CFA: Chartering a New Course

In thinking about ways in which my personal experience can add value to readers, my experience with the CFA program often comes to mind. Given the recent culmination of my own charter journey, the angst and ambivalence I see and hear from peers, and a few changes coming to the program in 2024, this feels like an opportune time to reflect and take stock of the CFA landscape. We’ll explore a few basic questions:

• What is the CFA program?
• Is it worth doing?
• How to succeed in the program?
• What’s changing about the program?

I should make clear that any opinions expressed here are strictly my own, and that the CFA Institute does not necessarily endorse my views.

It’s Chartered, not Certified

CFA stands for Chartered Financial Analyst. This credential is managed by the CFA Institute, an organization dedicated to improving competence, ethics, and professionalism throughout the finance industry. CFAI offers a number of different programs and certificates, but the namesake program is the “granddaddy of them all”. Through a series of three exams, the CFA program teaches and tests knowledge across a broad swath of finance topics, from accounting and quant basics to a set of ethical principles and standards developed by CFAI. It also explores different asset classes in detail: stocks, bonds, derivatives, real estate, hedge funds, private equity.

Each exam is computer-based, and candidates progress to the next level by passing the first exam. The Level I exam is typically offered quarterly (February, May, August, November) while Level II and III alternate, each being offered twice a year. Prior to 2021, exams were only offered in June (plus December for Level I), and these previous exams were all pencil-and-paper. Failing at one level meant you stayed put, needing to take the same level again in order to move forward. Passing all three levels makes one eligible to apply for the CFA charter.

Pass rates have varied wildly in the last couple of years. There are lots of possible explanations for this: candidates having exams postponed due to COVID-19, candidates struggling to adapt to the new testing system, or the increased availability of testing windows causing candidates to spent less time studying between exams. In the long run, however, pass rates have averaged slightly below 50% for Levels I and II, and slightly above 50% for Level III. The ultimate pass/fail decisions are made by the CFAI, which reviews after each exam window to determine which questions would be answered correctly by a just adequate candidate, using the CFA program’s Learning Outcome Statements as a framework—these LOS are available to the candidates and are mentioned explicitly throughout the CFA program curriculum. This grading process is inherently subjective and opaque, but that’s how it works.

The general rule of thumb is that a successful candidate should spend around 300 hours in preparation for each exam. Given that a typical candidate may sit for five exams (given the pass rate statistics), this amounts to several years and well over a thousand hours of study. This may seem excessive, but bear in mind the CFA charter is perceived to have a similar rigor and professional value as a masters’ degree.

Ethics content is important at every level. Because the material is based on CFAI’s own handbook of conduct standards (available on their website here), it’s likely something candidates haven’t seen before in a finance class, etc. Because of this, it’s often recommended that candidates study ethics last, so that the concepts will be fresh in their minds. While difficult to quantify or confirm, ethics is said to have a share in determining pass rates disproportionate to its 10-15% exam weight. The good news is that most of the ethics concepts are the same across all three exams, although the questions do get more difficult at each level.

Here’s my take on the structure and curriculum covered for each level.

• Level I: 180 multiple choice questions. The challenge at Level I is the simply breadth of content. It covers a lot of things: basic finance and statistics concepts, some macroeconomics, financial statement analysis, equities, bonds, derivatives, some initial portfolio management topics, and ethics. A lot of what’s covered would be familiar to anyone with a finance degree—and having this background may give you an advantage and ability to move quickly through parts of the curriculum—but simply having the degree is not quite a substitute for doing the work. At this level, there are enough questions to fit pretty much the entire curriculum on the exam—so while CFAI will disclose approximate weights for each topic area, everything has to be considered fair game.
• Level II: 88 multiple choice questions. At Level II, the breadth is the same, but everything goes one level deeper. At this point, content gets beyond what one would expect to see in survey classes typical of those at the undergrad finance level. Because of this, questions are tougher and the content requires more time to digest. Further, the exam questions are formatted differently, with word problems called “item sets” that cover several questions at a time. This means reading the questions takes more work than at Level I. Because there are fewer questions and yet content breadth hasn’t changed, it’s very possible that some minor topic areas are not tested in a given exam. If this is the case, there’s some element of luck as to what gets omitted—if it’s a strength of yours, you may suffer, and vice versa if it’s a weak area for you—and the most consistent approach is still to have all bases covered, while emphasizing core content that makes the most sense to be tested. Many CFA charter holders look back on Level II as the “Everest”, or most difficult of the three. For myself, I have to disagree, alas…
• Level III: Approximately 90 multiple choice and short typed response questions. The item set format is the same, but some questions will require a typed answer, whether in sentence/bullet point form or calculation form.  The incremental content is not as difficult as at Level II, and emphasizes a portfolio decision-maker perspective. The item sets and questions are meant to train you to think like a practitioner, integrating knowledge across topic areas and bringing it all together under a portfolio management umbrella. The challenge is that rote memorization is no longer sufficient, and there is a heightened focus on real-world application.

