CFA requirements: 4 steps to charter holder status

How do you become a chartered financial analyst and join the ranks of CFAs like Bill Gross, PIMCO’s billionaire founder, and Howard Marks, a member of the Forbes 400? The CFA charter qualification is the pinnacle for investment professionals and employment opportunities are plentiful, especially at companies with a high percentage of CFA charter holder employees, such as Blackrock, PIMCO and KKR.

Another big incentive to becoming a CFA is that members of this lucrative profession earn an average of $300,000 in total annual compensation ($180,000 median base salary plus cash bonus plus equity), according to the Corporate Finance Institute. 

Earning the highly selective CFA designation will set you apart from other financial professionals, claims Doug Rickart, a division director for Robert Half Financial Services Group, because it shows you’re serious about your career. “You have to have the self-discipline to study for it and stay on task during the three-year process. It adds something to the credentials and really proves your abilities,” he says.

You’ll need to meet the following four requirements to become a CFA: 

  1. Enroll in a CFA program
  2. Pass the three different levels of the CFA Institute’s exam
  3. Work at least four years in a job that entails investment decision-making
  4. Join your local CFA society

Expect the process to take between three to four years and be prepared to dedicate a considerable amount of time to achieve your goal. To put numbers to it: expect to spend at least 250 hours (15 hours a week over the course of four months) to study for the Level 1 exam, says Bob Johnson, CFA Ph.D. and managing director of the CFA Institute’s education division.

Enroll in a CFA program

The first step you’ll need to take is to enroll in a chartered financial analyst program. You’ll learn about ethical and professional standards and advanced investment analysis, including corporate finance, security analysis, quantitative methods, fixed income, derivatives, financial reporting and analysis, economics, equity investments, portfolio management and wealth planning.

Several organizations offer self-study or in-person classroom options. The CFA Institute provides an online learning program that comes with study plans that are  personalized, flashcards to help you remember important concepts, practice questions for the exam, mock exams and a discussion board for candidates. Kaplan Schweser offers personal instruction online and live classroom sessions in your area, with packages that include 3-day, 5-day or 7-day review workshops plus print or eBook textbook options. Wiley Efficient Learning provides online instruction featuring video lectures and short lessons that you can do in 30-45 minutes, a companion mobile app, and practice exam questions.

Pass the 3-level CFA exam

The CFA program has three levels: Level I, Level II and Level III, and you’ll need to take and pass the exam for each level. Each exam is six hours long (three hours in the morning, followed by a lunch break, and then three hours in the afternoon). The CFA reports that candidates spend 300 hours on average preparing for each level of the exam. 

The exams are very difficult, with the pass rate for the CFA Level I being just 43% between June 2015 and June 2019. You’ll need to have a bachelor’s degree or be a college senior in order to register for the Level I exam, which consists of 240 multiple choice questions covering four areas: ethical and professional standards, portfolio management and wealth planning, asset classes and investment tools.

Both the Level II and Level III exams involve reading and analyzing mini-cases. The Level II exam features several mini-cases followed by six multiple-choice questions for each vignette. The Level III exam has eight to 12 essay questions in addition to 10 mini-cases followed by six multiple-choice questions for each vignette.

Obtain qualified work experience

You’ll need at least four years (48 months) of qualified work experience, according to the CFA Institute, which you can complete before, during or after you complete the CFA program. Your work experience as a financial professional must relate directly to investment decision-making. To be more specific: your job responsibilities should include spending at least half of your time participating in the investment decision-making process.

To better help you understand what this means, the CFA Society of South Florida describes the investment decision-making process as follows: 

  • Evaluating or applying financial, economic, and/or statistical data as part of the investment decision-making process involving securities or similar investments (e.g., publicly traded and privately placed stocks, bonds, and mortgages and their derivatives; commodity-based derivatives and mutual funds; and other investment assets, such as real estate and commodities, if these are held as part of a diversified, securities-oriented investment portfolio).
  • Supervising, directly or indirectly, persons who practice these activities.
  • Teaching such activities.

 

Here are some examples of financial professional jobs that entail investment decision-making that relates directly to the CFA work experience requirement:

  • Stock broker
  • Stock trader
  • Foreign exchange analyst
  • Bank manager
  • Risk manager
  • Credit analyst
  • Financial advisor
  • Fund manager
  • Financial counselor
  • Financial analyst
  • Financial researcher
  • Commodities trader
  • Financial Manager

Also, there’s an important caveat: Your work experience must be in a paid position, so managing your own investments or those of your family or friends without compensation does not meet the CFA work experience requirement.

Apply to become a charter holder

After you’ve completed the challenging three-level CFA exam and achieved four years of relevant work experience, you’ll be ready to apply for a CFA charter. You’ll need to provide two to three professional references that attest to your professional character and work experience. Then you’ll fill out an application to become a CFA regular member. 

After the CFA Institute approves your application, you can then join the organization and use the CFA charter designation so long as you maintain your regular member status. Membership has additional benefits: you’ll be able to connect with your peers through the organization, access high-level career-related resources on the organization’s website, and stay up to date when it comes to the important issues affecting the chartered financial analyst industry.

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