I don’t have an eye for much, as I have admitted from time to time in previous posts. I thought my investments in banks post crisis would help men outperform the market (wrong) and thought that QE would bring about higher inflation (also wrong). One thing I can seem to call with some accuracy is when credentials or degrees are becoming saturated.
My first inkling of this was with lawyers. I never had much interest in becoming a lawyer but I recall hearing a number of people while I was an undergrad say that if they didn’t find something they liked to do they would just become a lawyer. That was a terrible way to approach a career I thought and if I am hearing so many people use this logic, it could be that we are going to be overwhelmed with new, unhappy lawyers in the coming years. This eventually happened as there ended up being too many graduating law students for the amount of jobs that were out there. Pay suffered and many degrees went unused.
I thought the same with the MBA. Although I work with many MBA’s now, I was influenced by academic purists who thought that “business” was not an actual discipline to be studied. I guess this snobbish thought process influenced my studies in graduate school as well, where I decided to pursue finance as opposed to many who opted for an MBA. I also noticed the career ladder patterns people were developing: getting an MBA when the economy is soft and expecting a fast track for management afterwards. Apparently now, even the MBA is in dire straits as applications are falling even among the top 10 schools. Degrees that are more focused have popped up to compete like data analysis and supply chain management. As these more specialized degrees are able to add value for students, the general material covered in an MBA seems to be becoming obsolete.
That brings us to the other alternative to the MBA and a credential I see being increasingly pursued by many young people on Wall St: becoming a Chartered Financial Analyst or CFA.
What is the CFA?
To attain a CFA designation or become a “charter holder” as the society would like you to say, you have to pass 3 grueling exams that provide you with a basis in financial products across the board and giving financial guidance in general. The recommended study time for each exam is about 300 hours which would mean at least 4-6 months of intense daily studying. A daunting task for those that are working a career that already tends to be demanding in terms of hours, especially at the lower ranks.
The first level is held twice a year and the second and third levels are held only once a year. You can take each level more than once until you pass them and you will also have to pass a background check once you have passed the exams. You will also have to abide by an ethical standard that is much higher than others in the industry have to hold themselves to, which is usually just the corporate code of conduct. Violations of the ethical standard can result in someone being stripped of their designation.
Once you have passed the exams and the background check, you are then permitted to add the designation to your title at work, your business card etc. to wow your peers with your capacity for suffering. For those considering an MBA, some other graduate degree, the CFA may seem a viable alternative and one that comes with a much cheaper price tag.
Where is is Valued?
I know that some areas within finance prefer the designation and there are some managers that even require it. Those tend to be rare though. From my experience most employers count it as a “nice to have” as opposed to a requirement. I think it is generally known within the financial community that it is a very trying designation to attain so you can be content with the modicum of respect from your co-workers and clients at best.
When I first started to take the exam I was in corporate client banking and I found the first two levels gave me a broad understanding of the different products that were offered to institutional clients. There was also a personal benefit to taking the exams for my own portfolio in terms of reinforcing the theories backing up risk and diversification.
Most of those who end up attaining the designation however, end up being in the asset management or equity research field.
Source: 300hours.com
The companies that tend to employ people in these fields also dominate the breakdown by employer with investment management companies taking the most roles.
Source: 300hours.com
As you may know however, investment management and research are under considerable pressure in the past few years as more investors switch to index funds and research has to justify its expense for an increasingly smaller number of portfolio managers.
Is it Worth It?
As of 2018, there were 154,000 charter holders and 226,000 candidates enrolled to take the exam. I think that only a portion of those enrolled will eventually complete all three levels so the chances of it getting diluted any time soon are relatively low. Despite this, there is no one role that requires you to pass this as a hurdle for the job so it really depends on how you market the certification. In my personal experience, I have seen one senior person with the designation in my career, but that could be because it has only started to become more popular as a stepping stone for your career recently. Other than that, most of the people I have seen with the designation tend to be mid-level managers or below.
Being biased and just taking a glance of those taking the test on exam day, many of those I see taking it are not sales people and don’t look like people people in general. That isn’t a dig at the people taking the exam, and it’s a great challenge for people who prefer to keep their head in the books and study. We also need people who are more academic and the brains of an operation to run things smoothly. Too often are the importance of these functions downplayed or overlooked by the hierarchy of finance. Unfortunately, those types of personalities don’t usually end up moving up the ranks of many companies today.
Where I see the designation adding value in the future is in the wealth management space. This space combines the soft skills needed to deal with people but also is increasingly requiring the technical knowledge to be able to interpret and reach conclusions on where markets are headed and how to position a portfolio. The traditional financial advisor tends to be the golf playing steak eating good ol’ boy but this model is being quickly outdated. Information and technology will increasingly weed those with weaker hard skills out and advisors that are able to understand complex topics and explain them to consumers with some base knowledge will thrive.
I think the fallout in the investment management industry will continue and there will be more CFA’s moving from that industry to others and wealth management may be a good fit for those that have the soft skills. The good news is that even if that happens, I don’t think the designation is going to be diluted. The rigor of the exam and the highly educated background of those taking it I think will continue to maintain the soft prestige that it has within the field.
So is a CFA worth it? Unfortunately the answer is not always clear on a general basis but I am going to say for most people it’s a no. If you have a solid plan to market your credentials within a particular niche then yes, it may have some advantages. The problem is that most people don’t. For them it’s just going to be another title or diploma that they feel should award them something when in actuality it’s all about how you use it to your advantage. The same would go for an MBA or any other graduate degree nowadays too. I see graduate degrees more of a marketing tool anyway, I can say that only a few classes offered any value add in my experience in graduate school and those were usually some classes that I just didn’t happen to take as an undergrad. So the unsatisfying answer is that it’s up to you, a designation or degree doesn’t make the person but what you do with it can make a great difference within your career.
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