Distinct Insight and Role of CFA Program in Finance Management

Distinct Insight And Role Of CFA Program In Finance Management
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Eshna

Published on March 13, 2012


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CFA Program

The Chartered Financial Analyst (CFA) Program is a professional credential offered by the CFA Institute (formerly AIMR) for investment and financial professionals. A candidate who successfully completes this program and meets other professional requirements is awarded a "CFA charter" and becomes a "CFA Charterholder."

The CFA certification became a gold standard for the global finance industry and has been recognized in UK as being equivalent to a master’s-level degree. In the years before the financial crisis, Goldman Sachs, J.P. Morgan and other investment banks were among the employers with the largest numbers of CFA charter holders.

The CFA certification

The CFA certification is a qualification for finance and investment professionals, particularly in the fields of investment management and financial analysis of stocks, bonds and their derivative assets. The program focuses on portfolio management and financial analysis providing generalist knowledge of other areas of finance. In addition, the CFA charter has experienced increasing relevance and demand within corporate finance.

The CFA designation was first awarded in the year 1963.As of March 2012, CFA Institute has about 107,000 members in 138 countries around the world, including about 98,000 CFA Charterholders.

Requirements

To become a Charterholder a candidate must satisfy the following requirements:
  1. 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 before satisfying this requirement
  2. Complete the CFA Program (mastery of the current CFA curriculum and passing three six-hour examinations)
  3. Become a member of the CFA Institute and apply for membership to a local CFA member society
  4. Adhere to the CFA Institute Code of Ethics and Standards of Professional Conduct.
  5. Independent of any other requirements for becoming a Charterholder, the CFA Program takes an average of four years for candidates to complete.

History

The predecessor of CFA Institute, the Financial Analysts Federation (FAF), was established in the year 1947 as a service organization for investment professionals in its societies and chapters. The earliest CFA charter holders were "grandfathered" in through work experience only. Then, the series of three exams was established along with requirements for being a practitioner for several years to qualify to take up the exams.

In the year 1990, in order to boost the credential's public profile, 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). 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 to 2006 with increases of 25% and 53%, respectively, in the total number of Charterholders.

Process

The basic requirements for participation in the CFA Program include holding or completing a final year of a university degree (or equivalent as assessed by 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 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).

Exams are challenging, with 38% passing the CFA Level I exam, 42% passing CFA Level II exam and 52% passing Level III exam in June 2012. It should be noted that Level II and III pass rates apply to candidates that must have already passed the previous level(s).

From 1963 to 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 to 2012, the completion rate was 14%. Completion rates may be skewed lower due to candidates' voluntarily dropping out of the CFA program and recent candidates that have yet to sit for the Level III exam.

All three exams are administered on paper in 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-to-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%. In addition, 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 utilizes 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 very important information.

Curriculum and CFA-approved University Programs

CFA also has a list of accredited education partners who provide relevant courses and CFA education preparation. There are 58 partners in North and South America, 35 partners in Asia Pacific and 47 partners in EMEA.

 

About the Author

Eshna is a writer at Simplilearn. She has done Masters in Journalism and Mass Communication and is a Gold Medalist in the same. A voracious reader, she has penned several articles in leading national newspapers like TOI, HT and The Telegraph. She loves traveling and photography.


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