Wednesday, 12 September 2012


Definition of 'Chartered Financial Analyst - CFA'

A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial analysts. Candidates are required to pass three levels of exams covering areas such as accounting, economics, ethics, money management and security analysis.
Investopedia Says

Investopedia explains 'Chartered Financial Analyst - CFA'

Before you can become a CFA charterholder, you must have four years of investment/financial career experience. To enroll in the program, you must hold a bachelor's degree. The CFA charter is one of the most respected designations in finance, considered by many to be the gold standard in the field of investment analysis. 

                                           Where CFAs WorkThe following skills are valued by employers and can be identified by the CFA course of study. A student has to pass three exams before obtaining the CFA charter.
  • Level I is about learning investment applications
  • Level II is about applying investment applications
  • Level III is about using different applications for defining investment strategy and performing portfolio management
Although all three exams focus on different aspects of the course, the main topics are indicated by the CFA Candidate Body of Knowledge (CBOK), listed on the CFA Institute, as follows:

I. Ethical and Professional Standards
II. Quantitative Methods
III. Economics
IV. Financial Reporting and Analysis
V. Corporate Finance
VI. Equity Investments
VII. Fixed Income
VIII. Derivatives
IX. Alternative Investments
X. Portfolio Management and Wealth Planning
According to the CFA Institute, "The CFA Institute membership in more than 100 countries can be seen as a microcosm of the global investment profession, with virtually every type of investment professional at every type of investment firm represented."

Most CFAs are employed within the following industries and companies:

Source: CFA Institute

The following lists the types of industries and companies:

Buy Side - 55%
  • Investment Companies/Mutual Funds - 25%
  • Private Client Wealth Manager Advisor - 11%
  • Hedge Funds/Fund of Hedge Funds -6%
  • Banks - 7%
  • Insurance Companies - 4%
  • Pensions and Foundations - 4%
  • Private Client Wealth Manager/Advisor - 2%
Sell Side - 16%
  • Investment Bank/ Broker Dealer - 16%
Other - 29%
  • Consultancy
  • Government/Regulator
  • University/College
  • Research Firm

Look to Where Growth is Needed for CFAsOne way to determine what industries or companies value CFAs is to look at surveys that compare salaries between CFAs and those with other designations. The CFA Institute conducts an annual Compensation Survey that in 2007 covered 11 countries. These surveys are only available to CFA Institute members. If you are not a member but are interested in gaining insight into compensation differentials between CFAs and non-CFAs, contact your local analyst society, which can found on the CFA Institute website. This can help answer your questions about industries and companies that pay premiums for the CFA.

The value of the CFA is increasing in areas where membership is growing. Although CFA Institute membership is increasing in the U.S., it is growing faster in other countries that are realizing the benefit that comes with hiring CFAs. According to Bob Johnson, deputy chief executive officer of the CFA Institute says that's a sign of growing interest in the certification by employers, and the greater availability of training at colleges.

ConclusionIt is evident that interest in the CFA is growing and that there is a significant benefit in terms of career growth and compensation for those who obtain it. However, the decision to commit to the rigorous study required cannot be taken lightly. The CFA Charter, although extremely difficult to obtain, provides tremendous benefits but only within certain industries and business sectors. The question of whether to commit to pursuing the designation requires a lot of introspection and a little bit of research. If you do decide to become a candidate, make sure your decision is based on a passion for investing and the material to be studied. Simply stated, if your strengths and ambitions lie within the careers and industries that require the CFA designation, then it may makes sense for you to commit to obtaining one.
                     The CFA ProgramBefore we get into the nitty gritty, it's important to understand what the whole program entails. The Chartered Financial Analyst program, offered by the CFA Institute in Charlottesville, Virginia, is designed to teach those in the investment profession a "candidate body of knowledge" (CBOK). The CBOK tests candidates on ethics, quantitative analysis, financial statement analysis, economics, portfolio analysis, corporate finance, and the analysis of stocks, bonds and alternative investments. (To learn more about this designation before jumping in with both feet,
   It consists of three levels, each of which culminate in a brutal six-hour exam. The first exam is administered both in the late spring or late fall, and level 2 and 3 exams are offered only in the late spring. After passing all three levels of the exam, each CFA candidate who has four years of professional investment experience is eligible to receive the Chartered Financial Analyst designation.

Are you up for the challenge? The keys to success are to get organized, develop an effective study program and review.

