What is a CFA? – Master of Accounting Degrees

The Chartered Financial Analyst (CFA) designation is one of the most coveted and hardest to obtain in the financial industry. Top Wall Street analysts, investment bankers, and fund managers carry this designation.

This professional designation is awarded by the CFA Institute. In order to receive and hold the charter, the candidates must pass three exams, hold a college degree, have four years of industry experience, follow the Code of Ethics, and pay annual fees to the institute.

Each exam takes at least 6 months to prepare, so it takes over 2 years to complete the three levels. The average to complete the program is 4 years. Many candidates don’t even get to finish the program due to difficulties in passing. The CFA Institute set the bar very high, which only adds to the prestige of holding the charter.

Level I Exam

Level I exam covers the most basic investment-related topics. These include ethics and professional standards, quantitative methods, economics, financial reporting and analysis, corporate finance, equity investments, fixed income, derivatives, alternative investments, and portfolio management.

As with any of the levels, candidates can prepare on their own and/or take prep courses. Each exam lasts 6 hours, broken into 2 sections with a break in between. There are 240 multiple choice questions on this first exam.

In 2015, 43% of the candidates passed the Level I exam.

Level II Exam

Level II is only available to those who passed the first level. Here, the investment analysis gets more complex. This exam also contains multiple choice questions, but only 120 of them. The exam is actually broken into 20 vignettes with 6 questions under.

The topics are similar to Level I, but dig deeper. So, the candidates are also asked questions about ethics, investment valuation, and economics among others, but from a much more analytical perspective.

In 2015, 46% of Level II candidates passed the exam.

Level III Exam

This is the final level of the CFA program. This exam requires a synthesis of all that was learned before, so the future CFA charter holders are competent analysts and portfolio managers. The first part of Level III exam is an essay question related to an investment management topic. The second part is multiple-choice composed of 10 item set questions.

The topics that the candidates need to cover for this level include ethics and professional standards, behavioral finance, capital markets expectations, asset allocation, fixed-income and equity portfolio management, alternative investments, risk management, and portfolio execution and management.

In 2015, 53% of Level III candidates passed the exam.

CFA exams are given in English and can be taken at multiple locations around the world. If you don’t pass Level I, you can take it again in 6 months. For levels II and III, the wait is one year.

As you can see, becoming a Chartered Financial Analyst is difficult. More candidates drop out than finish. But, once you get the CFA charter, you become recognized as an expert in the investment management industry.