Requirements to Become a Chartered Financial Analyst aka “Numbers Junkie”

My intern is a stock analyst junkie.  He current is the president of the SIU Carbondale Saluki Investment Fund and he would be happy to discuss P/E ratios while watching the Chicago Bears play on Monday Night Football.  Kind of sick, but you have to admire his ambition.  Recently, we were discussing his plans after college and the topic of becoming a CFA (Certified Financial Analyst) came up.  He was interested in the designation, but didn’t know much about it.  Quite honestly, I didn’t either.  I just knew that it was a very tough program and something that I would never want to put myself through – the CFP® exam was enough! Since he was intrigued about the designation, I thought it would be only fitting for him to do some research on what it takes to become a Chartered Financial Analyst and report back.  Introducing Kevin….

After graduating college, there are a variety of different routes that a business major has to choose from. You can continue your education on to graduate school, enter the working world, or try for a certification of some sort. For accountants, there is the CPA (Certified Public Accountant), and for the finance major, there are a couple to choose from. Depending upon what type of finance field you would like to enter into, there is a different certification that might fit you well. The first option is to become a CFP® (Certified Financial Planner), this designation will allow you to construct financial plans for people who wish to retire.

The second degree, which also deals with investments but in a different manner, is the CFA (Certified Financial Analyst). The certified financial analyst is more of a technical analysis of investments that pertains more to advanced investment tools as well as economic forecasting. If you are looking to become a day trader or would like to work as a financial analyst, the CFA is the route you should take. I will focus on the CFA, but the other certifications are great for anyone leaving college wishing to be a more promising job candidate.

Requirements to Become a Chartered Financial Analyst

To be eligible to sign up to take the CFA, you have to meet the following criteria. You will need to be graduated from college with a four-year degree or in the final year of your four-year program. If you did not attend college, you could also have a comparable amount of years in the working world as long as your career deals with an aspect of finance. These guidelines are very loose as to what qualifies, so you would have to consult the official CFA site to see if your position would qualify.

Curious what the difference between a CFP® and a CFA? This post by Kiplinger does a good job of explaining.

Taking the CFA Exam

To become a CFA, there are three tests you will have to complete. The success rates for the tests are roughly 40% and will pass levels one through three. The CFA Institute released the following statistics based on the number of testers for each level and their pass rates:

The Level I global pass rate was 42 percent (46,863 took the exam, up from 45,682 in 2009) and the Level II global pass rate was 39 percent (43,406 took the exam, up from 38,993 in 2009). Of the 21,462 (up from 19,436 in 2009) individuals who in June 2010 took the third and final exam that leads to the prestigious CFA designation, 46 percent passed. CFA Institute expects that the majority of candidates who passed the Level III exam will become CFA charterholders later this year, bringing the number of charterholders worldwide to more than 90,000.

CFA Institute

How Much Does the Chartered Financial Analyst Program Cost?

Now time for the good news, the whole process will only cost you around five to six thousand dollars. You may be wondering why I refer to five thousand dollars as the good part, but figure how much it would cost you to finish graduate school, roughly twenty thousand. So you can achieve a CFA certificate for less than it would cost you for grad school.

Advantages of Getting the CFA Designation

Now, the real advantage of the CFA is the prospect of finding a good job and that you may be able to rise quickly to an elevated position in the firm with your CFA certification. So, if you think about it from a mathematical point of view, even if you made an additional three thousand dollars a year, it would take you two years of your working life to recover the money spent on the exam. Now, I am not trying to say that everyone should run and try and get their CFA, the test is very hard and prestigious. Just because you sign up does not mean you are going to pass, even if you study for long periods of time, like the estimated 250 hours per exam, there is still a high probability you will not pass. This is a hypothetical example and is not representative of any specific situation. Your results may vary.

As much as people would not like to hear it, the CFA does take some “natural intelligence.” If you struggled through college to obtain good grades or felt you had to study more than everyone around you, the test might not be for you. If you still think that you are ready to take the test, then the first step is to sign up. To complete the process, it will take a minimum of three years, but for the majority of people who try, it takes longer than three years because the level two and three exams are only offered once a year. If you fail the exam, which many people do, then you will have to wait another year for another shot at it. Very few people pass all the exams right in order without having to retake a portion, so don’t expect to cruise through all three.

Signing Up

I know to this point, I have sounded very pessimistic as to your, or for that matter, my chances of passing the CFA. That is correct, I said my because I am signing up for the December 2011 level one CFA exam. The reason I am so pessimistic sounding is because the test is extremely difficult and very time-consuming. If you are not ready to put forth the full effort, and this effort will definitely cut into your family and fun time, if not eliminate it completely, then you should not begin.

The first step towards getting your CFA is to head to the official CFA site and send in your info so that you are eligible to take the first exam. Once you have been qualified to sign up, you will need to sign up for one of the two time slots for the level one exam. The level one exam is offered twice a year, while level two and three are only offered a single time. The level one, two, and three are offered in June of every year. The testing areas are spread throughout the country, so you will have to find the area that suits you best. In addition to the June testing period, you can take only level one in December as well. The initial cost to you for the first exam will be approximately $900. Once you sign up for the exam, the CFA institute will send you the study material. You can receive it online or in a text version. The book is approximately 2,000 pages long, so be prepared to plunge in.

How to Study for the CFA Exam

Make sure that when you do sign up for the exam, you give yourself around six months to prepare for the test. Since I am only registered to take the test and have not actually taken the first one or studied for the first exam yet, so I can only go off of what I have heard from others. The common length of study time that I have heard so far is six months. There are a variety of online “help” courses out there that offer you notes on the chapters as well as additional help through the text, I am opting to not take any of these courses because I have a strict budget.

Adding these courses into the process will make the cost of the exam significantly higher. I also feel that adding some of these help courses will actually hurt your performance. Just taking my knowledge of studying for college exams and finals, I never used my old notes to study with. I would especially not use someone else’s notes to study with, so I feel that by reading the book and taking my own notes, I will have the highest chance of success. If you think that someone else’s notes or a tutor to ask questions of would be advantageous to you, then you can easily find help with an online search.

Conclusion: Becoming a Chartered Financial Analyst (CFA)

Since I have not taken the test yet, I cannot give you any further insight into the situation. Having talked to one of my professors about the CFA, who had many students go through the process, he told me the level one test would be easy for me. Keep in mind that I am a finance major and have been particularly interested in investments for a while now. He also warned not to take the exam lightly and that the majority of his students failed the level two exam. This would cohere with the pass rate statistics. This would cohere with the pass rate statistics. I am very optimistic, however, which I feel is very necessary. I have given you all the insight that I have figured out to date about the CFA and the thought process you should go through before you decide it is the right test for you.

As I mentioned above, there is a list of other certificates you can get if the CFA does not sound right for you. If you do go through the process, the CFA is a very prestigious honor to obtain, and personally, I cannot wait until the day I have accomplished this feat.

Guest Post by Kevin Ericksen, a finance major at SIU-Carbondale and one heck of an intern.