Chartered Financial Analyst
The Chartered Financial Analyst (CFA) Program is a professional credential offered internationally by the American-based CFA Institute (formerly the Association for Investment Management and Research, or AIMR) to investment and financial professionals. A candidate who successfully completes the program and meets other professional requirements is awarded the "CFA charter" and becomes a "CFA charterholder".
The CFA exams are widely considered to be extremely difficult, with pass rates sometimes below 50% for each of the three levels. It covers a broad range of topics relating to investment management, financial analysis, stocks, bonds and derivatives, and provides a generalist knowledge of other areas of finance.
- 1 Requirements
- 2 History
- 3 Process
- 4 Curriculum
- 5 Legal and other recognition
- 6 Trademark disputes
- 7 See also
- 8 References
- 9 External links
To become a charterholder, a candidate must satisfy the following requirements:
- Have four years (48 months) of qualified work experience (or a combination of education and work experience acceptable by the CFA Institute). However, individual level exams may be written prior to satisfying this requirement;
- Complete the CFA Program (mastery of the current CFA curriculum and passing three six-hour examinations);
- Become a member of the CFA Institute and apply for membership to a local CFA member society;
- Adhere to the CFA Institute Code of Ethics and Standards of Professional Conduct.
Independent of any other requirements for becoming a charterholder, the CFA Program takes an average of four years for candidates to complete.
The predecessor of CFA Institute, the Financial Analysts Federation (FAF), was established in 1947 as a service organization for investment professionals. The earliest CFA charterholders were "grandfathered" in through work experience only. Then, the series of three exams was established along with requirements to being a practitioner for several years to qualify to take the exams. In 1990, in the hopes of boosting the credential's public profile, the CFA Institute (formerly the Association for Investment Management and Research) merged with the FAF and the Institute of Chartered Financial Analysts (ICFA). 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 United States and Canada, with most of the other candidates based in Asia or Europe. The number of charterholders in India and China have increased by 25% and 53%, respectively, from 2005 to 2006.
|Year||Level 1||Level 2||Level 3|
|2014 Pass %||42%||46%||54%|
|2013 Pass %||38%/43%||43%||49%|
|2012 Pass %||38%/37%||42%||52%|
|2011 Pass %||39%/38%||43%||51%|
|2010 Pass %||42%/36%||39%||46%|
|2009 Pass %||46%/34%||41%||49%|
|2008 Pass %||35%||46%||53%|
|2007 Pass %||39%||40%||50%|
|2006 Pass %||40%||48%||76%|
|2005 Pass %||35%||56%||55%|
|2004 Pass %||35%||32%||64%|
|2003 Pass %||41%||47%||68%|
|2002 Pass %||44%||47%||58%|
|Weighted Mean of Pass %||39.7%||44%||57.7%|
The basic requirements for participation in the CFA Program (with or without obtaining the charter) include holding a university degree or being in the final year of a university degree program (or equivalent as assessed by the CFA Institute), or having four years of qualified, professional work experience in an investment decision-making process. To obtain the charter, however, a candidate must have completed a university degree (or equivalent) and four years of qualified, professional work experience, in addition to passing the three exams that test the candidate's knowledge of the academic portion of the CFA program, as discussed below. However, an accredited degree may not be a requirement.
Candidates take one exam per year over three years, assuming a pass on the first attempt. Fees as of December 2009 for each exam range from $710 to $955, depending on the date on which the candidate registers to take the exam, plus an additional $400 to $480 for program enrollment for new members.
Exams are challenging, with 38% of candidates passing the Level I, 42% passing Level II, and 52% passing Level III exam in June 2012. Level II and III pass rates apply to candidates that must have already passed the prior level(s). From 1963-2012, a total of 950,221 candidates have sat for the Level I exam, with 152,035 candidates ultimately going on to pass the Level III exam, representing a weighted average completion rate of 16%. From 2003-2012, the completion rate was 14%. It could be argued that the completion rates from 2003 to 2012 may be skewed lower due to the presence of recent candidates who have yet to sit for the Level III exam, however the long-term completion rates offer a more unbiased estimate, suggesting that only one out of every seven candidates manages to eventually complete the program.
