“I have no relevant experience, no industry contacts, I don't know how to network, but I've passed CFA Level 1. Why can't I break into finance?”
The above quote is a fictionalized, yet all too common plea from those who are on the outside trying to break into the world of finance.
There is a common misconception that passing a CFA exam is a golden ticket to the world of finance, as if Johnny Depp will welcome you with open arms and give you are finance job for life. Unfortunately, it's not that simple.
The good news is that the CFA program can help you break into the industry in asset management, equity research, and hedge funds.
The bad news is that there is a lot more you need to do than just passing the exams.
In this post, I'll discuss everything you need to know when using the CFA to break into finance, including:
- History of the exam,
- An overview of the CFA program,
- The benefits of the CFA program,
- How to find out if the CFA program is right for you, and
- How to effectively use the CFA program to break into finance.
The CFA program really can help you break into finance, but you need to know the proper path to take. So, let's get started …
History of the CFA Program
Ben Graham (yes, the Ben Graham of value investing) began trumpeting the idea of a professional rating for financial analysts in the early 1940s to the New York Society of Security Analysts. While the NYSSA agreed in principle to a professional rating, it would take over 20 years to iron out all the details of the program, which included creating a code of ethics and a standard body of knowledge.
Finally, in 1963 the first CFA exam took place. You can see the first exam on the CFA website, which was much that easier than the exams we see today. An interesting fact about that first exam was that most of the test takers were older than 45. Obviously, things have changed over the years.
The number of candidates rose sixfold that first year, from 284 to 1,742, and has continued to grow ever since. Today, there are more than 90,000 CFA charterholders worldwide. With that many people holding CFA charters, you can see how the CFA program has become such an important part in the world of finance.
Overview of the CFA Program
The CFA program consists of three exams, cleverly named Levels 1, 2, and 3. Each exam needs to be passed to earn a CFA charter. In addition to passing the exams, though, certain work experience requirements must be met.
This last part is partly the reason why the CFA alone will not help you break into finance. That's because you can't even become a CFA charterholder without being in the business first. You fall victim to the age old chicken-and-egg problem since you need four years of relevant, full-time work experience before you can put “CFA” after your name.
Another unique aspect of the exam is that a bachelor's degree is required to take the exam. However, undergrads can get around this in their senior year as the CFA allows you to be in your final year of your bachelor's degree program at the time of registration. However, you cannot register for Level 2 until you have completed your degree, negating the chance to take the December Level 1 exam followed by the June Level 2 exam during your senior year.
While you are taking the exams, you can only list on your résumé “CFA Level [x] Candidate.” Once you've read the Ethics section of Level 1, you will have this burned into your memory, so don't worry about it now.
Passing the exams is no walk in the park either. The exam material is written such that it takes about 300 hours of studying over six months per level to pass. Believe me, that's a lot of time given the CFA is a self-study course taken while you are still working full-time or in business school.
Of course, you'll hear stories of people who “studied for 2 weeks” and passed a CFA exam, but those stories are more myth than reality.
Further, it is a mathematical probability that you will most likely fail to pass one level. Pass rates for each exam average less than 50%. On average it takes four years to pass all three levels of the CFA program, which is likely as long as it took to earn your bachelor's degree.
In short, the best part about the CFA program is when you finish. I don't remember the day I actually received my charter, but I definitely remember the day I completed the Level 3 exam. I can firmly state that never have a glass of scotch and a cigar tasted so good in the history of the world as they did that day.
The CFA program is no walk in the park, so make sure you are convinced that a career in investing is your passion.
Benefits of the CFA
Now that you know how difficult and painful the CFA program is, why on earth would anyone want to go through it?
There are many benefits to the CFA, but the main reason anyone goes through the program is to get paid more. Various surveys indicate that CFA charterholders get paid more than non-charterholders. Given the relatively small investment required for the CFA program (at least compared to going to business school for an MBA), the ROI is quite high.
While there aren't any surveys or studies that show why CFA charterholders get paid more, I believe the biggest reason is the signaling effect from successfully completing the exams. Given that the entire program is self-study outside of work and/or school, those that complete the program tell the world that they are capable of working hard on their own.
That's not to say someone who hasn't gone through the program can't succeed and make more money, there are exceptions and outliers in everything. Look at the CFA program as a way to gain new knowledge and to advance your career.
Think about it this way: the CFA can't guarantee you will get ahead, but not doing the program could hurt you. If you take two identical job candidates, but one has completed the CFA and one has never even taken Level 1, the one who has gone through the CFA program has the edge. In the world of Wall Street, you need any edge you can get.
Another big benefit to the CFA program is you get to join a robust, thriving “club” of finance professionals. I liken this to joining a golf club (yet another golf reference from me – this is not the first and won't be the last). Golfers join golf clubs for two main reasons: they like to golf and they want to socialize with people who also like to golf.
The CFA program is much the same way: people join the “club” because they like finance and they can network, interact, and socialize with like-minded people. This means the continued education and networking opportunities are tremendous.
Candidates often fail to grasp this benefit, which is why they fail in their job search despite working through the CFA program. But more on that in a minute...
Is the CFA Program Right for Me?
The first thing you need to know about the CFA program is that it is not an ideal credential for every field of finance. The CFA is not necessary if you are looking to enter fields like investment banking, private equity, corporate finance, or venture capital.
What about sales & trading?
Even though sales & trading positions are in the public markets, the benefits of the CFA are minimal.
That's not to say the CFA can't help you in those other fields, just don't expect it help as much as if you are looking at asset management, equity research, or hedge funds.
How to Use the CFA Program to Break into Finance
As I said before, the CFA program is not your Golden Ticket to the Finance Factory. It can get you past the main gate, but you are going to need a lot more if you want to be invited in to see how the chocolate, er, money is made.
The way to use your CFA candidacy status is through networking. Join your local CFA society as a candidate member and start attending the networking events.
This is the most underused opportunity that can vault you past 99% of the other candidates looking to break into finance. Most candidates think passing the CFA exams is the only part that matters and that listing it on their résumé guarantees them a job. This is simply not the case.
The opportunity to network with other CFA charterholders, who are almost all in the investment management business, is a priceless opportunity to get your face in front of the people who matter: the people who make hiring decisions.
Showing up at these events also demonstrates your passion for investing, which I consistently emphasize as a prerequisite for breaking into finance.
Now that you know everything about the CFA program that you were afraid to ask, it's time to boil the lesson down to just one sentence:
Take the exams AND attend CFA society networking events.
Most candidates get the first part right, but very few get the second part right. Do the second part and you will put yourself far above the competition.