The following article is from Fundfire:
As CFA Stature Grows, Exam Pass Rates Don’t
By Paul Menchaca August 19, 2011
The Chartered Financial Analyst designation continues to grow in its significance to the investment management industry, but getting the professional tag remains a hard slog. The CFA Institute, which administers the designation, reports that the pass rates for its three-stage exam remain low, with the most recent batch in June resulting in a 43% pass rate across the trio of tests.
While the number of candidates in the U.S. has dipped slightly, from 29,873 last year to 29,537 in 2011, the rest of the world is keeping up demand for the charter, particularly in China, India, Canada and the United Kingdom, all of which topped their totals last year and helped the overall candidate tally grow to 115,027 this year over 2010’s 111,731.
One of the other positive trends in CFA’s greater reach is how many colleges and universities throughout the world now have embedded the curriculum in their degree programs related to the investment business, says Bob Johnson, senior managing director of the CFA Institute. That phenomenon could help candidates be better prepared for what he calls a “very challenging exam that is even more daunting because it’s a self-study designed program.”
Also instrumental in the CFA’s bigger profile is the way many financial services firms are assisting their employees who are interested in pursuing a CFA charter, Johnson says. This includes covering enrollment fees, paying for prep courses, and even giving some employees days off before the exam that don’t count against their allotted vacation time so that they can study.
One reason for the added interest from firms is how a CFA can bolster ethics credentials, Johnson says. While the organization has always been focused on it, with 15% of the exam devoted to ethics and professional standards, he says that “before the crisis of 2008, it was difficult to get many people interested in the ethics message… Since the crisis in ’08, it’s been reiterated many times that there’s an important need to have educated, ethically centered professionals.”
The CFA’s stature has grown especially in the last four or five years, says Allan Starkie, a partner at executive recruitment firm Knightsbridge Advisors. In fact, he says that the CFA charter has become the “most important designation” for senior asset management jobs and “supersedes, by far, an M.B.A.”
During a recent search for a senior investment officer for “the most prestigious trust company in the U.S.,” Starkie says it was made clear that the candidate needed a CFA. Meanwhile, a Mid-Atlantic bank that was looking to fill a senior asset management position said that a CFA “was highly desired and virtually required,” he adds.
But while Johnson says “interest is robust” throughout the world among investment professionals, given the size of the global financial services world, the number of people holding a CFA charter still remains low.
One reason for the lack of market penetration is the rigorous nature of the CFA program, which is the “first time many individuals are taking part in an educational activity where there is a reasonable chance of failure,” Johnson says. He adds that roughly one in five people who register for the program eventually earn a CFA charter.
“The pass rates depend on a lot of factors, like how serious they take it, how much time they put in, and how much they respect the challenge,” Johnson says. “For the sake of the markets, I would like to see [the pass rates] higher, not because we lower our standards, but because more people take the programs seriously and master them.”
In order to earn a CFA charter, candidates are required to pass three six-hour exams. The Level I global pass rate for June was 39%; the global pass rate for Level II was 43%; and the pass rate for Level III was 51%. The institute says that the majority of candidates who pass the Level III exam will become CFA charterholders.
Besides passing all three exams, a person must also have completed a minimum of four years in the investment industry, signed a commitment to follow the CFA Institute Code of Ethics and Standards of Professional Conduct, applied to a CFA Institute society, and become a member of the CFA Institute. There were 7,353 professionals who earned their charter in 2010. There are currently about 100,000 charter-holders in the world.
As the CFA designation has grown in importance, candidates for senior-level positions have become savvy about trying to mention it in their qualifications – even if they haven’t actually received their charters. Applicants know that firms like Knightsbridge will often use keywords like “CFA” in their searches, so some will mention in their resumes that that they are candidates for a CFA, but not necessarily charter-holders.
“Some people will be a Level II candidate for a decade,” Starkie says. “They begin as a CFA Level I candidate, and it doesn’t budge.”
He adds, “Everybody is daunted by [the CFA exams], but there is a growing realization of how significant that charter is.”
While the number of candidates taking the CFA exams is highest in the U.S., the actual growth rate is probably greater outside America, according to Johnson, who has spent 15 years at the CFA Institute. But those numbers might be somewhat misleading, he notes.
“The growth rates may be higher [outside the U.S.], but they were working from a smaller base,” Johnsons says. “There is much higher market penetration throughout the Americas than Asia.”