Chartered Financial Analyst (CFA): Definition and Exams

What Is a Chartered Financial Analyst (CFA)?

The chartered financial analyst (CFA) charter is a globally-recognized professional designation offered by the CFA Institute, an organization that measures and certifies 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.

From 1963 through November 2023, more than 3.7 million candidates had taken the CFA exam. The overall pass rate was 45%. From 2014 through 2023, the 10-year average pass rate was 43%.

The Basics of Becoming a Chartered Financial Analyst (CFA)

The CFA charter is one of the most respected designations in finance and is widely considered to be the gold standard in the field of investment analysis.

The designation is handed out by the CFA Institute, which is a global nonprofit professional organization of more than 200,000 charter holders, portfolio managers, and other financial professionals in 164 countries and 160 local member societies.

The CFA meaning concerns the stated mission of the CFA Institute, which is to develop and promote a high level of educational, ethical, and professional standards in the investment industry.

Requirements

Before becoming a CFA charter holder, a candidate must meet one of the following educational requirements: 

• The candidate must have four years of professional work experience, a bachelor's degree, or be in the final year of the bachelor's degree program
• Or they must have 4,000 hours work experience over a minimum of three years. 
• For the undergraduate qualification, the bachelor's program must be completed before registering for the Level III exam.
• In addition to the educational requirement, the candidate must have an international passport, complete the assessment in English, meet the professional conduct admission criteria, and live in a participating country.

After meeting the enrollment requirements, the candidate must pass all three levels of the CFA program in sequential order. Professional reference letters are also required. The candidate must then become a member of the CFA Institute and pay annual dues.

Finally, they must sign off annually that they are following the CFA Institute code of ethics and standards of professional conduct. Failure to adhere to the code of ethics and standards is grounds for the possible lifetime revocation of the CFA charter.

Exams

Passing the CFA Program exams requires strong discipline and an extensive amount of studying. Level I exam can be taken four times a year in February, May, August, and November. Level II exam can be taken three times a year in May, August, and November. Level III exam can be taken two times a year in February and August.

Although the exams can be taken as many times as needed, each exam typically requires candidates to study in excess of 300 hours. Given the considerable amount of time that must be spent studying, many candidates are deterred from continuing the CFA Program after failing one of the levels.

The exams are difficult. Only 45% of candidates passed the exams between 1963 and 2023. Having the right plan and the discipline to follow the plan are essential skills for passing all three exams. Notably, 2019 saw the most test takers of any year. But numbers have not rebounded from the sharp decline seen during the pandemic.

The CFA Institute has over 400 test centers worldwide. It has been adding testing locations in Asia due to increased demand in that region.

Level I Exam

The CFA Level I examination focuses on financial analysis using the tools of the 10 topic areas of the candidate's body of knowledge.

These areas are ethical and professional standards, quantitative methods, economics, financial statement and analysis, corporate finance, equity investments, fixed income, derivatives, alternative investments, and portfolio management. The exam format is 180 multiple choice questions to be completed within four and a half hours.

Level II Exam

The Level II exam focuses on the valuation of various assets and emphasizes the application of investment tools and concepts in contextual situations. 

Exam questions referring to Financial Reporting and Analysis are typically based on International Financing Reporting Standards (IFRS). The exam has 22 item sets (mini case studies) with 88 multiple choice questions (110 questions total).

Level III Exam

The Level 3 exam focuses on effective wealth planning and portfolio management. It requires the candidate to synthesize all the concepts and analytical methods learned from the entire curriculum.

The exam format is multi-part with 11 item sets and 11 essay questions to be completed within four hours and 24 minutes. The handwritten answers are graded by hand.

Pass Rates

For the 10-year period of 2014 through 2023:

Level I: 40%. The November 2023 Level I exam saw just 35% of test takers pass, allowing them to proceed to Level II.

Level II: 45%. The November 2023 Level II exam saw 44% of test takers pass, allowing them to proceed to Level III.

Level III: 52%.

Challenges of Achieving the CFA Charter

The CFA charter is widely respected, globally-recognized, and a worthwhile undertaking to accomplish. However, it is not a guaranteed path to riches and glory. So, before taking the plunge, carefully consider how difficult it can be to earn one.

1. The CFA is not a quick-fix for an ailing career. If that's why you're enrolling in the program, you should carefully consider the work involved in the CFA path ahead of you. You might instead choose to improve your soft skills, such as your work ethic and communication capability.

2. The CFA requires a huge investment of time—a recommended minimum of 300 hours of studying per exam for three exams. If you don't pass an exam the first time, you'll have to reapply your efforts. You will likely sacrifice time with family, friends, and the hobbies that you enjoy. And after committing all that time, there is no guarantee that you will earn the charter.

3. While cost may not be a major consideration, it is worth careful deliberation. A Level I candidate pays a one-time program enrollment fee plus an exam registration fee. Level II and III candidates pay a registration fee as well. There is also the cost of the books and study programs you'll need. Altogether, you should expect to spend several thousand dollars each time you attempt the exams.

The Bottom Line

The financial designation of CFA is respected worldwide. It can be a highly valuable achievement for those willing and able to devote the time, effort, and money to meeting its requirements, which include studying for and passing three difficult exams.