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| Chartered Financial Analyst® or CFA®  The CFA designation is an international professional designation offered by the CFA Institute of USA (formerly known as AIMR) to financial analysts who complete a series of three examinations. Candidates must have a bachelor's degree (or equivalent), be in the final year of their bachelor's degree program, or have at least four years of qualified, professional work experience in order to take the exams. In order to become a "CFA Charterholder" candidates must pass all three exams, agree to comply with the code of ethics, pay member dues, and have four years of work experience deemed acceptable by the CFA Institute. CFA charterholders are also obligated to adhere to a strict Code of Ethics and Standards governing their professional conduct. The CFA designation The CFA designation is a qualification for finance and investment professionals, particularly in the fields of investment management, investment banking and financial analysis of stocks, bonds and their derivative assets. The program focuses on portfolio management and financial analysis, and provides a general knowledge of other areas of finance. From 1963 (when the CFA designation was first awarded) to 2006, approximately 78,000 people from at least 126 different countries have been awarded the right to use the CFA designation, 68,000 of them in the years since 1990. As of 2006, more than 116,000 more people are currently enrolled to take one of the examinations. HistoryThe predecessor of the CFA Institute, the Financial Analysts Federation (FAF) was originally established in 1947 as a service organization for investment professionals in its societies and chapters. In 1990, in hopes of boosting the credential's public profile, the CFA Institute (formerly the Association for Investment Management and Research or AIMR) was created from the merger of the FAF and the Institute of Chartered Financial Analysts (ICFA). Many Financial Analysts (FA credential) were "grandfathered" into CFAs without taking any of current levels as a result of 1990 merger with between the ICFA and FAF. The CFA program began in the United States, but has become increasingly international with many people becoming charterholders across Europe, Asia and Australia. By 2003 fewer than half the candidates in the CFA program were based in the US and Canada with most of the other candidates based in Asia or Europe. India and China have shown some of the highest growth from 2005-2006 with increases of 25% and 53% respectively in the total number of charterholders.
RequirementsThe basic requirements for participation in the CFA program include holding or being in the final year of a university degree (or international equivalent), or having four years of qualified, professional work experience in an investment decision-making process. The requirement necessary to begin the process of examination is to have four years of general work experience, a degree, or a combination of both, opening the door to a broad range of individuals. The CFA examCandidates generally take one exam per year over three years and are written at a postgraduate level for financial professionals. Fees for the June 2008 exams range from $600 to $930, depending on the date at which the candidate registers to take the exam. Exams are challenging, with only 35% passing the Level I, 46% passing Level II, and 53% passing Level III exam in June 2008. In 2006, Europe achieved the highest average pass rate for the Level I, II and III of the exam with an overall success rate of 57% of candidates; versus 54% for the USA and 49% in Asia and Pacific Asia.
| Year | Level I | Level II | Level III |
|---|
| 2008 | 35% | 46% | 53% | | 2007 | 39% | 40% | 50% | | 2006 | 40% | 48% | 76% | | 2005 | 35% | 56% | 55% | | 2004 | 35% | 32% | 64% | | 2003 | 41% | 47% | 68% | | 2002 | 44% | 47% | 58% | | 2001 | 49% | 46% | 82% | | 2000 | 52% | 54% | 65% |
The Level I study program emphasizes tools and inputs and includes an introduction to asset valuation and portfolio management techniques. The Level II study program emphasizes asset valuation and includes applications of the tools and inputs (including economics, financial statement analysis, and quantitative methods) in asset valuation. The Level III study program emphasizes portfolio management and includes strategies for applying the tools, inputs, and asset valuation models in managing equity, fixed income, and derivative investments for individuals and institutions. All three exams are administered on paper on a single day; the Level I exam is administered twice a year (usually the first weekend of June and December). The Level II and III exams are administered once a year, usually the first weekend of June. Each exam consists of two three-hour sessions. Level I is multiple choice - all information required to answer the question is contained in the question. Level II is item set - a vignette followed by selected response questions. To answer each question, the candidate must refer to the vignette as there is insufficient information in the question stem. Level III consists of a session of short-answer questions and a session that is item set. On the multiple-choice/item