What is a Chartered Financial Analyst (CFA)?
A Chartered Financial Analyst (CFA) is a highly-respected designation attained by an investment professional who has successfully completed all three parts of the CFA exam.
Because it's so difficult to achieve, the CFA designation is considered to be the most respected among investment management professionals around the world.
Chartered Financial Analyst charterholders usually end up working for a broad range of employers, ranging from mutual fund firms to hedge funds to investment banks to brokerage houses to boutique money managers. Regardless of their exact job description, though, the three-letter CFA designation represents the definitive mark of a competent financial analyst bound to the highest standards of ethical behavior.
How Does a Chartered Financial Analyst (CFA) Work?
To earn the Chartered Financial Analyst designation and become a CFA charterholder, the CFA Institute requires a candidate to complete four main objectives:
1. Pass all three levels of the CFA exam
2. Achieve qualified work experience (4,000 hours)
3. Submit reference letters to show professionalism
4. Apply to become a charterholder from the CFA Institute
In addition to the candidate passing the three-part CFA exam (which we talk about in the next section), they are required to have four years of full-time professional investment experience to become a charterholder.
Once the education and experience requirements are met, the candidate may submit letters of reference from peers, mentors and others that display the candidate's professionalism, abilities and reasons why they should be awarded a charter. The CFA Institute says references from supervisors or CFA charterholders carry the most weight in this requirement.
Finally, after the other requirements have been fulfilled, a CFA candidate may apply and submit payment to have their application reviewed by the CFA Institute. Once approved, the candidate will have achieved the CFA designation.
Why Does a Chartered Financial Analyst (CFA) Matter?
First, candidates must pass the three-part CFA exam.
Each grueling exam is six hours, but requires an average of 300-plus hours of study and is so difficult that of the 3 million-plus candidates that have ever taken the test since 1963, only around 150,000 (or 5%) have passed and earned the CFA credential, according to the CFA Institute's statistics.
Passing these rigorous tests requires a comprehensive understanding of accounting, economics, and portfolio management, as well as successful demonstration of a high level of proficiency in the valuation and analysis of both equity and fixed-income securities.
The level one exam is a 240-question multiple-choice format test that measures an applicant's ability to apply basic facts, concepts and formulas. The level two and three exams comprise essays and 'real-world' case studies that require more advanced calculation, evaluation and problem solving methodology. Some of the concepts in the curriculum include:
- Financial Statement Analysis
- Micro and Macro Economics
- Securities Analysis and Valuation
- Fundamental Analysis
- Technical Analysis
- Corporate Finance
- Global Markets
- Portfolio Management
The CFA Institute is the creator and issuer of the CFA designation. Candidates that wish to apply for a CFA must take the CFA Institute's three-part exam, submit qualified references for the institute's approval, and pay fees to the institute to receive the charter. The CFA Institute has been administering its notoriously difficult exam since 1963.
The CFA Institute also determines if the candidate's experience (4,000 hours of full-time experience is required) counts as qualified. Qualified work experience is typically related to evaluating and applying financial, economic, and statistical data involving securities/investments.
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