Key No.1: Get OrganizedOnce you've made the decision to sit for the upcoming CFA exam, you need to develop a course of action. Here are some tips:
  1. Start early. The CFA Institute estimates that at least 250 hours of independent study is necessary to pass each exam. In other words, a candidate starting six months before exam day should plan to devote no less than 10 hours a week to studying.
  2. Preview the material before starting. After registering for each level, you will receive a curriculum that is divided into about 18 study sessions. Broadly preview each session to determine your familiarity with each topic.
  3. Develop a game plan. Get out your calendar and determine which weeks you will be studying which sections. Plot this on Excel, Outlook or a similar schedule-making program. Schedule your studying so that you finish with all the sections at least one month before the exam, so you can review. Also, schedule in review days as you go along.
  4. Select a review course. In no way should a review course substitute for studying the material. However, a good review course can augment your study program by clarifying or pinpointing concepts you may be having trouble with. The key is to pick only one course, so that you can spend more time focusing on the CBOK.
Key No.2: Develop an Effective Study ProgramAn effective study program will make the difference between passing and failing. To develop an effective program, consider the following:
  1. Study all "learning outcome statements" (LOS). The CFA Institute defines LOS as "knowledge, skills and abilities that you should be able to apply after completing a reading and all associated exercises and problems." To master each LOS, develop an outline and write down any important terms, definitions and formulas relating to each one. You'll be more likely to remember these points later if you take time to write them down as you come across them.
  2. Use flash cards. Homemade flash cards are an effective way to master the material. Flash cards are portable, much lighter than carrying the entire CFA curriculum with you and can be quickly reviewed while commuting to work, during a lunch break, etc.
  3. Use memory techniques. Mnemonic devices, such as taking the first letter of each word in a concept to spell one word, are helpful. There are other tricks, such as catchy slogans. For example, "SiP a CoKe" can be used to remind you of option put-call parity: The prices of a Stock + the Put = those of the Call + the present value of the striKe price.Also, don't fail to take the value of auditory memory cues into account.
  4. Study quantitative and qualitative material differently. When studying quantitative material, working on problems is important. First study the concept, then learn by doing these problems over and over again. Once you understand how to solve a problem, return to the material for further understanding. Read qualitative subjects, such as ethics or behavioral finance before working on any problems. Approach these readings as if you were enjoying a good book. Many ethical problems are scenario-based and easy to read.
  5. Work through as many practice questions as you can. Use the curriculum provided by the CFA Institute to show which problems you must work on. Enhance your studying by working on additional problems from reputable exam preparation providers.
  6. Use your approved calculator. Part of the challenge in passing the CFA exams is the ability to answer questions in a short period of time. Practicing with the calculator you will use on exam day will allow you to achieve the greatest efficiency.
  7. Stay motivated. Focus on why you are earning your CFA charter and how you will reward yourself after you take the exam.
  8. Maintain a healthy lifestyle. Eat healthy meals, sleep right, avoid excessive alcohol or caffeine, and remember to exercise. People who are healthy are better learners.
Key No.3: ReviewHopefully, you've been reviewing the material as you progress. However, you will still need a solid month to review the material again once you have gone through all the sessions. Do not take this part of the study process lightly.

Here are some helpful tips for your review stage:
  1. Finish early. Finish covering all materials at least one month before the exam.
  2. Use practice tools. Tools like CDs or online exams are available to assess your strengths and weaknesses. Find out where you need to build on your strengths and practice in areas where you are weak.
  3. Work problems offline. Do your work like you would on the day of the exam – with a calculator and pencil in hand.
  4. Take practice exams. Take these beginning on a Saturday several weeks before exam day and try to replicate the actual testing environment as much as possible. Time yourself and allow no interruptions. This will allow you to become used to writing two three-hour exams in one day. You might also want to invest in a set of good ear plugs; these will come in handy during the actual exam.
  5. Do a test run. The Saturday before the exam, drive down to where you will be taking the test and check out the site. Determine where you will park and the quickest way to get from there to the exam room.
  6. Make time for yourself. If possible, take off the week before the exam. This will allow time for your final review, and reduce stress levels before the exam. Stay at home, study the material and allow no interruptions.
  7. Sleep tight. Take it easy the night before. Lightly review the material, brush up on weak spots and eat a nice dinner. Pack a lunch for the next day to eat during your two-hour break. Also remember to pack your calculator, pencils, erasers, required medications, exam ticket, photo ID and ear plugs. Get to bed at a decent time.
  8. EXAM DAY. Wake up early and eat a good breakfast. Go over some broad concepts. Start with ones that are easy for you; then work a few problems. Don't go into the exam cold. Leave the house in plenty of time to get to the exam.
  9. Take (and pass) the exam. Relax and take a few deep breaths. Avoid talking with others about the exam. If you see someone you want to talk to, try not to talk about the exam. This will only stress you out and hurt your performance.