set sections, there is no penalty for wrong answers. Candidates who have taken the exam receive a score report that is intended to be fairly unspecific: there is no overall score for the test, only a Pass/Fail result. For each category of questions, each test-taker is given a broad range within which his or her performance falls: below 50%, between 50% and 70%, and above 70%. The passing grade for the exams has been defined as 70% of the top percentage of exam papers until 1989; since then, the grading method is not explicitly published and the minimum passing score is set by the Board of Governors after each exam. The Board of Governors reviews the results of a Standard Setting process and input from psychometricians. Standard Setting is a process by which CFA Charterholders from around the world review the exam and recommend, for each question, a minimum passing score for the "just qualified candidate". The minimum passing scores for each question are aggregated and presented to the Board of Governors as a recommended minimum passing score for the entire exam. The Board of Governors is not bound by this recommendation, but does recognize it as very important information. The CFA curriculumThe curriculum for the CFA program is based on a Candidate Body of Knowledge established by the CFA Institute. For exams in 2008 onwards candidates automatically receive the curriculum readings from CFA Institute when they register for the exam. There is no possibility to register for the exam without receiving the curriculum. There is also no possibility to order the curriculum separately. If the student fails an exam and has the possibility to resit in the same year, the CFA Institute offers a slight rebate and will not send the curriculum again (the curriculum only changes from one year to the other). However if the student resits in another year as the year of failure, he will receive the curriculum again as it may have been subject to changes. For the test, only two types of calculators are allowed (the Hewlett Packard 12C and the Texas Instruments BA II Plus).
The curriculum includes: - Ethics and Professional Standards
- Quantitative Methods (such as the time value of money, and statistical inference)
- Economics
- Financial Statement Analysis
- Corporate Finance
- Analysis of Investments (stocks, bonds, derivatives, venture capital, real estate, etc.)
- Portfolio Management and Analysis (asset allocation, portfolio risk, performance measurement, etc.)
EthicsThe ethics section is primarily concerned with compliance and reporting rules when managing an investor's money or when issuing research reports. Some rules pertain more generally to professional behaviour (such as prohibitions against plagiarism); others specifically relate to the proper use of the designation for charterholders and candidates. All of these rules are delineated in the 'Code and Standards'.
Quantitative analysisThe curriculum is dominated by statistics; other topics such as the time value of money are also addressed. The topics are fairly broad, covering standard topics such as hypothesis testing, regression analysis and time series analysis, as well as portfolio related topics. (Some quantitative topics are covered in other sections, for example, calculating depreciation of assets is a part of financial statement analysis (accounting), and determining currency arbitrage is a part of international economics.)
EconomicsBoth micro- and macroeconomics are covered, including international economics (mainly related to currency conversions and how they are affected by international interest rates and inflation). By Level III, the focus is on applying economic analysis to portfolio management and asset allocation. AccountingAccounting is heavily tested at Levels I and II, but is not a significant part of Level III. The Curriculum includes financial statement analysis and corporate finance.
Security AnalysisThe curriculum includes coverage of global markets, as well as analysis of the various asset types: equity (stocks), fixed income (bonds), derivatives (futures, forwards, options and swaps), and alternative investments. The first levels of the test require familiarity with these instruments; the focus of Level II is valuation; Level III studies incorporation of these instruments into portfolios.
Portfolio ManagementThis section increases in importance with each of the three levels - it integrates and draws from the other topics, including ethics. It includes Modern portfolio theory (efficient frontier, Capital asset pricing model, etc); investment practice (defining the investment policy, resultant asset allocation, order execution); and measurement of investment performance.
The Code of EthicsMembers of CFA Institute (including charterholders and candidates for the CFA designation) must: - Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets.
- Place the integrity of the investment profession and the interests of clients above their own personal interests.
- Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.
- Practice and encourage others to practice in a professional and ethical manner that will reflect credit on ourselves and the profession.
- Promote the integrity of, and uphold the rules governing, capital markets.
- Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals
| Working with a Financial Adviser | | The Basics Checklists | Setting Goals and Making Plans | Setting Goals Making Plans | | Why Choose a CFA Charterholder Wealth Manager? | Today's financial markets demonstrate just how important it is to have reliable evidence of your financial adviser's integrity, experience, and commitment. No credential is as widely regarded in the global financial industry for its rigorous focus on current investment knowledge, analytical skill, and fiduciary responsibility as the Chartered Financial Analyst (CFA) designation. A CFA charterholder is: Credible: Adherence to a code of ethics that puts the client's interest first and mastery of a comprehensive body of investment knowledge Committed: Demonstrated professional experience and perseverance to undergo 18 hours of examination Current: Exams updated with the latest and most relevant knowledge and access to world-class lifelong learning resources Connected: Membership in a network of more than 100,000 investment professionals in over 130 countries | | What Makes a CFA Charterholder's Knowledge So Special? | Comprehensive view and up-to-date, practical skills Many investment professionals manage stock and bond portfolios, but CFA charterholders can perform a holistic, comprehensive analysis of your circumstances which allows them to construct a diversified investment portfolio that fits your needs. They have the tools and understanding to analyze the risks and rewards of a variety of investment types. Real world experience and rigorous exams In order to pass the three qualifying exams, CFA charterholders master the body of investment and financial knowledge that includes a comprehensive range of ethical, analytical, and practical investment and financial management skills. The CFA Program Curriculum is updated every year by experts from around the world and builds on four years of professional experience that candidates are required to have. Passing the exams is a difficult feat that requires hundreds of hours of extensive study. Only one in five people who begin the program ultimately earn the right to use the designation. The curriculum includes fundamentals like modern economics, investment strategies, and financial reporting for ethical standards. Candidates must also master advanced topics such as equity analysis, derivatives, alternative investments, and portfolio management. This rigorous training enables a CFA charterholder to assess a client's needs and circumstances and manage a globally diverse portfolio in a rapidly changing and complex industry. | | Why Should You Trust a CFA Charterholder? | The globally recognized CFA designation symbolizes the knowledge, professionalism, and integrity you should expect from a financial adviser. Integrity must never come into question. In addition to being globally recognized for mastering a rigorous curriculum, CFA charterholders are perhaps best known for being held to the highest ethical standards. Ethical Requirements Every CFA charterholder, CFA Institute member, and CFA candidate signs an annual statement agreeing to adhere to the CFA Institute Code of Ethics and Standards of Professional Conduct. These code and standards require them to: - place their clients' interests ahead of their own
- maintain independence and objectivity
- act with integrity
- maintain and improve their professional competence
Ethics are a fundamental part of the CFA Program curriculum. Each of the three CFA Program exam levels reinforces the focus on ethics by testing a candidate's understanding of how to apply ethical principles and standards of conduct in the rigors of current professional practice. Integrity is the cornerstone of the CFA Institute Code of Ethics and it requires the charterholder to act with competence, diligence, and respect. | | How Do You Choose the Adviser That's Right for You? | There are many investment credentials out there and sorting through them can be difficult. But the letters after an adviser's name are worth getting to know because they are an important indicator of how much training he or she actually received and what his or her legal duties to you are. Fiduciary Duty and Government Regulations Not all investment professionals are held to a fiduciary standard. A fiduciary standard or duty legally requires advisers to put a client's interests ahead of their own at all times and to fully disclose their qualifications, their services, possible conflicts of interest, and any possible record of disciplinary actions. No matter their legal obligation, CFA charterholders have a fiduciary duty of loyalty, prudence, and care to their clients. In other words, their investment actions must be for the sole benefit of the client. Types of Advisers The different kinds of advisers include investment advisers who provide recommendations for investing in securities and typically manage investments for clients, brokers who buy and sell securities, and financial planners who generally develop and possibly implement comprehensive financial plans for individual clients. You can find CFA charterholders in these roles and many others because their advanced skills, rigorous experience, and uncompromising ethics prepare them for a wide range of the most challenging investment careers. | | Why the CFA Designation Matters to You? | Being an educated consumer is important, especially when it comes to your money. That is why you need to be familiar with CFA Institute and the CFA designation. CFA Institute sets the benchmark with which to measure the knowledge, integrity, and professionalism of the individual whom you trust to manage your financial assets. This means that when you work with a CFA Institute member, you can feel confident that he or she has answered the challenge to adhere standards for professional conduct and investment performance. Your direct exposure to CFA Institute may seem limited. But in the end, virtually all of the CFA Institute programs and initiatives are designed to serve you, the investing public. What is the CFA Program?
