Is the 'grueling' CFA exam worth it for advisors?

Many financial planners have an interest in becoming a Chartered Financial Analyst (CFA). But while some understand what they are getting into when they decide to take the exam — the cost, the time it will take, and how having the charter will help their careers — others don't. 

Before you make that decision, it is crucial to understand that earning the CFA designation is a grueling process. You need to consider whether the benefits for your career outweigh the challenges associated with studying for and passing three notably difficult exams (the pass rate for the August 2022 CFA level 1 exam was 37%).

As one who has passed the exam and created materials for others hoping to pass, here's my advice.

Education and career benefits
The charter may enhance your career mobility and earning potential by giving you a leg up on other job candidates and colleagues. The operative word here is "may." Career progression involves many variables, many of which you will likely have limited control over. But having an additional credential, especially one as universally recognized as the CFA charter, will never hurt you.

Even if you work as an independent financial advisor, having the charter can help you. Many advisors have earned the Certified Financial Planner designation, which, as the name suggests, focuses on overall financial planning for individuals. The curriculum for the CFP exam covers areas such as retirement planning and insurance needs. The CFA exam, by contrast, focuses more on financial analytics. An advisor with both designations will likely be better positioned to assist clients map out a strategy for financial success and to recommend the best investments for executing on the strategy. And since just about 5% to 10% of CFPs also carry the CFA designation, holding it can help set you apart. 

There are several financial career paths where being a CFA charterholder is a significant advantage and one of those areas is investment management. As that sector becomes more commoditized and competitive it becomes increasingly imperative for investment professionals to earn additional accreditation as a way to differentiate themselves from the rest of the pack.

As for skills, charterholders can be an advantage when it comes to areas including  asset management for nonprofits; equity or fixed income analysis;  quantitative analysis; academia; and, last but not least,  financial planning.

The average salary for an MBA degree-holder is $135,000, compared to $93,000 for a CFA charterholder. However, an MBA program can cost anywhere from $50,000 to $200,000 and take two years to complete — or longer if you pursue it as a part-time student. The CFA exams cost $3,000 and require approximately 300 hours of study per exam. However, the potential income differential should not be the deciding factor between these two designations as the programs are completely different in focus. The right choice is very much driven by the type of career you want to pursue.

Getting — and keeping — the job
I'm often asked by recent graduates, "How do I make myself bulletproof in this industry?" Employment in the financial world is very much tied to the economy, and in tough economic times, there will be layoffs. Earning the CFA charter is one step you can take to maximize your chances of survival when companies are reducing headcount. The additional knowledge you receive from studying for the exams, as well as the dedication you show by setting and achieving a difficult goal, will show your employer flexibility and dedication.  

In order to earn the CFA designation, one must demonstrate a deep understanding in investment analysis of different financial assets, of management and of ethics. In the process, you will gain knowledge, add an impressive credential to your CV and boost your reputation. Investment professionals know the dedication and time it takes to earn the charter. When they see that you have earned it, they recognize that you possess superb analytical skills, ethical grounding and dedication. 

Pass or fail
Each level of the CFA curriculum and exam are different in subject matter and format. Level I focuses on fundamentals, such as bond pricing and probability concepts. Level II covers the same topics as Level I, but in far more detail and with a focus on real-world application of the concepts. In Level III, the most advanced level, candidates are expected to perform sophisticated analysis on multiple asset classes and to explain their decisions and conclusions. Level III is also different in terms of format. Whereas Levels I and II are composed of  multiple-choice questions, Level III is split between multiple choice and essay questions. Note that ethics comprise a significant portion of all three levels on the exam. 

In 2021, pass rates for all three levels plunged to record lows, causing lot of hand-wringing among current and future candidates who wondered whether it was "too technical" that year; if CFA Institute had decided to raise the minimum passing score; or whether pandemic-related disruptions and other reasons factored into the dramatic plunge.

To me, the "why" of  the dropped pass rate is irrelevant. If you're studying for an exam, you want to be in that passing group, so it's more important to do what's necessary to pass, rather than look for reasons why you might not. The CFA exams are hard but fair, and the bottom line is that if you study, you pass. By studying, I mean that you need to devote yourself to the goal. Although you can't ignore your fundamental obligations to work and family, at the same time, you must recognize that you can't go out with friends after work because that represents time you could be studying. Turn off the TV and shut off the phone — or at least turn off social media).

I believe that there are three main reasons why people fail the CFA exams: you allow yourself to be too distracted; you don't study for at least 300 hours for each level;  and/or you don't have a strategy to take the exam.

Here are two tips to help you pass:

•  Set a schedule and stick to it: Create a balance between the time you need to study and when you need to do other things. I passed all three levels the first time and it wasn't luck: I worked very hard because I was motivated. I didn't want to have to study for it again. Develop the discipline to schedule different aspects of your life so you set yourself up for success.

• Time the arc of your studying so that on exam day you're at the peak. Ideally, when you walk into that test center, you're never going to know more about this material. Don't fill your head with information months in advance and then do minimal studying until you take the exam. It's difficult to force yourself to keep studying when you finished your primary studying months before the exam, and you likely won't retain as much from that initial effort as you might think.

The CFA is not for everyone, but nearly everyone who has earned the charter agrees that the effort was worthwhile. Do you have the dedication and discipline to put in the effort? If so, then the path to the charter is a great journey to embark on.