So, the age old question…what is more useful for a long term career in finance, the CFA, the MBA, or the CAIA? Wait, a minute, what even is the CAIA? This article will go through the pros and cons of pursuing each of these three certifications. The upfront economic costs and opportunity costs of the MBA may be significantly higher than CFA requirements, but an MBA does certainly have many intangible benefits such as networking and develops a broader base of professional problem solving and professional skills. The CFA is very targeted towards finance and investment management careers, and is now being sought out more and more by professional firms for the recruitment process.
The CFA, many argue, is also not as much as a door opener, as it is a career accelerator once one is already in a buy side or investments role at a firm. Conversely, the MBA opens many recruiting possibilities for candidates interested in the recruiting process. The CAIA is a relatively new exam focusing on the alternative investments field, and has yet to be tested for its impact on the job front.
WHAT IS THE CFA DESIGNATION?
The Chartered Financial Analyst (CFA) designation is an international professional certification offered by the CFA Institute to financial analysts who complete a series of three exams. To become a CFA Charter holder candidates must pass each of three six-hour exams, possess a bachelor’s degree (or equivalent, as assessed by CFA institute) and have 48 months of qualified, professional work experience. CFA charter holders are also obligated to adhere to a strict Code of Ethics and Standards governing their professional conduct.
The CFA is a qualification for finance and investment professionals, particularly in the fields of asset management and the research function covering stocks, bonds and their derivative assets. The program focuses on portfolio management and financial analysis, and provides a generalist knowledge of other areas of corporate finance, securities valuation, and accounting.
Today, CFA Institute has more than 101,000 members around the world, including more than 89,000 CFA charter holders.
WHAT IS THE CAIA ALTERNATIVE INVESTMENT DESIGNATION?
Founded in 2002, the CAIA Association is the sponsoring body for the only globally-recognized designation for Alternative Investment expertise. Across the globe, the designation demonstrates mastery of alternative investment concepts, tools, and practices, and promotes adherence to the highest standards of professional conduct in private equity, real estate, distressed debt, and hedge funds.
The CAIA program’s diverse curriculum appeals to investment advisors, consultants and analysts, fund managers and administrators, accountants, lawyers, academics, and compliance and back office personnel.
Candidates include seasoned professionals looking to explore new areas within the AI markets, generalists wishing to add another asset class to their investment arsenal, and new industry participants seeking to establish a core understanding of alternative investment.
The CAIA Association is a dynamic organization that reflects its membership’s interests and provides them with a vibrant global network. We are committed to developing industry skills and educational standards, and provide the industry’s first and only designation for alternative investment specialists.
WHAT IS AN MBA?
The Master of Business Administration (MBA or M.B.A.) is a degree in business administration, which attracts people from a wide range of academic disciplines. The MBA designation originated in the U.S., emerging from the late 19th century as the country industrialized and companies sought out more scientific approaches to management. The core courses in the MBA program are designed to introduce students to the various areas of business such as accounting, marketing, human resources, operations management, etc. Students in some MBA programs have the option to select an area or multiple areas of concentration and focus approximately one-third of their studies in this subject.
Accreditation bodies exist specifically for MBA programs to ensure consistency and quality of graduate business education. Business schools in many countries offer MBA programs tailored to full-time, part-time, executive, and distance learning students, with specialized concentrations.
PROS & CONS TO DESIGNATIONS
|In a recent article, Chad Sandstedt, CFA, discusses the following very well:
“It’s a question asked by nearly every aspiring finance professional at one time or another — is my time (and money) best spent pursuing the Chartered Financial Analyst designation or a Masters in Business Administration? There’s no question that both are valuable credentials, each are capable of delivering higher salaries and better advancement prospects. However, the answer to this question depends on many factors, including your professional goals, background and resources, both in terms of time and money.
What do you want to be when you grow up?
If you plan on working in finance, the CFA program will provide a wealth of knowledge. However, if your career path veers out of finance, the chances that you’ll be able to utilize the curriculum are limited. In contrast, an MBA program is likely to provide exposure across numerous fields of study that can be applied in almost any position, whether in finance or not. As such, potential CFA candidates are advised to step back and assess their commitment to a career in finance.
For those who are working in another field and view the CFA program as a way to break into a finance career, it may be more appropriate to first obtain a position in the field, even if it’s at an entry level, to assess your commitment to a finance career before beginning the CFA program.
What’s the Price of Admission?
First, let’s look at the cost of the CFA program. Our first assumption is that it takes, on average, four exams to complete all three levels of the CFA program. Enrollment and registration fees for four exams will cost $1,815 with early registration. The cost of preparation materials can vary widely between CFA candidates. At the low end of the price range is the purchase of study notes and textbooks. Realistically, many candidates require additional preparation such as study seminars, software, online programs, audio programs, video programs or flashcards. The cost of such a comprehensive study plan could be an additional $2,000 per year. Given our relatively aggressive assumption that all three exams will be successfully completed in four attempts, we will assume a fairly aggressive study plan with $1,000 of study material per year, for a total of $4,000 over four years. Therefore, the total cost of obtaining the CFA designation, including registration fees and test preparation materials, would be $5,815.
The cost of an MBA can range dramatically, from a part-time program at a state university to a full-time program at an Ivy League school, the costs may range from $20,000 on the low end to over $100,000 on the high end.
In summary, the cost of obtaining an MBA will range from four to twenty times the cost of the CFA program.
What’s Your Time Horizon?
In contrast, most full-time MBA programs can be completed in two years. This is perhaps the biggest advantage of pursuing an MBA compared to the CFA designation, because it’s likely to qualify you for a better paying job about a year earlier than the CFA program will. If you’re able to increase your compensation by $30,000 with an MBA, you will be making $30,000 more than you will be making in the CFA program for an entire year.
I’ve developed a spreadsheet that computes the net present value of both the CFA program and an MBA program. For illustration, here’s a hypothetical scenario with the following assumptions:
Current Salary: $60,000
Based on these assumptions, the Net Present Value (“NPV”) of the CFA program is $204,394 while the NPV of the MBA program is $177,884. This means that, based on these assumptions, the CFA program is a better investment than an MBA program. However, a change in assumptions can change the answer. If you expect an MBA to deliver a higher salary than you expect after attaining your CFA charter, the answer may be very different. We’ve made this spreadsheet available so that you can use your own assumptions and see what alternative has the most value for you.
Self- Study vs. The Classroom?
The CFA Institute does provide a recommended study timeline that can be used to gauge your progress as you approach the exam date. However, it’s up to you to keep up and there will be nobody holding you to the schedule, so self-discipline is important particularly given the quantity of material covered at each level. A great number of very smart people have failed the CFA exam simply because they procrastinated and were unable to catch up.
In contrast, a traditional MBA program has a great deal of structure since it’s classroom based. Each class typically consists of several quizzes and exams so it’s easy to tell when you fall behind. The learning format in an MBA program is also more likely to be lecture-based, whereas the learning format for the CFA program is text-based.
So, What’s Best for Me?
In summary, there is no one-size-fits-all approach to continuing your education. Each individual brings a unique background with a unique set of goals. As such, it’s important to assess your own situation to determine which opportunity is right for you before you make a significant investment of time and money.”