The CFA Program is a graduate-level, self-study curriculum and examination program for investment specialists – especially securities analysts, money managers, and investment advisers. Established in 1962, the CFA Program sets the global standard for investment knowledge, standards, and ethics. Clients, employers, and colleagues know that a charterholder has mastered a rigorous curriculum covering a broad range of investment topics and is committed to the highest ethical standards in the profession. Earning the credential also serves as a “passport” to entry to or advancement within the profession or to work in other countries.
Why should I look for the CFA designation when searching for an investment manager?
Simply put, the CFA designation matters to your money. Your investment adviser has access to the most personal details of your finances, and the trust you place in your investment adviser must be unconditional. Although financial professionals may hold other professional designations, no other designation within the profession of investment management carries as much integrity as the CFA charter.
The fact is the CFA charter is awarded only to a very select group of investment specialists who have mastered a rigorous curriculum covering a broad range of investment-related subjects. CFA charterholders have professional experience applying this knowledge to the investment decision-making process. And CFA charterholders are held to the highest ethical standards. The CFA designation symbolizes the knowledge, professionalism, and integrity you should demand from anyone you trust with your finances. What areas of the investment profession do CFA candidates study?
The CFA designation represents broad investment knowledge. The self-study curriculum of the CFA Program compels investment professionals to build a working knowledge of investment principles across core areas of the industry − from portfolio management and asset valuation to derivatives and quantitative analysis. To earn the right to use the CFA designation, candidates must pass three levels of examination, which requires hundreds of hours of study over at least three years. Successful completion of the CFA Program is a formidable challenge for even the most experienced investment professional.
CFA charterholders keep up with the ever-changing global investment industry through their membership with CFA Institute. CFA Institute seminars, workshops, publications, and research equip charterholders with the advanced knowledge necessary for continued professional growth. What are the requirements for earning the CFA charter?
The CFA designation demonstrates professional achievement. To earn the CFA charter, investment professionals must have at least three years of acceptable professional experience in the investment decision-making process. In addition, candidates must pass three sequential, six-hour examinations over at least three years and must commit to abide by and annually reaffirm their adherence to the CFA Institute Code of Ethics and Standards of Professional Conduct.
What are the CFA Institute Code of Ethics and Standards of Professional Conduct and why are they important to me?
Membership in CFA Institute and the CFA designation symbolizes integrity. The trust that you place in your investment adviser must be unconditional. But to be worthy of such trust, integrity simply must never come into question. For this reason, CFA Institute members and CFA charterholders must comply with the CFA Institute Code of Ethics, which require them always to place the client’s interests first, to maintain independence and objectivity, and to serve with integrity and honesty. So you can invest with confidence.
The Code works in tandem with the Standards of Professional Conduct, which clarifies how to apply rules, regulations, and ethical guidelines within the investment industry so that investment professionals can safely avoid ethical quandaries and properly serve their clients and employers. Should ethically based complaints be lodged against CFA charterholders, they are required to disclose these complaints in full detail to CFA Institute or risk losing the right to use the CFA designation. What role does CFA Institute play in promoting professionalism in the global investment industry?
CFA Institute supplies the benefits and services that investment professionals need to advance their careers and support the needs of their clients. CFA Institute encourages members to demonstrate their commitment to learning by participating in the CFA Institute continuing education program. CFA Institute defends the interests of more than 50,000 investment professionals through various advocacy activities. How can CFA Institute keep pace with rapidly changing industry developments concerning professional standards?
In many cases, CFA Institute actually established the standards followed by many in the global investment industry. To keep up to date on the needs of investment advisers, their employers, and their clients, CFA Institute continually works with its members and industry authorities to build standards for financial reporting, international accounting, and ethical principles. When a specific industry practice requires additional study, CFA Institute assembles a task force to address that challenge.
CFA Institute staff and members also frequently communicate with government and regulatory organizations across the globe to provide input and comment on many issues. Created with support from CFA Institute member committees, CFA Institute comment letters reinforce the organization’s and member’s mission and values. |
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| | "There are all kinds of businesses that I don't understand, but that doesn't cause me to stay up at night. It just means I go on to the next one, and that's what the individual investor should do."
-- Warren Buffett
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