What Does the CFA® Designation Really Get You? Prestige, Wealth, Promotions?

The Grandaddy of Finance Sets the Path to Fame and Fortune (and Ethics)

Benjamin Graham made the call for a special professional rating for security analysts in a now-famous piece written in January 1945. The purpose of such a designation was to reassure investors that those giving advice regarding security transactions were qualified, knowledgeable professionals with high ethical standards. The designation, according to Graham, would benefit the QSA holder (or “qualified security analyst,” as Graham initially called it), as it would lead to prestige, “the chance for higher pay,” and a more professional attitude. While just 284 candidates sat for the first CFA exam in June 1963, nearly 140,000 candidates sat for the 2016 June exam. Since that initial test back in 1963, the pass rate has plummeted from 94% (being one of the 17 who failed the exam back then must have especially hard) to 54% in 2016, according to CFA Institute. So we have to ask ourselves, why do we put ourselves through this quasi-Sisyphean task? We pass Level I, simply to come back the following year to push the boulder back up the mountain for Level II, and yet again for Level III. Do CFA charterholders live up to Graham’s goals?

The Statistics Say CFA Charterholders Are Making a Boatload More Than Non-Charterholders

Of course, the statistics say it pays. Statistics are primarily collected by CFA-related organizations, so just like the wine industry keeps telling us that one (or two or three) glasses of red wine a night is good for our hearts, CFA Institute tells us earning our charter is a clear step in the right direction toward more prestige and higher pay. The 2016 Financial Compensation Report from the CFA Society of Chicago indicated that the median total compensation for CFA charterholders was nearly double that of non-charterholders for those with bachelor’s degrees (USD 174,000 versus USD 90,900), while it was 47% higher for charterholders with graduate degrees compared to non-charterholders with graduate degrees. The survey was across 662 professionals in the Chicago area—a relatively good sample.

The CFA exam-prep website 300hours.com also did their own study with over 500 samples and concluded that pay increased by 6% after passing Level I, increased by 27% after passing Level II, and increased by 34% after passing Level III. The website states that they have adjusted for the bias of work experience (separating out whether increased pay is from another year of work experience or due to increasing CFA qualifications).

While I believe CFA Institute holds itself to a high ethical standard, I’m still concerned that these studies are a bit biased by the very same factors we learned about from the CFA curriculum in the behavioral finance chapter—selection bias and confirmation bias (see a more in-depth look at behavioral bias from a fellow Bloomberg contributor here). So let’s go to the source: our potential bosses.

Top Buy-Side and Sell-Side Professionals Give Us the Straight Scoop

Now to the good part. What do actual people at the top of prestigious institutions think of the CFA designation? From the buy side, David Eiswert, CFA, gives his commentary. Eiswert is a portfolio manager at T. Rowe Price, where he manages the Global Focused Growth Equity Fund. From the sell side, Brian Alexander, CFA, gives his commentary. Alexander is the director of research at Raymond James. Both professionals are notable for their strong mentorship of employees. So let’s soak in a bit of their wisdom.

CFA Designation Proves Work Ethic and Passion for the Work

Eiswert points out that while the CFA designation doesn’t automatically mean you’re a fabulous stock picker, it does show a serious dedication to finance. “You know that someone with a CFA [charter] can work. [A] CFA [charter] does not equal intelligence (beyond a minimum high standard) or creativity. But it does show work ethic and seriousness.” Alexander mostly agrees with that point and pushes a bit further, noting that he values commitment and genuine interest (which can be somewhat proven by taking the CFA exam) in the work over most other factors. “I view the CFA [charter] as a proxy for someone who is passionate about finance and investing, not necessarily ability. But if I had to trade off passion versus ability, I would prefer passion every time (assuming that ability met some required level).”

CFA Charter = Higher Compensation?

Alexander says he views the CFA designation as “meaningless” when deciding whether to promote someone. To him, it’s all about the actual work, commitment, and passion a person displays toward the equity market. Alexander also says he doesn’t consider the presence or absence of the CFA designation in compensation.

Eiswert, on the other hand, thinks the CFA designation may come into play a bit more in terms of moving up the corporate ladder, and thus, increasing compensation. However, this can only help to a point. “Not having an MBA or CFA [charter] could slow you down. It leaves doubt that you have completed the necessary training. There could be a hole that we don’t see now. I think CFA charterholders are likely to make more money and progress faster than non-charterholders at lower levels of responsibility. As responsibility increases, it does not matter.”

So What Does It All Mean?

Combining the surveys with those actually making decisions at the top, it seems that not being a CFA charterholder can hurt you, but don’t expect it to be a magic bullet. As it goes with staying fit and healthy, it’s a combination of our efforts that helps us to succeed. Thoroughly researching a stock is the exercise. Devouring every bit of info you can find with passion is the clean eating. The CFA designation is just the vitamins, not a magic pill.

About the Author

Elizabeth Howell Hanano, CFA, received her bachelor of arts degree from the University of Pennsylvania, where she majored in healthcare finance and minored in history. After spending 10 years as a financial analyst for both the buy-side and sell-side covering technology, consumer, and airline stocks, Elizabeth is currently a freelance writer in Philadelphia.  

Twitter: @ejhowell

LinkedIn: ejhowell