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 has 240 independent, multiple-choice questions—all information required to answer the question is contained in the question. Level II has 120 multiple-choice questions, organized as 20 six-question item sets, each set having its own vignette of facts. 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 constructive response, essay-type questions, and a session of 10 six-question item sets as in the Level II exam. On the multiple-choice/item set sections, there is no penalty for wrong answers. For the test, only two models of calculator are allowed (the Hewlett Packard 12C including the HP 12C Platinum, and the Texas Instruments BA II Plus including the BA II Plus Professional).
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, and a range within which his or her performance for each topic area falls: below 50%, between 50% and 70%, and above 70%. Failing candidates are informed of their decile rank within the body of failing candidates. The passing grade for the exams had 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 the standard setting process and input from psychometricians.
Standard setting is a process that defines the passing score of the exam. The CFA exam uses the modified Angoff method which is a commonly used approach to setting standards for certification and licensure examinations. Subject matter experts review the exam and recommend a minimum passing score for the "just-qualified candidate". The minimum passing scores are presented to the Board of Governors in a report. The Board of Governors is not bound by this recommendation, but does recognize it as a very important information.
CFA-approved university programs
CFA also has a list of accredited education partners who provide relevant courses and CFA education preparation. There are 60 partners in North and South America, 39 partners in Asia Pacific, and 49 partners in EMEA.
The curriculum for the CFA program is based on a Candidate Body of Knowledge established by the CFA Institute. The curriculum comprises the topic areas below. There are three exams ("levels") that test the academic portion of the CFA program. All three levels emphasize the subject of ethics. The material differences among the exams are:
- The Level I study program emphasizes tools and inputs, and includes an introduction to asset valuation, financial reporting and analysis, and portfolio management techniques.
- The Level II study program emphasizes asset valuation, and includes applications of the tools and inputs (including economics, financial reporting and analysis, and quantitative methods) in asset valuation.
- The Level III study program emphasizes portfolio management, and includes descriptions of strategies for applying the tools, inputs, and asset valuation models in managing equity, fixed income, and derivative investments for individuals and institutions.
For exams from 2008 onward, candidates are automatically provided the curriculum readings from CFA Institute at the time of registration for the exam. The curriculum is not provided separately in the absence of exam registration. If the student fails an exam and is being allowed to resit in the same year, the CFA Institute offers a slight rebate and will not send the curriculum again (the curriculum changes only on an annual basis). If the student resits in a year other than the year of failure, he or she will receive the curriculum again, as it may have been changed. Study materials for the CFA Exams are available from numerous commercial learning providers, although they are not officially endorsed.
Members of CFA Institute, including charterholders and candidates for the CFA designation, must:
The 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 behavior (such as prohibitions against plagiarism); others specifically relate to the proper use of the designation for charterholders and candidates. These rules are delineated in the "Standards of Professional Conduct", within the context of an overarching "Code of Ethics"; see sidebar.
This topic area is dominated by statistics: the topics are fairly broad, covering probability theory, hypothesis testing, (multi-variate) regression, and time-series analysis. Other topics include time value of money—incorporating basic valuation and yield and return calculations—portfolio-related calculations, and technical analysis.
Both 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.
The curriculum includes the more fundamental corporate finance topics—capital investment decisions, capital structure policy, and dividend policy—as well as advanced topics such as the analysis of mergers and acquisitions, corporate governance, and business and financial risk.
Financial reporting and analysis
The curriculum includes analyzing financial reporting topics (International Financial Reporting Standards and U.S. Generally Accepted Accounting Principles), and ratio and financial statement analysis. Financial reporting and analysis of accounting information is heavily tested at Levels I and II, but is not a significant part of Level III.
The 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 (real estate, private equity, hedge funds and commodities). The Level I exam requires familiarity with these instruments; the focus of Level II is valuation; Level III studies incorporation of these instruments into portfolios. Level II employs the "tools" studied under the quantitative methods, financial statement analysis, corporate finance and economics curricula.