The CFA charter is a valued and respected credential across multiple fields of finance. Common job applications include investment research, financial planning, portfolio management, consulting, and risk management.

I started my CFA journey in June of 2020, taking my first exam in February 2021. The February timing worked so well that I stuck with it (despite the more flexible exam timings now offered) and sat for Level II in 2022, and Level III in 2023. I passed each on the first attempt, and received my CFA Charter in April 2023, a week after receiving my Level III results. I was fortunate to start when I did, as none of my exams were cancelled or postponed due to COVID-19, yet the remote work and social distancing certainly helped me carve out the study time I needed to put in.

Go Ahead, Convince Me

There’s a lot to consider in deciding whether the CFA program is right for you. The program requires a significant investment in time and money. I’ve seen peers struggle with it to the point that they question its value. I’ve heard others who question the value from the outset, wondering if there are better ways to set themselves apart. They all bring up questions worth exploring more.

Let’s start with the eligibility requirements. In prior years, a four-year degree (or equivalent work experience) was a requirement to be eligible for the program. With the changes coming in 2024, rising college juniors (anyone with less than 2 years to go until graduation) will be eligible, part of the theme of expanding the remit of the program. If you are eligible and interested, the CFAI offers this quick assessment to help you determine your readiness and whether the program is a good fit for you.

While vastly cheaper than an MBA, the CFA program isn’t free. Each exam will cost ~$1,000 to register, plus a one-time charge of a few hundred dollars when you start the program. Costs are changing, and in general, registering earlier for an exam will save you money. But external exam prep options (we’ll talk more about these later) can easily double the cost, with top-end packages coming in at $1,500 per exam. There are certainly budget options, but the little tweaks CFAI makes annually to the curriculum mean that there’s almost no resale value for old prep materials—so this is all dead money, especially if you don’t pass.

The financial cost is one thing, but the cost in time is something I felt even more acutely during my experience. Even taking as much time to study as possible (registering for an exam on the first day the “early bird” window opens, and ordering study materials before they even come off the presses), which can give you about 7-8 months, will require an average of over one hour every day, seven days a week, to hit the 300-hour benchmark. That’s not to say that every person will need to put in that amount of time. But however you slice it and however many hours you end up putting in, the exam will live rent-free in your head that entire time. Hobbies, recreation, and relationships may all get temporarily reprioritized, which isn’t easy.

The end goal, of course, is that this credential will open doors in either your current job or elsewhere. In my experience, many employers do place value on the CFA, although it depends heavily on your industry. The CPA (Certified Public Accountant) has entered the popular lexicon, but the CFA has not. I recall my own experience when I embarked on my studying journey—I was working outside the investment industry, and announcing my new evening routine to my colleagues found me left with a lot of blank stares—as if I may as well have been studying Latin. And I could just forget about getting my exam materials paid for.

Of course, this will be a double-edged sword. I had two levels down before I started working in investment research. For the third level, I had ample financial support and flexible scheduling, as my employer understood the rigor I was going through and considered it a valuable use of my off hours. However, it was a much greater mental burden to get myself to study investment content after a long day of working in investment management—the content overlap between work and study felt like I never really had a break. Further, the CFA curriculum presents a more academic vista on the investment landscape than I found facing me at work, which limited its application to my job in some respects.

That said, I found the content at all three levels interesting. As a survey of financial topics, securities analysis, economics, portfolio management, the CFA program provided fascinating learning at all three levels. While limited in direct job application (at least for me), it still offers a bird’s-eye view of how to conceptualize different things.

The cleverest argument I’ve heard questioning the value of the CFA program was regarding opportunity cost. Take equity research, for instance. Is a job applicant with the CFA charter really better qualified than a non-charter holder who spent an extra thousand hours researching different companies? This makes an interesting point, and for a specific function like stock research, the non-charter applicant may actually be the better hire (in my view). The problem with this is that while a prospective employer may see the hours of independent research you’ve done if you include it on your resumé, they won’t exactly know what that means—were you really scouring Bloomberg screens or did you just follow wallstreetbets on Reddit? Whereas with the CFA credential, they understand exactly what they’re getting—CFAI sets a reputable standard, and employers recognize that.

How to Slay the Beast

There are a lot of prep assistants and online forums out there, each giving different suggestions. I’m sure some of this is valuable, and some of it isn’t—here are two things I’ll add to the cacophony.

