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Battle Royale – MBA vs. CFA

in CFA, MBA, etc.

Should I get a CFA or an MBA?Should I get an MBA or should I get a CFA? It’s a very common question … it’s also the wrong question.

An MBA and a CFA are not mutually exclusive, nor are they perfect substitutes for each other. I have both and would recommend that route to anyone, but it’s worth a minute comparing the two.

CFA – Chartered Financial Analyst

The CFA designation is given to those who pass three extraordinarily hard exams and who also have the prerequisite work experience. The entire CFA program can cost less than $5,000 depending on the quantity of study materials acquired. However, all three exams have pass rates that are less than 50%. Odds are that you will fail at least one exam. Avoiding failure means a lot of self-studying. This is not fun.

The CFA program is a pain the a$$, and everyone with the CFA charter knows this. I believe much of the value in the CFA is its signal to others that you are a diligent self-starter. The content learned from the CFA program is directly applicable to investing, though. It won’t necessarily make you a better investor, but it will give you the building blocks to become one.

MBA – Master of Business Administration

To some the MBA is seen as a path to personal wealth. To others, it is everything that is wrong with corporate America. In reality, the truth lies somewhere in between. Getting an MBA can be extremely expensive, but the payoff lies in better opportunities and a higher salary. However, unless you are in an investing track, an MBA won’t make you a better investor.

So which one is right for me?

I could spend a lot of time debating the pros and cons of each, but there’s a better way to decide. The value of each is merely what the market is willing to pay. In this case, the “market” is the job market. All of the various investment management compensation surveys I’ve seen over the years have all shown the same thing:

  • MBAsĀ earn significantly more than non-MBAs, as much as 30-40% more
  • CFA charterholdersĀ earn significantly more than non-CFAs, as much as 30-40% more

All else being equal, the increase in salary is roughly equivalent for both an MBA and a CFA. This brings us full circle to my starting advice:

  • CFA charterholders with an MBA earn more than CFA or MBA alone, as much as 10-15% more.

Simply put: You will make more money with an MBA and a CFA. But at what cost? Given that an MBA is so much more expensive than a CFA, isn’t the ROI on a CFA much higher? The answer is, as with most things in life: It depends.

Part of the CFA charter requirements is the need for relevant work experience in investment management. If you aren’t already in the investment management business, this makes the CFA a non-starter. In this case, I would take a look at my post on deciding to get an MBA to see that the MBA can be the only path for career switchers (this is the path I took). To summarize, here are some brief guidelines to follow:

  1. To make more money, get an MBA or become a CFA charterholder or both.
  2. If you are already in the investment management business and want to move up – complete the CFA program.
  3. If you are not in the investment management business and don’t want to start as an entry-level analyst as a career switch – go back to b-school for an MBA, then do the CFA.

For the career switchers out there, Option #3 can be combined at a number of schools now that have partnered with CFA Institute to offer MBA degrees while studying and taking the CFA exams. This would be my recommendation for those with a few years experience that want to switch to a career in investing.

 

{ 25 comments… read them below or add one }

Sal

What about MSF?

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LBS - Mike

MSF is a bit more specialized and the alumni networks are not as broad, but otherwise everything else applies the same to MSF as MBA.

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Small Enought to Fail

Good article. I agree that an MBA and CFA together would be best in a perfect world. If you had to pick one though, I would definitely suggest pursuing the CFA. It’s cheaper and gives instant credibility in finance. I’m a portfolio manager and wrote a similar post over on my blog: http://smallenoughtofail.wordpress.com/2011/07/11/the-cfa-designation/

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JT

Hi,nice article. Someone with 3-5 of experience in accounting(controller,financial manager) or in risk(credit,market) can with an MBA find front office roles in Asset Management and Equity Research?Or only middle, back office? I have heard that these guys are pigeonholed and neither MBA or CFA can help them find a job in AM or ER(only industry,consulting,front office in banking can make the transition)?Thanks for your time and attention.

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LBS - Mike

What you heard was incorrect. People use MBAs and CFAs to transition to AM or ER all the time. Heck, I was in insurance and then RE development before I got my MBA and transitioned to AM. The key is to not gain too much experience. At 3-5 years you are in good shape, at 10-15 years it’s going to be a lot more difficult.

