Chartered Financial Analyst
Chartered Financial Analyst
The Chartered Financial Analyst (CFA) Program is a professional credential offered internationally by the American-based CFA Institute (formerly the Association for Investment Management and Research, or AIMR) to investment and financial professionals. The program covers a broad range of topics relating to investment management, financial analysis, quantitative analysis, equities, fixed income and derivatives, and provides a generalist knowledge of other areas of finance.
A candidate who successfully completes the program and meets other professional requirements is awarded the "CFA charter" and becomes a "CFA charterholder". As of October 2018, there are approximately 150,000 charterholders around the world in more than 165 countries.[1][2] Successful candidates take an average of four years to earn their CFA charter.[3][4] Only around 9% of candidates have consecutively passed all three levels in the past decade.[4]
The top employers of CFA Charterholders globally include JP Morgan, UBS, Morgan Stanley, Royal Bank of Canada, BlackRock and Goldman Sachs.[5]
Notable CFA Charterholders include billionaires Bill H. Gross, founder of PIMCO, and Howard Marks, founder of Oaktree Capital Management.
History
The predecessor of CFA Institute, the Financial Analysts Federation (FAF), was established in 1947 as a service organization for investment professionals. The FAF founded the Institute of Chartered Financial Analysts in 1962; the earliest CFA charterholders were "grandfathered" in through work experience only, but then a series of three exams was established along with a requirement to be a practitioner for several years before taking the exams. In 1990, in the hopes of boosting the credential's public profile, the CFA Institute (formerly the Association for Investment Management and Research) merged with the FAF and the Institute of Chartered Financial Analysts (ICFA).
The CFA exam was first administered in 1963 and began in the United States and Canada but has become global 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 United States and Canada, with most of the other candidates based in Asia or Europe. The number of charterholders in India and China had increased by 25% and 53%, respectively, from 2005-06.
Requirements
To become a CFA charterholder, candidates must satisfy the following requirements:[6]
Pass all three levels of the CFA Program (mastery of the current CFA curriculum and passing three examinations)
Have four years (48 months) of qualified work experience work experience acceptable by the CFA Institute. However, individual level exams may be taken prior to satisfying this requirement;
Become a member of the CFA Institute
Adhere to the CFA Institute Code of Ethics and Standards of Professional Conduct
Due to the timing of the exams, it is possible to complete all three levels of the CFA within two years. However, candidates must still complete the work experience requirement of four years to become a charterholder.[7]
Process
The basic requirements for participation in the CFA Program (with or without obtaining the charter) include holding a university degree or being in the final year of a university degree program (or equivalent as assessed by the 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 six hour exams that test the candidate's knowledge of the academic portion of the CFA program. However, an accredited degree may not be a requirement.[8][9]
Curriculum
The curriculum for the CFA program is based on a Candidate Body of Knowledge established by the CFA Institute.[10] The curriculum comprises the topic areas below. There are three exams ("levels") that test the academic portion of the CFA program. All three levels emphasize the subject of ethics. The material differences among the exams are:
The Level I study program emphasizes tools and inputs, and includes an introduction to asset valuation, financial reporting and analysis, and portfolio management techniques.
The Level II study program emphasizes asset valuation, and includes applications of the tools and inputs (including economics, financial reporting and analysis, and quantitative methods) in asset valuation.
The Level III study program emphasizes portfolio management, and includes descriptions of strategies for applying the tools, inputs, and asset valuation models in managing equity, fixed income, and derivative investments for individuals and institutions.
For exams from 2008 onward, candidates are automatically provided the curriculum readings from CFA Institute at the time of registration for the exam. The curriculum is not provided separately in the absence of exam registration. If the student fails an exam and is being allowed to resit in the same year, the CFA Institute offers a slight rebate and will not send the curriculum again (the curriculum changes only on an annual basis). If the student resits in a year other than the year of failure, he or she will receive the curriculum again, as it may have been changed. Study materials for the CFA Exams are available from numerous commercial learning providers, although they are not officially endorsed. Various organizations (some officially accredited) also provide course-based preparation.[11] As of 2019, the Chartered Financial Analyst (CFA) examination will add questions on artificial intelligence, automated investment services and mining unconventional sources of data.[12]
Ethics
The ethics section is primarily concerned with compliance and reporting rules when managing an investor's money or when issuing research reports. Some rules pertain more generally to professional behavior (such as prohibitions against plagiarism); others specifically relate to the proper use of the designation for charterholders and candidates. These rules are delineated in the "Standards of Professional Conduct", within the context of an overarching "Code of Ethics".
