On the first Saturday in June, more than 170,000 investment management professionals in 91 countries will attempt to climb what has been called the “Mount Everest of Finance” by taking a Chartered Financial Analyst (CFA) exam—a six-hour battery of tests with rigorous questions covering topics like quantitative analysis, accounting and ethics.
There are three sequential levels of exams; the first level is offered twice a year, and the second and third levels are administered only in June. Candidates who pass each exam and meet career qualifications—four years minimum in finance—are eligible for a CFA charter.
But passing is not an easy task. Usually, more than half of all those taking any level of the exam fail. They then have to wait as much as a full year to take the same level again. Candidates can spend hundreds of hours over the course of several months studying for just one test.
So, why do so many people sacrifice their free time and social lives to take these exams? It’s because the CFA designation is perhaps one of the most respected in the investment management industry. Lisa Plaxco, CFA, head of the CFA program at CFA Institute, says, “It is the global gold standard for competency and integrity throughout the investment management industry, both for professionals and their clients.”
A CFA charter demonstrates knowledge and understanding of a wide range of topics at the core of finance, including macroeconomics, stock analysis, bond pricing, and option strategy, among others. “One of the unique characteristics of how the CFA exams are developed is that the process is practitioner based,” Plaxco notes. A full-time staff is dedicated to a practice analysis process designed to keep the curriculum current. For example, in recent years there has been an increased focus on behavioral finance.
Through practice analysis, several hundred “Learning Outcome Statements” form the backbone of the curriculum and exams. In order to master these very technical subjects, candidates need to read thousands of pages from dozens of readings for each level of the curriculum.
The exams aren’t written for the purpose of being difficult. Rather, CFA Institute tries to make them complete. That way employers and clients are confident they will get the benefit from a charterholder’s knowledge and broader understanding of the categories covered by the CFA curriculum.
And it’s not just about the technical aspects of finance.
Ethical and professional standards are heavily tested at all three levels of the exam. CFA charterholders are required to adhere to a strict code of ethics that touches upon every aspect of their professional lives or face seeing their charters revoked. In recent years, ethics have come to the forefront, particularly after the financial crisis. Clients, employers, the capital markets, and the investing public are assured their interests take priority for the CFA charterholder.
Coming up this week:
CFA Institute head exam writer offers three tips for people taking the Level I exam
Head of the CFA Program has important advice for Level II test-takers
CFA Institute head exam writer has a 'crazy' recommendation for Level III test-takers
One critical concept permeates all aspects of the CFA Program exams