Chartered Financial Analyst


The Chartered Financial Analyst Program is a post-graduate professional qualification offered internationally by the American-based CFA Institute to investment and financial professionals. It has the highest level of global legal and regulatory recognition of finance-related qualifications. The program covers a considerably wide range of topics relating to advanced investment analysis and thus- security analysis, statistics, probability theory, fixed income, derivatives, economics, financial analysis, corporate finance, alternative investments and portfolio management - 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 2019, there are at least 167,000 charterholders around the world in 164 countries, growing 7% annually since 2012. Successful candidates take an average of four years to earn their CFA charter, with around 9% of candidates having consecutively passed all three levels in the past decade.
The top employers of CFA Charterholders globally include JP Morgan, UBS, Morgan Stanley, Royal Bank of Canada, BlackRock and Goldman Sachs.
Notable CFA Charterholders include billionaire hedge fund managers Bill H. Gross, founder of PIMCO, and Howard Marks, founder of Oaktree Capital Management.

History

The predecessor of CFA Institute, the Financial Analysts Federation, 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 merged with the FAF and the Institute of Chartered Financial Analysts.
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.

CFA Charter

The CFA designation is designed to demonstrate a strong foundation in advanced investment analysis and portfolio management, accompanied with a strict emphasis in ethical practice.
A CFA Charterholder is held to the highest ethical standards. Once an investment professional obtains the charter, this individual also makes an annual commitment to uphold and abide by a strict professional code of conduct and ethical standards. Violations of the CFA Code of Ethics may result in industry related sanctions, suspension of the right to use the CFA designation, or a revocation of membership.
Sector%
Investment Management / Fund Management22%
Financial Accounting12%
Investment Banking / M&A10%
Wealth Management6%
Equity Research6%
Private Equity6%
Risk Management6%
Research4%
Corporate Banking4%
Management Consulting4%
Fixed Income4%
Derivatives3%
Hedge Funds3%

Requirements

To become a CFA charterholder, candidates must satisfy the following requirements:
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.

Process

The basic requirements for participation in the CFA Program include holding a university degree or being in the final year of a university degree program, 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 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.

Curriculum

The curriculum for the CFA program is based on a Candidate Body of Knowledge established by the CFA Institute. The curriculum comprises the topic areas below. There are three exams that test the academic portion of the CFA program. All three levels emphasize the subject of ethics. The material differences among the exams are:
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. 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 also provide course-based preparation. As of 2019, the Chartered Financial Analyst examination will add questions on artificial intelligence, automated investment services and mining unconventional sources of data.

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 ; 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".

Tools and inputs

Quantitative methods

This topic area is dominated by statistics: the topics are fairly broad, covering probability theory, hypothesis testing, 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.
Recent additions are a review of machine learning and big data.

Economics

Both microeconomics and macroeconomics are covered, including international economics. 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, 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 and valuation of the various asset types: equity, fixed income, derivatives, and alternative investments.
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.

Derivatives

The curriculum includes coverage of the fundamental framework of derivatives markets, derivatives valuations, hedging and trading strategies involving derivatives. Coverage includes Futures, forwards, swaps, options, various pricing models such as the Black-Scholes model and binomial option pricing.

Alternative Investments

The curriculum includes coverage of a range topics in the alternative investment category. Topics include hedge funds, private equity, real estate, commodities, infrastructure, and other alternative investments, including, as applicable, strategies, sub-categories, potential benefits and risks, fee structures, and due diligence.

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 ;
investment practice ;
and measurement of investment performance.

Efficacy of the CFA program

Given the time and effort that candidates must undergo to complete the CFA program, it would be expected that CFA charterholders have higher performance than those who do not complete the program. However, there is some evidence that differential analyst performance is economically inconsequential, suggesting the predominance of signaling; although other research in the suggests a positive human capital impact from the CFA program.
Aside from academic research, anecdotal evidence exists for both the human capital and signaling points of view.

Global Accreditation and Legal Recognition

Legal Recognition by Country

Australia

The [Society of Actuaries] (SOA)

The Society of Actuaries granted the credit of Validation by Educational Experience -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.

[Professional Risk Managers' International Association] (PRMIA)

CFA charterholders are exempted by the Professional Risk Managers' International Association from the first two required exams for the PRM qualification.

[Certified Financial Planner Board of Standards] (CFP Board)

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.

Trademark disputes

India

CFA Institute is not affiliated with the Chartered Financial Analyst degree offered by the Institute of Chartered Financial Analysts of India University of India or its affiliate, the Council of Chartered Financial Analysts.
In 1998, CFA Institute's predecessor organization, AIMR, sued and won a judgment in an American court against ICFAI/CCFA. 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 were affirmed 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 determined that the 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.
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 had 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. 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.

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". "CFA" is a registered trademark in the UK, but only for "Educational services" rather than "Financial services" under which the attempt to register "Chartered Financial Analyst" had been made.

List of CFA charterholders