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GT

Great articles, enjoy reading them. I’m currently in commercial real estate finance as an analyst (we cover REIT’s, developers, REOC’s), thinking about where I want to be in a few years. I would eventually like to move into RE investment management or RE private equity. Would either CFA or MBA add any value to these areas?

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LBS - Mike

MBA – yes, CFA – no.

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Juan Schmidt

Hello! Great article I am graduating this December with a BS in hospitality management and a minor in economics starting August 22 I’m going to start taking online revenue and financial management classes at eCornell what I really want to do is controlling/finance/financial advisement in the hotel industry would you recommend me getting a masters in finance ? and MBA or A CFA??

Thank you and have a great day!

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LBS - Mike

Is your BS from Cornell? If so, start working that alumni network and quit worrying about MBA vs. CFA. I’d swear that everyone in the hotel business as a degree from Cornell.

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Z

Hey, real thorough analysis. What would you recommend for someone who just started career one/two year or so in the technology side of a first-tier bank? Is MBA or CFA better as a goal to work towards at a few years down the road.
Thanks!

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LBS - Mike

Either, or both, since you are working at a bank. MBA if you were in tech at a non-finance firm.

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Alain

Hi,

What would you recommend for someone who is an attorney? I am enrolling in an MBA program next year and then plan to do CFA afterwards?

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SV

What would you recommend for someone starting out as an analyst at an M&A boutique and working towards a career in private equity? Thanks

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dominic kwofie

am working in an insurance company as a claims officer, i want to ask if i can take the cfa?

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LBS - Mike

Anyone can go through the program, the investment-related work experience only matters for obtaining the charter.

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User

I am holding an MBA degree and having two and half years of experience and presently working as Finance Manager. Can I go for CFA ? Being having an MBA degree , is there any reduction in the syllabus ?

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User

I read like in order to apply for CFA one should have financial/invest related work experience?

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Vijaya R

Hi
I am a BBM graduate and currently doing my Chartered Accountant course in India. As u know that nowadays the competition has become so high and tough as well. so I wanted to know whether is it worth to register for CFA or not?. do I have more opportunity if I do the CFA course as besides having a CA certificate or do you think CA is enough?

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ryan

Hi!

I am debating whether or not to accept an offer to attend a 10-15 MBA program with a large network in Souther California. I want to become a financial analyst and eventually a PM. Even though I majored in Finance, I have spent the last three years teaching. Is an MBA the best option for me to break in?

Thanks for the advice.

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Scott

The “New York Sun” newspaper reported in 2006 that there are 50,000 CFAs in the United States, with nearly 20 percent of them working in New York City. These financial analysts earn a median salary of $180,000 a year, which the newspaper reported averages 54 percent higher than salaries of financial analysts with comparable experience. For earning power, the CFA even beats the prestigious MBA degree. The “Sun” reported that a CFA with 10 years of experience earns an average of 18 percent more than an investment analyst with an MBA only. About 60 percent of CFAs have a graduate degree, as well.

Read more: http://www.ehow.com/info_8604498_salary-chartered-financial-analyst-cfa.html#ixzz2a50iHd9s

Reply

jimmy

What would you guys recommend for a Stockbroker who wants to strengthen his portfolio management and stock picking skills??
a CFA or MBA ??

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Aaron Sarkar

I am graduating with my ba in economics and will begin working for The Vanguard Group in June. I am considering to begin my masters in investment management at the Fox School of Business in the Fall which is geared toward preparing me for my CFA. Then after working with my CFA for a few years I hope to get my EMBA from Wharton. Is this plan solid for someone who wants to pursue a career as a portfolio manager? Is there anything you’d suggest I do differently?

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LBS - Mike

I doubt you’ll need to consider the EMBA at that point. I’m not sure I know any person who has one.

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Mohammed

I cannot afford to go to a business school at this moment but keen to gain knowledge in Finance to be able to talk finance in meetings and conduct investment appraisals. Should I do CFA Level I to gain knowledge enough to get going or look at other options. Suggestions please. Thanks

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Brian

Hi, I am Just a Rhodes university graduate in Phyiscs and Mathematical statistics, But i fell in love with financial mathematics and I so badly want to be a stockbroker, so which should i go for?, CFA or MBA?

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