1: External prep sources

External prep sources are not strictly necessary. CFAI provides the entire curriculum (everything you need to know for exam day) for free—that is, covered by your exam fee. All this material is available in the CFA program’s online Learning Ecosystem. Here you have access to practice questions, flash cards, a couple of mock exams, and all the readings in the curriculum. But it is not very user-friendly. In my experience, I found the Learning Ecosystem environment pretty much a nonstarter, and I only used it for the mock exams toward the end of my studying for each level. CFAI has partnered with Wiley to offer a print version of the curriculum (everything the same as the online resources), with end-of-chapter questions at the end of each reading. This is a much better way to get access to the material in my opinion, but will cost an extra ~$250. Plus, it doesn’t change the fundamental weakness of the original CFA curriculum—it is dry as a bone. Despite the use of insightful examples, tables and charts that can bring material to life, and the fact that the material itself is interesting, there is just too much text. Way too much.

This is where external sources can help. CFAI has a list of “approved” prep providers on their website. These sources basically reference and condense the CFA’s curriculum into something a bit more, er, tolerable. They can also offer additional resources like live review sessions, recorded classes and lectures, plus additional practice questions and mock exams.

I can’t speak to the efficacy of many of these prep providers, but I can provide a plug for Kaplan Schweser, the source I used for all three levels. (Not making any money from this endorsement, by the way—just my opinion here.) While not cheap, KS has different pricing options depending on what resources you want. I went with their middle-of-the-road option for all three levels—the full condensed SchweserNotes on the curriculum, a full practice question bank, several mock exams, plus the review workshop recordings and workbooks—for around ~$1,000 to ~$1,200 per level. I found the SchweserNotes a lot easier to read than the original curriculum, and the practice questions & mock exams were usually a fair representation of exam-level question difficulties—although the style of question writing is noticeably different in the CFA curriculum questions, and a well-prepared candidate should be ready to handle this.

For Level I, I didn’t ever refer to the CFA curriculum, and relied exclusively on the SchweserNotes. For Level II, I did buy the CFA curriculum just to get access to the practice questions at the end of each chapter. At Level III, I leaned a bit more on the CFA curriculum, most just the practice questions in the printed books and reviewing each chapter summary to make sure KS didn’t miss anything important—which they usually didn’t.

Choose a prep option with caution, and be mindful of your budget. But I recommend avoiding complete reliance on the CFA curriculum—it’s just not as efficient with your time.

2: Proactive study plan

I can’t stress this enough—studying for the CFA is a completely different time management puzzle than being in school. Everything hinges on one test, but how you spend your time in the interim is absolutely critical. For me, starting my studying as early as possible helped me build confidence and touch on problem areas multiple times. Put in the time early, or else you’ll be caught cramming—and stressing—as exam day approaches.

In my case, this meant cracking the books in June, doing review questions and assessments throughout, and hoping to get through all of the material before Christmas (saving ethics for the end). I’d spend the last week of the year going through everything again, and then the six-week stretch from New Year’s to exam day would be a rhythm of week mock exams, tracking my scores, assessing performance after each, and hitting the books again to review areas where I was still weak. This approach left me comfortable that I had covered everything at least twice, and the practice exam scores gave me some sense of confidence going into the real thing.

My strategy may not be the best, and it certainly isn’t the fastest. But it’s critical to have a plan at the start and stick to it. Working ahead is better than falling behind—because when the exam arrives, you’re out of time, and as I always reminded myself, there is almost no utility to failure.

It’s Different Than It Was

The CFA program tweaks the curriculum a little bit every year, but there are a few reasons why the 2024 changes are a bit more significant. Here’s a summary of a few changes.

• At each level, candidates will be required to complete a Practical Skills Module—these will be standalone mini-courses, 10-15 hours in length, covering topics like financial modelling, data analysis with Python, etc. These aren’t part of the exam itself, and you’re simply required to complete them before your exam result is given to you. They won’t affect your score—it’s just another box to check.
• Some basic material that was covered at Level I (basic economics, statistics, and time value of money concepts) is being dropped, but you are still expected to know it. It appears that CFAI plans to make resources on these available as pre-reading for Level I, but it’s not in the official curriculum anymore.
• At Level III, candidates will be allowed to choose a specialization, and about 30% of Level III content will be specific to that specialization. The options are Portfolio Management, Private Wealth, and Private Markets. To me, this reflects the diversity of roles and functions that has come under the CFA umbrella, with research analysts and financial advisors (two very different jobs in my opinion) both seeing value in the program. With the specialization, different CFA charters will likely have different values in different sectors of the investment world. It will be interesting to see how this plays out: whether this catches on with candidates and employers, expands to include more options, or results in an unexpected distribution of candidate choices. In my opinion, over-broadening the scope of the program risks harm to the value of the credential—but it’s much too early to tell whether this action will rein in the broadening or simply contribute to more of it.

That’s a basic overview of what the CFA program entails, how to face the challenge, and how it’s evolving. The process is long and hard, but for me I feel it’s been worth it. For the 99.9% of us, getting through the program without blood, sweat, and literal tears is simply not possible. It teaches you a level of discipline, self-accountability, and time management that any employer should be willing to pay for—no matter what industry you’re in—even if they assume it’s Latin.

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