What Is A Chartered Financial Analyst (CFA)? – Forbes Advisor

CFA stands for chartered financial analyst, a professional designation awarded by the CFA Institute to candidates with proven competence in investment analysis and wealth management.

Think of CFAs as the all-stars of the money management industry: They excel in the competitive world of financial analysis and have put the extra work required to earn the gold standard in their profession.

CFA Definition

When you see CFA as part of someone’s title, that means they are a professional with in-depth training in the core skills of investment strategy and high-level money management. To earn the title of CFA, charter holders must demonstrate expertise in financial research, portfolio management, investment consulting, risk analysis and risk management.

Earning a CFA is often a requirement for becoming a chief investment officer at an investment firm or public company; engaging in credit analysis, corporate accounting and auditing; or doing financial planning for high net-worth individuals. The CFA Institute awards the certification, which is widely considered the apex for professional development in investment management.

“A CFA charter holder is someone who has attained one of the highest distinctions in the investment management profession,” says Jeremy Keil, a CFA and financial planner at Keil Financial Partners in New Berlin, Wisc. “They are trained in deep investment analysis, well beyond the knowledge of a typical financial advisor.”

The only downside to hiring a CFA? “They are tough to find,” Keil says. “Most work for institutions managing million-dollar-plus portfolios and don’t work directly with regular financial consumers.”

How to Earn a CFA

Becoming a chartered financial analyst is a complicated proposition, by design. It’s considered very tough to run the gauntlet of training and testing required to achieve CFA status.

“The requirements of becoming a CFA are rigorous and retain a type of elite status, which is another reason why CFAs can be expensive for the financial consumer who hires them,” says Daniel Rodriguez, director of operations at Hill Wealth Strategies, in Richmond, Va.

To become a CFA charter holder, candidates must:

• Have a bachelor’s degree or a degree from an equivalent academic program or 11 months or fewer to graduation if they are still studying.
• Have 4,000 hours of relevant work experience acquired over at least three sequential years.
• Pass a series of three six-hour exams.
• Be able to travel worldwide, be fluent in English and reside in a country that recognizes CFAs.

The tests are famously rigorous and may require 900 hours or more of study in 10 topic areas to prepare for. Most CFA applicants don’t make the cut, for a variety of reasons.

“The exams assess the person’s knowledge of economics, personal and professional ethical situations, money management scenarios, as well as other topics relating to money management and finance that must be expressed, depending on which test, either quantifiable or qualitatively, or both,” says Rodriguez. “The pass rate for each section of the three exams is less than 40%.” After all of the exams, that works out to a rate of less than one in five candidates receiving their CFA, according to the CFA Institute.

Even after the exams and the prerequisites to take the exam are met, CFA’s still have some work to do. They need to pay annual dues and certify they remain in good standing with the CFA principles.

“In educational terms, holding a CFA is equivalent to achieving a master’s degree in one’s field,” says Rodriguez.

CFA vs CFP: Different Skills for Different Needs

The designations for certified financial planner (CFP) and CFA may seem somewhat similar at first glance. While both titles tread the same wealth management turf, a chartered financial analyst plays a very different role than a certified financial planner, and in most cases offers a very different skill set.

​“The main difference between a CFA and certified financial planner is that a certified financial planner works with individual clients to achieve personal financial goals in the short- and long-term,” says Rodriguez. “A chartered financial analyst works with large-scale, corporate investment opportunities and situations.”

A CFP focuses on financial planning for individuals and families, and they benefit from having strong people skills. CFPs know a great deal about investing and personal finances, but their knowledge is oriented toward building and managing investment portfolios for clients.

Meanwhile, the skillset of a CFA is focused on high-level investment management, and they are trained in economics, financial reporting, corporate finance and complex equity investing strategies. CFAs often work at large organizations and handle research and analysis for investment companies.

For regular individuals who need help setting up a financial plan and managing personal investments, a CFP generally more than meets their needs. “Unless, they have a great deal of financial wealth to manage,” says Rodriguez, in which case a CFA might make sense.

How Much Do CFAs Cost?

CFAs are well-paid financial professionals. According to Payscale.com, a chartered financial analyst typically earns a base salary of $90,000, plus bonuses of up to $50,000 annually, along with profit sharing, stock equity and other high-end employee benefits, in most cases.

“The cost of a CFA depends on the position they’re filling,” says David Wright, executive director of practice development at M&O Marketing in Southfield, Mich., who works with investment advisors to build their practices. “However, for the industry’s gold standard, we have seen a level pay increase of 7% per year since 2012.”

If you’re working one-on-one with a chartered financial analyst, expect to pay the same fee structure most financial advisors use. For example, expect a common charge of $1,500 to $2,500 for a one-time portfolio construction fee.

Past that, you’ll probably pay around 1% of your total assets managed on an annual basis. That means if you have a portfolio of $3 million under CFA management, you’ll be paying a management fee of $30,000 per year.

How to Choose a CFA

If you’re a high net-worth individual, chances are you can access the services of a certified financial analyst via your bank’s private banking services, an investment management firm, a hedge fund company or any other high-end wealth management firm.

Or you can go it alone. You should do your homework on prospective CFAs in any case, but when flying solo, you need to be extra careful.

“To hire a CFA, go to the CFA Institute Career Center, which connects employers and recruiters with investment professionals associated with the institute,” Wright says. “Due diligence is important when selecting any member of your investment team. FINRA.gov and the CFA Institute allow you to look up information on designation members and verify their status.” The CFA Institute also has a listing of all CFA charter holders.

If a CFA isn’t the best professional for your roster, try aiming for other money management designations that align with your personal needs. “Some common alternatives may be a certified financial planner or an investment advisor,” he adds.

You’ll also want to make sure any potential financial professionals in your life are fiduciaries, meaning they’re legally required to put your financial best interests above theirs.

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Does a CFA Make Sense For You?

Whether you need to work with a CFA depends on two issues: The size of your investment portfolio and your unique investment management needs.

“Most clients need someone to answer their questions that aren’t related to stocks and bonds, and a certified financial professional is your best bet there,” says Keil. Whether that professional is a CFA, a CFP or something else entirely will depend on your personal financial situation.