Could the CFA Become the New MBA?

The debate about whether or not the CFA designation is better than an MBA, or just a nice complement, has been raging for years. While there are definite pros and cons to each, some say the CFA offers at least one major advantage over the MBA—savings. Before we discuss the positives and negatives of each, let’s take a look at what the CFA is all about. 

CFA stands for “Chartered Financial Analyst,” and it is one of the world’s most recognized professional qualifications in finance. Formerly AIMR (the Association for Investment Management and Research), the CFA professional designation is given by the CFA Institute and it measures the competence and integrity of financial analysts. Candidates are required to pass three levels of exams covering areas such as accounting, economics, ethics, money management and security analysis. Each individual level requires a time investment of around 300 hours of study and a financial investment of roughly $1,000 per level. If you make it through all three levels, annual dues are $275 (as of 2016-2017). Keep in mind that many employers cover these dues. 

According to Investopedia, successful candidates take an average of four years to earn the designation, but successful candidates are not too easy to come by. Take a look: 

  • The 10-year historical pass rate for level one is 42%.
  • The 10-year historical pass rate for level two is 39%.
  • The 10-year historical pass rate for level three is 53%.

Investopedia mentions that when looking at the level two pass rate, it is important to note all candidates taking level two have already passed level one and when looking at the level three pass rate, note that all candidates taking level three have already passed levels one and two. Using these pass rates, says Investopedia, the probability of passing all three exams in a row is about 8.6%. Let’s take a look at what each exam covers:

Level One Exam

Administered just twice per year, the level one exam focuses on analysis using the tools of the 10 topic areas of the Candidate Body of Knowledge. These areas include ethical and professional standards, quantitative methods, economics, financial reporting and analysis, corporate finance, equity investments, fixed income, derivatives, alternative investments, and portfolio management and wealth planning. –Investopedia

Please note that more than 300 universities around the world have incorporated the CFA Program Candidate Body of Knowledge into their own academic programs.

Level Two Exam

Offered just once per year, level two focuses on valuation of various assets and emphasizes the application of investment tools and concepts in contextual situations. -Investopedia 

Level Three Exam

Also offered just once per year, level three focuses on effective wealth planning and portfolio management by requiring the candidate to synthesize all of the concepts and analytical methods in the entire curriculum. –Investopedia 

There are more than 135,000 CFA members in 150 countries and territories. In 2004, the CFA Institute had just 70,000 members. This means that membership has nearly doubled over the last 12 years. Although the CFA Institute offers other designations, the CFA designation is now the professional standard choice for more than 31,000 investment firms worldwide. Some of the largest employers of CFA holders are Bank of America Merrill Lynch, Citigroup, Ernst & Young, HSBC, JP Morgan Chase, Morgan Stanley, PwC, RBC and Wells Fargo. 

MBA or CFA? 

The decision to obtain a CFA or MBA can be a tough one based on the extreme difficulty of obtaining one and the high cost of the other. Fortunately (as mentioned) many schools have incorporated the CFA Program Candidate Body of Knowledge into their MBA programs. Some have created a CFA “Track” while others offer certification in addition to the MBA or other business degree. All avenues provide students with a degree that offers the best of both worlds. The downside? MBA programs can cost as much as $100,000, with elite schools costing well over $100,000—even close to $200,000. 

The good news is funding options are looking good for today’s MBA students thanks to scholarship and fellowship programs, employer sponsorship, and tuition assistance programs. The return on investment (ROI) isn’t too shabby either. According to the Graduate Management Admission Council (GMAC), MBAs should make a return on their investment in 3.5 years. The expected median starting salary for MBA graduates in the U.S. was around $100,000 in 2015, with some graduates starting at more than $120,000. 

But wait. It costs around $3,000 to take the three CFA exams and according to multiple websites, CFAs earn high salaries as well. This means that the ROI is much faster. Although the CFA Institute hasn’t published a salary survey in over 10 years, the median salary for members was $180,000 in 2005. Fortunately, the CFA Institute has around 140 local member societies. Many publish their own salary surveys, so we do have enough salary information to give you a good idea about what CFAs earn nationwide and in other countries. 

