April 7, 1999

Wall Street Credentials

Chartered Financial Analyst

Overview -- The CFA designation is often thought of as the pinnacle credential for those in the investment field. It is a difficult professional designation to attain because there is a rigorous battery of tests to be passed as well as an experience requirement. As such, CFAs are often among the best-compensated group of individuals on Wall Street.

Most individual investors will come into contact with CFAs when they read research reports published by various investment firms. A significant number of the senior research analysts on Wall Street are CFAs, and the CFA designation is quickly becoming a required ticket for entrance to the upper ranks of equity researchers. However, one does not need the CFA designation to hang a shingle as an "analyst."

On Wall Street, analysts may either work on the "buy side" or the "sell side." Buy-side analysts are primarily concerned with recommending investments for institutions, such as mutual funds, and their research generally is kept in-house and not published. The sell-side analysts (or as Fools call them, sales analysts) are responsible for publishing research for the clients of brokerages as well as the general public in an attempt to drum up commissioned business.

The CFA credential may also be found among portfolio managers, investment consultants, and a wide variety of others within the finance and banking industries. The CFA designation is a relatively new credential, but its popularity is rising quickly. The number of people enlisted in the CFA examination program has increased from roughly 10,000 in 1990 to nearly 50,000 expected in the year 2000.

Requirements -- In order to achieve the CFA designation, a series of three tests administered by the Association for Investment Management and Research (AIMR) must be passed. The exams are given sequentially, and are only administered once a year, typically in June. Roughly half of those attempting the first level fail the exam, but the pass rate increases to nearly 75% by the time candidates take the Level III exam.

The CFA exams are geared toward testing skills in investment decision-making and cover the broad subjects of accounting, finance, statistics, and economics. Among the specific topics tested are asset valuation, portfolio-management theory, and various quantitative skills. A bachelor's degree is needed to enter the CFA program, but no specific line of study is required. However, it is nearly impossible to pass the exam without some sort of formal training or experience in the subjects above. Nearly 40% of candidates in the CFA program have a postgraduate college degree, most commonly an MBA.

There is also an experience requirement in order to get the CFA designation. A candidate must have at least three years of professional experience in the investment decision-making process before being awarded the credential. This experience may be attained before, during, or after a candidate is in the CFA testing program, but most CFA candidates already work in the investment field. What is considered acceptable experience is determined by AIMR on an individual basis after the Level I exam is passed.

As with most other professional designations, CFAs are required to sign a code of ethics and professional standards. This form is submitted to and kept on record by AIMR. All CFAs are also required to be members of AIMR as well as a local chapter of the Financial Analysts Federation.

For more information concerning the requirements for the CFA designation, visit the AIMR web site at http://www.aimr.org.

Time Needed To Fulfill Requirements -- Beyond the normal period of time needed to get a bachelor's degree, achieving the CFA designation takes, at a minimum, three years. Not only is there the three-year experience requirement for the designation, but the structure of the test itself (three sequential levels, each given annually) assures that no candidate gets the credential in fewer than three years after completing an undergraduate degree.

Depending on the amount of academic training and experience, it is suggested that candidates prepare and study between 150 and 300 hours before each examination. Since most in the program are working adults, candidates spend many evenings and weekends hitting the books and attending review sessions in order to properly prepare for an exam.

Next -- Certified Financial Planner (CFP)