A CFA is one of the most recognized credentials the world of investing — here's what to know (2023)

Our experts choose the best products and services to help make smart decisions with your money (here's how). In some cases, we receive a commission from our partners; however, our opinions are our own. Terms apply to offers listed on this page.

• A CFA is an investment professional who has earned the Chartered Financial Analyst designation from the CFA Institute.
• You have to complete a combination of education and work experience, as well as pass three exams, to become a CFA.
• You'll find CFA charterholders working mostly in positions related to investing.
• Read more stories from Personal Finance Insider.

The world of finance encompasses a vast arena of specialties, job titles, functions, and practices related to money and investment. You'll often see a financial professional with one or more abbreviations following their name. This indicates they have completed additional training and specialization in specific areas of finance.

One of the highest distinctions among those who work within the investment industry is the CFA. Here is a closer look at what a CFA is and how one earns this designation.

What is a CFA?

CFA stands for Chartered Financial Analyst. It indicates that someone has earned a CFA charter from the CFA Institute, a nonprofit organization that aims to advance ethics, market integrity, and professional standards for the investment management practitioners. CFA charterholders have completed the full CFA program, which includes education, passing three exams, and gaining a set number of hours of work experience.

"Many in the financial services industry consider it to be the investment profession's most rigorous and esteemed credential, as it relates to investment valuation and portfolio construction," says Christopher Sorrow, vice president and CFA charterholder with Probity Advisors. "The designation signifies that the individual has successfully passed the academic curriculum and experience requirements that the CFA Institute has designed to illustrate investment management and finance proficiency."

A CFA charterholder is qualified to work in a range of senior and executive jobs in the investment industry. They help businesses and clients make investment decisions, trade securities, and enhance financial markets. Common jobs where having a CFA charter provides an advantage include:

• Portfolio management
• Research
• Consulting
• Risk analysis and/or management
• Investment banking
• Sales and trading

Those who pursue a CFA designation often already manage portfolios or wealth, research and analyze investments, make decisions regarding investments, or are finance students intent on moving into the investment field.

Pay for CFA charterholders varies based on region, type of job, and compensation incentives, such as bonuses. The CFA Institute lists the base salary for a portfolio manager with a CFA charter at around $126,000 to $177,000, taking total compensation into consideration.

How do you earn a CFA?

There are several steps to earning a CFA charter. The first is meeting one of the following prerequisites for enrolling in the program:

• Completing a bachelor's degree program or one that is comparable
• Being an undergraduate with 11 months or less until completing your degree
• Having completed a minimum of 4,000 hours of combined work and/or education experience within three consecutive years

Next, you'll have to pass three exams that are broken down into three levels and must be completed in sequence. To pass these exams, expect to complete more than 900 hours of self study of topics within 10 areas of investment and finance. Your scores will not expire, so you can plan out when you take each test to coincide with when you feel most prepared to pass.

"Overall, the CFA examinations are difficult," says Samuel Gottlieb, CFA and CFA senior content specialist with UWorld. "But candidates who study for more than 300 hours, use alternate prep resources, answer as many practice questions as possible, and create a systematic study strategy can improve their chances of passing."

Third, you will have to complete a minimum of 4,000 hours of qualified work experience. This can be attained before, during, or after your participation in the CFA program. Then, you'll need to apply for a CFA Institute membership, which will include providing letters of reference.

Once you've completed all of these steps, you can apply to become a CFA charterholder. Here's a closer look at each of these steps.

1. Pass the CFA exams

The CFA program provides a full curriculum to help candidates prepare for and pass three comprehensive exams: Level I, Level II, and Level III. Topic areas include:

• Ethical and professional standards
• Quantitative methods
• Economics
• Financial statement analysis
• Corporate issuers
• Equity investments
• Fixed income
• Derivatives
• Alternative investments
• Portfolio management
• Wealth planning

The Level I exam is given over two sessions of 2.25 hours each. There are 180 multiple choice questions covering most of the topics above. Each topic area carries a different weight for scoring, and you'll only get a total score for completing the exam after both sessions are complete.