This 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 for individual and institutional investors, resultant asset allocation, order execution); and measurement of investment performance.
Legal and other recognition
- The Society of Actuaries (SOA) granted the credit of Validation by Educational Experience (VEE)-Economics to the candidates who passed the CFA Level I exam. SOA also granted both the credits of VEE-Corporate Finance and VEE-Applied Statistical Methods to the candidates who passed the CFA Level II exam.
- New York Stock Exchange (NYSE) granted CFA charterholders the option to take only the portion of the Supervisory Analyst examination dealing with exchange rules on research standards and related matters.
- U.S. Securities and Exchange Commission (SEC) may grant exemption of the Series 86 testing requirements to financial analysts passing the CFA Level II examination who also meet other requirements of the Financial Industry Regulatory Authority, formerly known as the National Association of Securities Dealers (NASD).
- To register as a portfolio manager in Canada, under National Instrument 31-103, registrants must hold the CFA and possess relevant experience, or alternatively, the Chartered Investment Manager.
- CFA charterholders are recognized by UK's Chartered Institute for Securities & Investment (CISI) as the equivalent level of CISI full membership (MCSI) or fellow membership (FCSI). Full membership of CISI is recognized by several national investment professional bodies such as Hong Kong Securities Institute (HKSI) in Hong Kong.
- The level of the content of the CFA Program has been recognized by the United Kingdom NARIC as being comparable in level to a QCF Level 7 (master's degree).
- Taiwan's Financial Supervisory Commission (FSC) has approved the CFA designation with two-year practical working experience and passed the test of regulations of Securities Investment Trust & Consulting Enterprise and the test for common knowledge of financial markets and professional ethics, the common subjects, as equivalent to a local recognized industry qualification of Certified Securities Investment Analyst (CSIA) in Taiwan, after reviewed and approved by Securities Investment Trust & Consulting Association (SITCA)].
- The Academic and Accreditation Advisory Committee of Hong Kong's the Securities and Futures Commission (SFC) has approved the CFA designation as a recognized industry qualification for the licensing of Responsible Officers in Hong Kong.
- CFA charterholders who meet the competence requirement, which include both education training and work experience, may apply to register with the Hong Kong Business Valuation Forum (HKBVF) as Registered Business Valuer (RBV) in Hong Kong.
- CFA charterholders are recognized by HK's Hong Kong Securities Institute (HKSI) as the equivalent level of HKSI full membership (MHKSI).
- CFA charterholders are exempted by the Professional Risk Managers' International Association (PRMIA) from the first two required exams for the PRM qualification.
- Exemptions are available for various modules in the South African Registered Persons Examination, depending on the candidate's level. No exemptions are available for the examination on local market regulations and compliance.
- CFA charterholders are recognized by Brazilian main regulator of securities analysts, APIMEC  as the equivalent to their "global content" test, although the candidates must still pass a "local content" test to award their memberships.
India — ICFAI university and AICTE vs CFAI
CFA Institute is strictly not affiliated with the Chartered Financial Analyst degree offered by the Institute of Chartered Financial Analysts of India (ICFAI) University of India or its affiliate, the Council of Chartered Financial Analysts (CCFA). In 1998, CFA Institute's predecessor organization, AIMR, sued and won a judgment against ICFAI/CCFA. The judgment prohibited ICFAI/CCFA and its members from using the CFA or Chartered Financial Analyst mark in the United States and Canada. In August 2006, an Indian court issued a temporary injunction against the Indian organization as well. The judgments made no assessment of the quality of the Indian program and merely discussed the trademark violation. The Indian Association of Investment Professionals is the only organization in India which is affiliated with CFA Institute. CFA Institute trademark rights to the "CFA" and "Chartered Financial Analyst" brands have been recognized in India by the Delhi High Court. Further, the Delhi High Court issued an interim injunction ordering ICFAI and its affiliated Council of Chartered Financial Analysts to stop using CFA Institute trademarks. The Deputy Registrar of Trade Marks did recently determine that a trademark registration issued to CFA Institute for the "CFA" brand must be republished because of an error by the Trade Marks Registry. CFA Institute has numerous trademark applications on file with the Trade Marks Registry, and CFA charterholders from CFA Institute are free to use the "CFA" and "Chartered Financial Analyst" marks throughout India. On May 8, 2007, the U.S. District Court for the Eastern District of Virginia vacated a default judgment issued against ICFAI that CFA Institute obtained in October 1998. ICFAI recently moved to reopen the case and to vacate the Default Judgment because the Court lacked jurisdiction over ICFAI at the time the Default Judgment issued. With the default judgement vacated, ICFAI informed Indian CFA Charter holders that they could legally use their Charter in the United States and Canada. However, on September 4, 2007, the Court reversed its decision to vacate after a motion to reconsider that decision was filed by CFA Institute. The latest update on the CFA Institute's legal battle in India can be found from the interview of Ashvin P. Vibhakar, Managing Director of the CFA Institute.