Quantitative methods
This topic area is dominated by statistics: the topics are fairly broad, covering probability theory, hypothesis testing, (multi-variate) regression, and time-series analysis. Other topics include time value of money—incorporating basic valuation and yield and return calculations—portfolio-related calculations, and technical analysis.[13]
Economics
Both microeconomics and macroeconomics are covered, including international economics (mainly related to currency conversions and how they are affected by international interest rates and inflation). By Level III, the focus is on applying economic analysis to portfolio management and asset allocation.
Corporate finance
The curriculum includes the more fundamental corporate finance topics—capital investment decisions, capital structure policy, and dividend policy—as well as advanced topics such as the analysis of mergers and acquisitions, corporate governance, and business and financial risk.
Financial reporting and analysis
The curriculum includes analyzing financial reporting topics (International Financial Reporting Standards and U.S. Generally Accepted Accounting Principles), and ratio and financial statement analysis. Financial reporting and analysis of accounting information is heavily tested at Levels I and II, but is not a significant part of Level III.
Security analysis
The curriculum includes coverage of global markets, as well as analysis of the various asset types: equity (stocks), fixed income (bonds), derivatives (futures, forwards, options and swaps), and alternative investments (real estate, private equity, hedge funds and commodities). The Level I exam requires familiarity with these instruments.
Level II focuses on valuation, employing the "tools" studied under quantitative methods, financial statement analysis, corporate finance and economics.
Level III centers on incorporating these instruments into portfolios.
Portfolio management
This section increases in importance with each of the three levels—it integrates and draws from the other topics, including ethics. It includes: modern portfolio theory (efficient frontier, capital asset pricing model, etc.); investment practice (defining the investment policy for individual and institutional investors, resultant asset allocation, order execution); and measurement of investment performance.
Legal and other recognition
The Society of Actuaries (SOA) granted the credit of Validation by Educational Experience (VEE)-Economics to the candidates who passed the CFA Level I exam. SOA also granted both the credits of VEE-Corporate Finance and VEE-Applied Statistical Methods to the candidates who passed the CFA Level II exam.[14]
New York Stock Exchange (NYSE) granted CFA charterholders the option to take only the portion of the Supervisory Analyst examination dealing with exchange rules on research standards and related matters.
U.S. Securities and Exchange Commission (SEC) may grant exemption of the Series 86 testing requirements to financial analysts passing the CFA Level II examination who also meet other requirements of the Financial Industry Regulatory Authority, formerly known as the National Association of Securities Dealers (NASD).[15]
To register as a portfolio manager in Canada, under National Instrument 31-103, registrants must hold the CFA and possess relevant experience, or alternatively, the Chartered Investment Manager.
CFA charterholders are recognized by the UK's Chartered Institute for Securities & Investment (CISI) as fulfilling the qualification requirements for entry into full membership (MCSI).[16]
The level of the content of the CFA Program has been recognized by the United Kingdom NARIC as being comparable in level to a QCF Level 7 (master's degree level) qualification.[17]
Taiwan's Financial Supervisory Commission (FSC)[18] has approved the CFA designation with two-year practical working experience and passed the test of regulations of Securities Investment Trust & Consulting Enterprise and the test for common knowledge of financial markets and professional ethics, the common subjects, as equivalent to a local recognized industry qualification of Certified Securities Investment Analyst (CSIA) in Taiwan, after reviewed and approved by Securities Investment Trust & Consulting Association (SITCA)].[19]
The Academic and Accreditation Advisory Committee of Hong Kong's the Securities and Futures Commission (SFC) has approved the CFA designation as a recognized industry qualification for the licensing of Responsible Officers in Hong Kong.
