The pandemic hits the toughest exam in the finance industry
When the pandemic hit, Irene Zhu decided to explore a career change from tourism to finance. A lifelong mathematician, Ms. Zhu, 37, set her sights on becoming a chartered financial analyst, a highly coveted professional qualification in the investment world. But in order to do so, she must pass three notoriously difficult exams, the first of which she sat in February—after several nights of studying until 1 a.m.
“I must say, it was very messy,” Ms. Zhu said in a video describing her experience. “What made the CFA exam really challenging for me is the time and effort that I need to put in,” she said.
The process of earning a CFA after one’s name has always been arduous: Candidates are expected to master 3,000 pages of content and be able to analyze companies’ financial statements, forecast investment gains, and identify conflicts of interest. Demonstrate the ability to manage, as well as a vast array of concepts and scenarios
The pandemic made that slogan more difficult. Ms Zhu, who lives in Melbourne, Australia, was among nearly 140,000 people who sat one of the three qualifying exams required for the CFA this year. Only 35 percent passed. Among those taking their first test in the most recent round in July, the pass rate was 22 percent—the lowest on record since the nonprofit CFA Institute began conducting the tests in 1963. On average, less than half of all CFA test takers pass the level.
The record lows revived a long-running debate among finance industry veterans: How useful are certificates for success on Wall Street? And how does it compare to the industry’s most popular undergraduate degree – the MBA, or Master of Business Administration? Those questions – MBA vs CFA vs nothing – pop up in the industry from time to time, but this time they seem to hold more urgency, especially with registration for the CFA program below the 2019 peak. Amid the pandemic, even Wall Street’s biggest firms have been forced to rethink some rites of passage that have long been unquestioned – such as long hours at the mercy of bosses or button-up dress.
The examination of CFA candidates was canceled or postponed because of the difficulties during the lockdown and the pandemic which resulted in poor results, the institute said after auditing the data for the last two rounds of subpar scores. Although the tests are usually offered twice a year, they were introduced multiple times this year due to the pandemic.
Margaret Franklin, chief executive of the CFA Institute, said: “People have, in many cases, their lives turned upside down – we know they’re working from home, it’s a state of fatigue.” “There’s optimal study conditions, and then there’s the reality of COVID,” she said.
Many of today’s top financial managers have CFA credentials, including Marty Flanagan, chief executive of Invesco, which manages $1.5 trillion, and Heather Brilliant, chief executive of Diamond Hill Capital Management. Other top leaders in the asset management business, including BlackRock chief Lawrence D. Fink, do not.
Howard Marks, billionaire investor and co-president of Oaktree Capital Management, a fund that specializes in distressed debt, holds both a CFA title and an MBA degree. A staunch supporter of the CFA program, Mr. Marks said the title was valuable because it was the closest thing a money management business has to an industry qualification.
“CFAs don’t tell anyone whether So-and-so is a good investor or not – it only goes to the question of academic preparation, but that is clearly a plus,” Mr. Marks said. “You can do an MBA and there are no investment courses, so an MBA is clearly not enough,” he said.
A recent round of poor results prompted investment newsletter writer Jared Dillian to write an essay last month with a clear headline: “Wall Street’s CFA program is a huge waste of time.” Mr Dillian was blasted by the CFA, who were quick to defend the merits of his hard-won credentials. But he said he also received several private messages that agreed with his assessment.
Early in his career, Mr. Dillian passed the first level CFA exam, but later failed the second level. He values his MBA from the University of San Francisco as more valuable because it enabled him to network and learn from business leaders while in school.
“It’s better than sitting at your desk at home, banging your head against the wall, memorizing sources,” Mr Dillian said.
The CFA Institute first offered the exam in the 1960s as a way to set professional standards for financial analysts who manage investments for clients. During that decade, an average of 1,500 people took the test each year. Of these, 73 per cent to 94 per cent passed.
Over time, the CFA curriculum came to be viewed as a foundational knowledge for analysts and portfolio managers who were willing to sift through the material to gain an edge. But as this designation became more popular, pass rates declined. The number of candidates reached over 270,000 in 2019, and an average of 44.2 percent passed.
While exam registrations are below their 2019 peak – accelerated by the pandemic – nearly 1.7 million people are enrolled in the program, of whom 236,000 have been booked for upcoming tests. Each exam is of four and a half hours. Registration, exams and materials cost around $3,000 – far cheaper than the average cost of an MBA program. Holders of the CFA designation are required to pay an annual membership fee to hold their titles.
“It’s a great certification, but given the time and demand to get it, it makes sense to have a proper plan,” said Paul Sorbera, president of Alliance Consulting, a Wall Street executive search firm. Advanced qualifications can increase an employee’s earning power, but do not guarantee higher compensation, Mr. Sorbera said.
Michael Lynn, a 28-year-old amateur boxer who received the CFA designation in August after passing all his exams on his first try, compared the effort of training to an athletic tournament. Mr. Lynn, then working in Wells Fargo’s wealth management department, began studying for several hours outside of work, then added weekends, and took one to two weeks before each exam to study full-time. The pandemic lockdown allowed Mr Lin to hunker down and hit the books, unlike some of his colleagues and friends who had major disruptions.
“Mindfulness is a big part of it,” Mr. Lin said. While a CFA is highly specialized for wealth managers and analysts, it also has a solid credentials that are much more cost-effective than a master’s, he said. Now that he’s a chartered financial analyst, “I certainly don’t want to drop a few hundred grand for an MBA,” said Mr. Lin.
Florian Campuzan, a free stock trader in Versailles, France, was not as lucky. Mr Campuzan is pursuing CFA in the hope that the knowledge and reputation gained from the credential will fuel his consulting work, such as advising companies on their commodity hedging. But he failed his final exam as hectic equity markets took much of his time in the first quarter.
Mr Campuzan appeared to take the news with humor, posting on twitter: “Failed CFA Level 3,” with thumbs up emoji. In a later interview, he was more philosophical. “Business is a school of hard knocks and it teaches you to be humble – it teaches you to be a hard worker and it teaches you to accept failure as a part of the journey,” said Mr. Campuzan. “This time, I failed, but next time, I will succeed.”
Ms. Zhu, who gave her first CFA Test in February hoping to change her career, was left disappointed. “Anyone who wants to take the CFA really needs mental and physical time to devote to the exam,” she said. At the end of the six-month period she had allotted herself to prepare for exams – with two children at home and a husband also working remotely during the pandemic – Ms Zhu said she felt she was on time. getting out.
Upon learning that she did not pass, Ms. Zhu decided that doing a CFA was not appropriate. “I was a little disappointed, but again, even though I’ve passed level one, it takes a long journey to pass level two and level three and charter.”
Instead, she plans to partly pursue a career in finance by making YouTube videos, where she shares her insights on investing.
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