFA will rival the broad reach of the MBA anytime soon.

For one, it doesn’t offer the same span of subjects – you won’t see entrepreneurship and strategic marketing on a CFA curriculum. An apt comparison is that “an MBA programme is a mile wide and a foot deep, while the CFA program is a foot wide and a mile deep”.

For another, it’s not something that employers specifically seek out – or at least not yet.

While O’Brien notes being a CFA charterholder, a distinction she attained in 2007, has assisted her “significantly” in her career progression, it does not yet have the same recognition as an MBA. Indeed, while some employers specifically request MBA graduates in job applications, Parkinson says this is not yet the case for a CFA, even if you may earn more once you have the qualification.

“It’s not an absolute prerequisite for roles – I’ve never had a role that you had to have it for,” she says.

But perhaps it makes most sense to go for the qualification that best matches your own career aspirations: opt for an MBA if you want to run the company, go for a CFA if you want to run the money.

Test yourself So you want to be a CFA?

Level 1: Sample questions

1: If a firm’s long-run average cost of production increases by 15 per cent as a result of an 8 per cent increase in production the firm is most likely experiencing:

A. economies of scale.

B. diseconomies of scale.

C. constant returns to scale.

2: A company currently has a debt-to- equity ratio of 1.25. Common shareholder’s equity is $4,000,000, consisting of 1.5 million shares outstanding with a current price of $28/share.

Part of the company’s debt currently outstanding is $1,000,000 of convertible bonds. Each $1,000 par value bond can be converted into 50 common shares at any time during the next three years. The coupon rate on the bonds is 6 per cent with interest paid annually. If all convertible bonds are converted, the company’s debt- capital ratio is closest to:

A. 42.5 per cent.

B. 44.4 per cent.

C. 80.0 per cent.

3: A portfolio manager is evaluating investments in mortgage securities as part of a portfolio to fund long-term liabilities. If she wants to minimise prepayment risk in her portfolio she is most likely to invest in:

A. mortgage loans.

B. mortgage passthrough securities.

C. collateralised mortgage obligations

4: An investor purchases a one-month out-of-the-money American call option on a stock. A week later the stock price is less than the call option strike price. The time value of the option is most likely:

A. Zero.

B. A positive amount.

C. A negative amount.

Answers: 1: B; 2: B; 3: C; 4: B

Source: CFA Institute