United Kingdom — Trade Marks Registry vs CFAI
- Functions often performed by CFA charterholders
- Entities frequently employing CFA charterholders
- List of CFA charterholders - pointers to full biography articles
- Other Professional Designations
- Certified Treasury Professional (CTP)
- Chartered Market Technician (CMT)
- Certified International Investment Analyst (CIIA)
- Chartered Alternative Investment Analyst (CAIA)
- Financial Risk Manager (FRM)
- Professional Risk Manager (PRM)
- Certified Risk Manager (CRM)
- Certified Financial Planner (CFP)
- Certificate in Quantitative Finance (CQF)
- Chartered Investment Manager (CIM)
- Recognized by UK NARIC (December 2009) as comparable to QCF Level 7.
- "CFA Institute Membership". Cfainstitute.org. Retrieved 2012-11-25.
- "1963 - 2012A CANDIDATE EXAMINATION RESULTS". Cfainstitute.org. Archived from the original on 2012-08-20. Retrieved 2012-08-20.
- "CFA List of Registered Curriculums and Educational Programs".
- "Topical Outline". Cfainstitute.org. Archived from the original on October 5, 2007. Retrieved 2010-03-23.
- Course Approval Code 9902-9965
- "FINRA - Qualifications Frequently Asked Questions - Research Analysts". Nasd.com. 2003-04-22. Retrieved 2010-03-23.
- [dead link]
- Recognized by UK NARIC (December 2009) as comparable to QCF Level 7.
- "金融監督管理委員會全球資訊網". Fscey.gov.tw. Retrieved 2010-03-23.
- [dead link]
- "Hong Kong Business Valuation Forum". Hkbvf.org. 2005-09-29. Retrieved 2010-03-23.
- "Welcome to Hong Kong Securities Institute". Hksi.org. Retrieved 2010-03-23.
- "Professional Risk Managers' International Association". PRMIA. Retrieved 2010-03-23.
- "The South African Institute of Financial Markets: Registered Persons Examination". Saifm.co.za. Retrieved 2010-03-23.
- "Registered Persons Examination Exemptions". Saifm.co.za. Retrieved 2010-03-23.
- http://www.apimec.com.br/apimec/default.aspx. Missing or empty
- "AIMR Obtains Favorable Ruling in Trademark Infringement Suit". Cfainstitute.org. Archived from the original on April 26, 2007. Retrieved 2010-03-23.
- "Delhi High Court Orders Stop To Unauthorized Use Of Global CFA Designation". Cfainstitute.org. Retrieved 2010-03-23.[dead link]
- [dead link]
- "India FAQS: The CFA Program in India". Cfainstitute.org. Archived from the original on October 7, 2007. Retrieved 2010-03-23.
- "MD, CFA Institute Discusses the Latest Developments on the CFA Exams in India". Daulatguru.com. Retrieved 2010-03-23.
- CFA Institute
- CFA Institute Ethics and Standards
- CFA Institute membership profile
- CFA Institute Global Investment Research Challenge
- FINRA Education Reference Guide Showing CFA Charter and Requirements
- US Department of Labor - U.S. Bureau of Labor Statistics Occupations Guide.
- Compare CFA Fee with MBA