The Level II exam is also broken into two sessions, both 2 hours and 20 minutes each. There are 88 total questions split between the two exams. While they are all multiple choice, the questions ask you to read a vignette and answer questions based on that specific information. You'll be tested on the same topics as Level I, but the questions are weighted differently.

"The highest-weighted topics for 2022 Level II with topic weights of 10 to 15 percent are: ethical and professional standards, financial statement analysis, equity investments, fixed income, and portfolio management," advises Gottlieb.

The Level III exam is markedly different from the other two. It's broken into two sessions that are each 2 hours and 12 minutes long. There are 44 multiple choice questions and vignettes like with the Level II exams. But you'll also find questions that ask you to give a numerical response or provide an essay explaining your reasoning.

Results are available between 60 and 90 days of completing an exam. According to the CFA Institute, the 10-year average pass rate is between 42% and 54%, depending on which level you take.

"CFA Program exam results do not expire, and you are not required to enroll each year," Gottlieb says. "Candidates are permitted to take as much time between exams as they choose. There is no limit to the amount of time required to complete the CFA program."

2. Achieve qualified work experience

The CFA program requires candidates to have completed at least 4,000 hours of qualified work experience over a minimum of 36 months. It must be directly related to the investment-decision making process or producing work that informs or adds value to the process, according to Gottlieb.

"Experience earned through full-time, part-time, or remote work arrangements—before, during, or after the applicant's participation in the CFA program—can qualify," Gottlieb says.

This kind of work experience is one of the criteria for enrolling in the CFA program, but can be circumvented if you have the requisite education.

3. Submit letters of reference

You will have to submit several letters of reference to qualify for a CFA charter. Plan on asking for two to three letters from professional sources who can speak to your experience and character regarding the investment decision-making process.

Jonathan Maroko, CFA and consulting CFO with Burkland, advises going with two references if one is an active regular member of the local CFA society to which your applying and three if none of them is.

"I don't think you need to worry about having the 'most impact,' the same way you might if applying to graduate school," Maroko adds.

4. Apply to become a CFA charterholder

To become a CFA charterholder, you're really applying to be a CFA Institute member. You will have to complete all of the steps detailed above, then apply for membership. Once approved, you will be a CFA charterholder.

How much does it cost to become a CFA?

Here are the costs you can expect to pay on your path to becoming a CFA:

• $450 registration fee paid when you sign up for your Level I exam
• $250 rescheduling fee if you need to change your test date
• $700 to $1,000 to register for each exam, depending on whether you sign up in time for an early bird discount

"Candidates should also budget for miscellaneous expenses like CFA study materials, a CFA-approved calculator, travel and accommodations to reach a testing center, and potential exam retake fees if they fail a section," says Stephanie Ng, CPA, CFO, and author of "I Pass Finance Exams."

Before you get sticker shock from all these fees, remember it will take at least three years to complete all the steps needed to qualify for a CFA charter. You can go at your own pace, so you can also spread out costs.

CFA vs. CFP

While you may be learning about the CFA designation for the first time, you might already be familiar with another widely recognized financial certification: the CERTIFIED FINANCIAL PLANNERTM, or CFP®. Those who are CFP® professionals can also be CFA charterholders although it's not a requirement.

The CFP® certification program focuses on a broad range of topics related to financial planning, advising, and management. Similarly to the CFA program, candidates are required to complete extensive coursework, pass a rigorous exam, and have thousands of hours of professional experience.

The biggest difference between a CFP® and a CFA charterholder is that the CFA program is focuses on the investment area of finance, while CFP® professionals concentrate on financial planning, with investing being one component of that.

"Financial planners, wealth managers, and financial advisors are typical CFP® jobs," Gottlieb says. "While these certificates are prevalent, the CFP® is more common for a financial advisor because it is better geared to individual financial planning.

"CFAs are experts in financial analysis, with the two most popular jobs being portfolio manager and research analyst and, in addition, working with people who need assistance with investing and asset allocation."