In Chicago, median total compensation for CFA holders with a bachelor’s degree was $154,025 in 2015 and $215,542 for CFA holders with a graduate degree. In neighboring Canada, average total compensation reported by CFA holders for 2014 was $280,454, up from $233,780 in 2013, and from $214,885 reported for 2010 in the 2012 survey. We think it’s safe to assume that CFA holders fare just as well, if not better than MBA holders do. 

So we’ve established that the ROI is great for both MBAs and CFAs, but what about curriculums? As mentioned, many MBA programs offer a CFA Track or Certificate, so students interested in focusing on finance, can. However, with the CFA, the entire focus is on investment knowledge. This allows students to gain specialized skills like investment analysis, portfolio strategy, and asset allocation. “Basically, it’s super analytical,” says Kate Lander, Head of Education in EMEA for the CFA Institute. 

In a recent BusinessBecause article, Seb Murray writes: 

Tom Robinson, Chief Executive of AACSB International, the business school accrediting body, adds: “Financial markets are global, complex, competitive and dynamic. The depth and breadth of knowledge needed to practice in finance is higher than it has ever been.” And MBA programs are arguably sliding away from finance, as grads queue up at Silicon Valley tech outfits and management consulting firms, rather than New York bank skyscrapers. 

But then again, if you want to move into the senior ranks and lead teams, you’ll need broader management and business skills. An MBA program offers extensive training in these areas—the CFA does not. 

In the end, while the CFA considered exclusive, thanks to low-pass rates and an extremely complex curriculum, most people looking to start or advance their careers in business choose the MBA. Data from 2008 suggests that more than 100,000 MBA degrees are awarded annually. A 2014 Fortune report says that in 2011-2012 alone, 191,571 people graduated from U.S. schools with advanced degrees in business, some 25.4% of all the master’s degrees conferred. That compares with 178,062 master’s degrees in education, or 23.6%, of all the advanced degrees. As mentioned, total CFA membership is 135,000+ in comparison.

So could the CFA become the new MBA? Probably not. However, combining both credentials could help any MBA stand out from the crowd—particularly in finance. So, if you have the time, patience, brains, and discipline needed to earn the CFA designation, and you see a clear benefit, why wouldn’t you? 

Sources 

"AIMR Changes Name to CFA Institute." Educalc.net. Educalc.net, 09 May 2004. Web. 06 Sept. 2016. 

Byrne, John A. "Why the MBA Has Become the Most Popular Master’s Degree in the U.S." Fortune. Time Inc., 30 May 2014. Web. 06 Sept. 2016. 

"CFA Institute Annual Dues." CFA Institute. CFA Institute, 2016. Web. 06 Sept. 2016. 

CFA Institute. CFA Institute, n.d. Web. 06 Sept. 2016. 

CFA Institute Research & Data. CFA Institute, n.d. Web. 06 Sept. 2016. 

"Fiscal Monitor, October 2015." CFA Society Chicago (2015): n. pag. CFAChicago.org. CFA Society Chicago, 2015. Web. 06 Sept. 2016. 

Murray, Marina. "How Many US MBA Students Are There? GMAC Has the Award-Winning Answer." Graduate Management News. Graduate Management Admission Council (GMAC), Mar. 2010. Web. 06 Sept. 2016. 

Murray, Seb. "Here's Why CFA Could Become The New MBA." BusinessBecause Business & Finance Matters. BusinessBecause, 20 July 2016. Web. 06 Sept. 2016. 

National CFA® Charterholder Compensation Study 2015 (n.d.): n. pag. CFASociety.org. CFA Societies Canada, 11 Aug. 2015. Web. 06 Sept. 2016. 

Root. "Chartered Financial Analyst - CFA." Investopedia. Investopedia, LLC., 29 Feb. 2016. Web. 06 Sept. 2016. 

"Should You Get A CFA, MBA Or Both?" Investopedia. Forbes Sites, 30 May 2013. Web. 06 Sept. 2016. 

Zee. "7 Reasons Why You Should Consider the CFA Charter." 300 Hours: Your Guide to the CFA Exams. 300 Hours, 2016. Web. 06 Sept. 2016. 

Zillman, Claire. "Congrats, MBA Grads! You're Getting a $45,000 Raise." Fortune. Time Inc., 19 May 2015. Web. 06 Sept. 2016.

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Concentrations