ConclusionIf you're a candidate in the CFA program or are planning to register, you need to plan in order to succeed. Organize your material, study effectively and review. In this way, you should be well on your way to passing each level of the CFA program on your first try.

What Is the CFA Designation?
The CFA designation is given to investment professionals who have successfully completed the requirements set by the globally recognized CFA Institute (formerly the Association for Investment Management and Research, or AIMR). To be eligible for the CFA designation, candidates must meet the following criteria:

1. Pass three rigorous, six-hour exams over several years.
2. Have 48 months of “acceptable professional work experience.” Although the CFA institute allows a fairly broad interpretation here, the experience usually has to be financial in nature. 3. Join the CFA institute by committing to the CFA Institute's Code of Ethics and Standards of Professional Conduct.
What Is the CFA Institute?
The CFA Institute is a global non-profit professional organization of more than 100,000 charterholders, portfolio managers and other financial professionals in 135 countries. Its stated mission is to promote and develop a high level of educational, ethical and professional standards in the investment industry.

The CFA Exams
Most people considering the CFA designation tend to worry about one thing – the exams. The exams are divided into three levels. Level 1 is written twice per year in June and December. It tests the candidates' knowledge of investment theory, ethics, financial accounting and portfolio management.

Level 2 and Level 3 exams are held once per year in June. For a complete breakdown of the sections, check out CFA Level II Exam and CFA Level III Exam. This is not an easy test. The CFA institute estimates that at least 250 hours of studying is needed to pass each exam. For professionals attempting to study while still working in their field, this can be a daunting number. However, many candidates consider the concentrated study required a better education than graduate school because of its total focus on investment management and practice.

CFA Pass Rates
This course of study was formed in 1962 and is constantly updated to ensure that the curriculum meets the demands of the global investment industry. This graduate-level curriculum generally entails six months of study prior to each exam date. Pass rates vary from year to year, but since the first exam was given in 1963, the overall rate is 44% and the 10-year average pass rate sits at 39% as of 2010. Moreover, fewer than 20% of the candidates pass all three tests in the first three attempts, so it is important for candidates not to get discouraged. (We’ve got you covered! Check out
CFA Careers
CFA charterholders often seek careers at institutional investment firms (such as hedge funds or mutual funds), broker-dealers, insurance companies, pension funds, banks and universities. Some go on to work for governments in the areas of regulation and public policy. By the time the designation is earned, the charterholder will have the generally acquired four years of work experience, which also helps prepare them for a higher level financial profession. (For more on this check out
What Do CFA Designations Mean to Investors?
When an investor is dealing with a CFA charterholder, he or she can make some basic assumptions. In generally, a CFA is committed to becoming better at his or her craft, whether it is security analysis, portfolio management, business reporting or some other service. In addition, the individual has agreed to maintain a higher level of integrity by following CFA Institute's Code of Ethics and Standards of Professional Conduct.

In other words, investment professionals with a CFA designation have put in a significant amount of time and effort to better their skills and knowledge on behalf of their clients. This will come as a great comfort to most investors – especially if they are depending primarily on professional advice in managing their financial affairs.

Limitations of the CFA
Although there is a certain mastery required by the CFA exams when it comes to financial concepts and markets, having the CFA designation does not automatically make one a better stock picker or more successful investor. Stock picking is a practical skill that must be developed through experience. While the knowledge gained through studying for the CFA exam won’t hurt, the certification alone isn’t going to make a market maven out of every charterholder.

That said, there are some very well-known investment professionals who hold the CFA charter: Abby Joseph Cohen, Gary Brinson and Sir John Marks Templeton, among others. The reasons why these famous names pursued the CFA designation may vary, but it is safe to say they all have one thing in common: the desire to be the best.

Bottom Line
The CFA designation does distinguish the charterholder from other practitioners in the eyes of professionals and investors. The successful CFA charterholder has proved his or her ability to withstand rigorous testing, shown a capacity for learning and made a serious commitment to conduct his or her professional life according to high ethical standards. It’s not magic, but it may be the next best thing.

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