CFA charterholders who meet the competence requirement, which include both education training and work experience, may apply to register with the Hong Kong Business Valuation Forum (HKBVF) as Registered Business Valuer (RBV) in Hong Kong.[20]
CFA charterholders are recognized by HK's Hong Kong Securities Institute (HKSI). Charterholders could apply for individual membership. (MHKSI).[21]
CFA charterholders are exempted by the Professional Risk Managers' International Association (PRMIA) from the first two required exams for the PRM qualification.[22]
Exemptions are available for various modules in the South African Registered Persons Examination,[23] depending on the candidate's level.[24] No exemptions are available for the examination on local market regulations and compliance.
CFA charterholders are recognized by Brazilian main regulator of securities analysts, APIMEC,[25] as the equivalent to their "global content" test, although the candidates must still pass a "local content" test to award their memberships.
CFP Board has approved the CFA charter as fulfilling most of the education coursework requirement for CFP® certification, pending completion of a capstone course registered with CFP Board prior to sitting for the CFP exam.[26]
Trademark disputes
India
CFA Institute is strictly not affiliated with the Chartered Financial Analyst degree offered by the Institute of Chartered Financial Analysts of India (ICFAI) University of India or its affiliate, the Council of Chartered Financial Analysts (CCFA). In 1998, CFA Institute's predecessor organization, AIMR, sued and won a judgment against ICFAI/CCFA.[27]
The judgment prohibited ICFAI/CCFA and its members from using the CFA or Chartered Financial Analyst mark in the United States and Canada. In August 2006, an Indian court issued a temporary injunction against the Indian entity, as well.
The judgments made no assessment of the quality of the Indian program and merely discussed the trademark violation. The Indian Association of Investment Professionals is the only organization in India which is affiliated with CFA Institute. CFA Institute trademark rights to the "CFA" and "Chartered Financial Analyst" brands have been recognized in India by the Delhi High Court. Further, the Delhi High Court issued an interim injunction ordering ICFAI and its affiliated Council of Chartered Financial Analysts to stop using CFA Institute trademarks. The Deputy Registrar of Trade Marks did recently determine that a trademark registration issued to CFA Institute for the "CFA" brand must be republished because of an error by the Trade Marks Registry. CFA Institute has numerous trademark applications on file with the Trade Marks Registry, and CFA charterholders from CFA Institute are free to use the "CFA" and "Chartered Financial Analyst" marks throughout India.[28]
On May 8, 2007, the U.S. District Court for the Eastern District of Virginia vacated a default judgment issued against ICFAI that CFA Institute obtained in October 1998. ICFAI recently moved to reopen the case and to vacate the Default Judgment because the Court lacked jurisdiction over ICFAI at the time the Default Judgment issued. With the default judgement vacated, ICFAI informed Indian CFA Charter holders that they could legally use their Charter in the United States and Canada. However, on September 4, 2007, the Court reversed its decision to vacate after a motion to reconsider that decision was filed by CFA Institute.[29] The latest update on the CFA Institute's legal battle in India can be found from the interview of Ashvin P. Vibhakar, Managing Director of the CFA Institute.[30]
United Kingdom—Trade Marks Registry vs CFAI
In January 2007, the Trade Marks Registry, UK refused to register "Chartered Financial Analyst" as a trademark, as the word "chartered" in the United Kingdom is associated with bodies incorporated by royal charter and thus "the relevant public in the UK would, prima facie, expect a person using the mark applied for to be representing themselves as a member of an organization of the kind subject to a Royal Charter".[31] "CFA" is a registered trademark in the UK, but only for "Educational services" (class 41) rather than "Financial services" (class 36) under which the attempt to register "Chartered Financial Analyst" had been made.[32]
List of CFA charterholders
See also
Other professional designations The Certificate in Investment Performance Measurement designation of the CFA Institute Certified Treasury Professional (CTP) Chartered Market Technician (CMT) Certified International Investment Analyst (CIIA) Chartered Alternative Investment Analyst (CAIA) Financial Risk Manager (FRM) Professional Risk Manager (PRM) Certified Management Accountant by the Institute of Management Accountants Certified Financial Planner (CFP) Certificate in Quantitative Finance (CQF) Chartered Investment Manager (CIM) Certificate of Bank Treasury Risk Management (BTRM) Certified Defense Financial Manager (CDFM)