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Why CFA might become the new MBA degree

CFA Institute Conference

11 August 2014

CFA charter holders are thought to have an advantage over MBAs in the financial sector. But will it become the new qualification of choice?

This feature by Seb Murray was originally published by BusinessBecause on 10 August 2014. We are grateful to BusinessBecause for permission to reprint it here.

This summer, thousands flocked to examination centres to take on the CFA (chartered financial analyst) exams. The three-level test is gaining traction with employers, and business schools are beginning to recognise its value.

There are now more than 100,000 charter holders and that figure is set to rise in June 2015 when the next crop of test-takers grapple Levels I, II and III.

But analysis of data suggests that more than half of them will fail at each stage of their attempt. The difficulty of the CFA examinations means that qualification is reserved for an exclusive group.

Low pass rates and the complexity of study have turned the qualification into a premium, which is revered by financial employers. Some business school insiders think that students who have completed all three levels of the CFA have an advantage over MBAs.

“For roles involving fund management, mergers and acquisitions, and portfolio analysis, the CFA is becoming really important. It dominates the MBA in the finance sector,” says Steven Young, head of the Department of Accounting and Finance at Lancaster University Management School.

“Most of the financial institutions are putting their junior employees through CFA training,” he adds.

The UK-based business school recently launched a specialist Master’s program which prepares students for CFA Level I. In the final term of the MSc Financial Analysis course, Fitch Learning, an external specialist in financial education, provides CFA coaching.

LUMS launched the programme, which requires a minimum GMAT score of 650, in-part because the CFA is becoming the industry-standard qualification, says Professor Young.

The School’s MBA and Masters students previously studied for the exam independently, but the curriculums were not sufficiently aligned. “The CFA testing environment is very different. Although they might have the knowledge, they weren’t prepared to pass the exam,” adds Professor Young.

Even though many MBA students seek the qualification, about a quarter of all test-takers who sign up do not sit the exam.

Part of the problem is the exam’s difficulty. Each level of the CFA program requires at least 300 hours of studying and preparation, says Kate Lander, head of education for EMEA at the CFA Institute.

“Many candidates are juggling a challenging career, family commitments, as well as a life whilst taking the program,” Kate says.

But this has not deterred candidates, who are taking the CFA exams in record numbers. Data show that the number of charter holders has doubled in the past decade, from about 50,000 to nearly 109,000 – about two thirds of which are in the US.

This is being driven largely by exponential growth in major markets in the Asia Pacific region.

Taking the MBA is considered a comparatively easier process. While it is difficult – and expensive – to gain admission to a top MBA program, once admitted it is highly unlikely that a candidate will not pass.

Each stage of a CFA qualification costs about $1,000, while an MBA can cost upwards of $100,000 per year at a top-flight business school. Yet many students study for the CFA while juggling a full-time career – an MBA on the other hand usually requires one or two years out of industry.

The large number of MBA holders means that the degree has lost some of its early lustre. The small number of charter holders means that the CFA remains exclusive, and that can give you an edge in the jobs market.

More than one-third of the CFA candidates surveyed in June 2013 cited career advancement as the primary reason they chose the CFA program. Employers are increasingly seeing its value, says Kate.

“Recruiters and employers see the CFA charter as a stamp of quality,” she adds.

In the past, the CFA was most relevant for analyst and front-office roles. But it is becoming increasingly useful for sales and relationship roles, risk management roles as well as positions in the middle office, Kate says.

In light of the financial crisis, between 10% and 15% of the CFA curriculum is now focused on ethics. “Clients want credibility, and employers want to hire people who have a good understanding of risk and regulation,” she adds.

But it is argued that CFA holders lack networking opportunities, which is a key component on business school programs like MBAs.

The CFA argues, however, that it can match this. Test-takers can become a member of one of 144 CFA societies globally. These societies provide regional and global conferences, and allow members to network with peers in the financial sector. Job support is also available.

However, Professor Young thinks that there is room for further collaboration, rather than competition. “If you can have the best of both, that is an attractive package,” he says.

It is a sentiment echoed by Pascal Gantenbein, who teaches the corporate finance module on the St. Gallen MBA. “I do not see very much competition between the CFA and the MBA. Rather, they provide complementary competencies.”

Professor Young says that there is no reason why business schools cannot develop a CFA stream within an MBA. “I’m surprised they haven’t already,” he adds.

For a career in finance, an MBA may risk being seen as too broad. “The CFA requires specific experience relating to the finance sector, and the type of job that the candidate will be doing,” Prof Steven says.

This specific knowledge that candidates obtain during the CFA program is exactly what they need for the sector, says Pascal.

Kate has a similar verdict. “While most graduate school programs cover a broad range of topics, the CFA program focuses specifically on investment knowledge."

But she adds: “A CFA charter has the greatest value when combined with experience – it won’t open doors on its own.”

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