Chartered Financial Analyst (CFA) – When Should You Pick Up This Course

Lot of students asks me the options available to them while they are doing CA or after completing CA.  And one of the most asked question is ‘should they go for a CFA degree’.  The reason of writing this article is not to tell you how to do CFA and what’s involved in it, but more about ‘Why CFA’.  You can very easily Google the subjects and the course curriculum, something where I may not be able to add any value.  However, what I want to elaborate through this article are the larger aspects of why should you pick this course and what are the skills one should have to complete it. 

After interacting with students and young chartered accountants, I felt a majority are perhaps clueless of why should they pursue this course.  The reason of starting my blog www.nimishgoel.com was precisely this reason.  It is unfortunate students have limited means to take guidance and mentorship from someone who is capable enough to guide in the right direction.  Senior most family members, who may not have any idea about the field you want to pursue, generally provide guidance.  Because they are our elders in the family and probably more educated (irrespective of the field), they end up becoming the mentors to all the youngsters in the family. You can read one of my previous articles on this topic http://nimishgoel.com/deal-unwanted-career-advice-family-friends/

Ok, coming back to the topic – Why CFA?  It is important to understand the objective of this course and how it is structured.  If we look at CFA’s website and read the preamble of the course, it says as follows:

“The CFA Program curriculum covers concepts and skills you will use at all stages of your career, connecting academic theory with current practice and ethical and professional standards to provide a strong foundation of advanced investment analysis and real-world portfolio management skills”

If we carefully look at the underlined words, we should be able to identify the philosophy behind launching the CFA course.  It is quite evident by undergoing this course you would acquire skills that are required for investment analysis and portfolio management. 

Before I discuss a little more on the finer aspects of CFA, it would be worthwhile to see what are the jobs typically done by CFA’s.  A research by eFinancialCareers found more than 25% of CFAs work in Asset Management industry followed by 25% in Equities and Fixed Income & Research, 20% in Hedge Funds, 15% in M&As, 10-15% in Capital Markets, 10% in Private Banking and Risk Management, 10% in Trading and Commodities and roughly 7-10% in accounting and finance.    

By looking at the industries employing CFAs, it is evident the jobs are more in the field related to corporate finance, treasury, hedging, risk management and capital markets.  And this seems to be in line with the Preamble of the CFA Institute making professionals in the field of investment analysis and portfolio management.

Lets try and understand in simple layman language, what does the above terms mean and how CFA degree holders add value to these fields:

Investment Analysis

Investment analysis is basically the study of how an investment is likely to perform and how suitable it is for a given investor.  If someone wants to invest in equities or mutual funds, the investment manager is the person who identifies which sector is promising to invest, which equity has performed well in the past and basis the decisions taken in the past and historical performance, takes the decision to make an investment.

To simply put, it is like if you want to put your money in buying a house you invest time to study the area, study the background of the builder, study the market prices and also study the earning potential in case you wish to sell it in the future.  This is exactly what an investment manager does whilst deciding where to put your money whilst buying securities or mutual funds.

Portfolio Management 

Portfolio management is helping create and recommend portfolios of stocks, bonds, mutual funds, exchange-traded funds or alternative investments to meet the investment objectives of a specific investor.  Professionals who perform portfolio management are focused on meeting the needs of investors through the rate of return achieved within a portfolio and they are often responsible for rebalancing the account to remain in line with the investor's allocation preferences.

The terms ‘investment analysis’ and ‘portfolio management’ are kind of synonymous, both of them leading the objective of ensuring investor’s objectives aligned with the type of investments they invest in.

The other areas where CFAs generally work include the following:

1.             Working as a Buy-side analyst.  The Buy-side of a stock exchange comprises the mutual funds, pension funds, insurance companies that buys a large proportion of securities (shares, bonds etc) for money-management purposes.

A buy side analyst is a person who works internally for company’s investment analysts and provides information and does research for the company’s internal consumption.  The buy-side analyst’s work is not shared with in the public domain.

2.             Working as a Sell-side analyst.  A Sell-side analyst is a person whose work is shared in the public domain and he/she generally works in a brokerage firm and provides recommendations for purchase, sale, prices and opinions to the public market.

3.             Working as a Financial Planner.  The other areas where CFAs are found quite useful is the field of financial planning.  Financial planners help companies and individuals plan their finances keeping the short term and log term goals in mind including retirement benefits, children’s education and marriage etc.  They are the people who have skills to foresee which investment is fruitful keeping the objectives in mind.   

4.             Working as Economists.  CFAs are also quite good in the field of economics and that’s because as part of the curriculum they are taught the concepts of statistics, probability theory, time value of money, micro and macroeconomics, international economics etc.   

How Does CFA differ From CA?

I think by now you yourself would have identified what a CFA does and the kind of industries they work in.  If we look at a macro level, CFA degree helps you get expertise in areas of investment analysis, portfolio management, economic theory, financial reporting, corporate finance that includes capital investment decisions, capital structure policy, dividend policy and the economic aspects of mergers and acquisitions.  A CFA is generally expected to have sound knowledge of ‘Finance’ in the broader sense.  Leveraging statistical tools and economics based tools, the CFAs provide their services. 

A Chartered Accountant, on the other hand is expected to have sound knowledge of accounting, audit, taxation (both direct as well as indirect) and law.  Though, in the CA course there are papers on financial management and a lot of CAs do practice in the field of corporate finance, in my personal opinion the quantum of financial management and economics oriented subjects in these courses vary, with CFA having much larger pie of these subjects than CA.  Similarly, even the perception of both the degrees to the outside world is different.

When Should You Do CFA?  Should you do CFA after CA?

In my opinion before deciding to choose a professional qualification, you should ask yourself the following questions:

1.             Do I have strong analytical skills;

2.             Am I good in research;

3.             Does my patience exceeds normal patience levels;

4.             Do I enjoy reading the pages in Economic Times/Financial Express/Business Line that cover reports and analysis on stock market, foreign currency and India and world economy;

5.             Do I like watching news on NDTV Profit, CNBC TV18 on issues related to economy, stock market, financial products, derivatives, equities and bonds and how are they valued etc; and

6.             Do I have the habit for an attention to details.

So, if your interest is more in capital markets, financial management, forex, derivatives, hedging and you have a knack to do research oriented work, CFA might be a good career option to you.  Students of economics wanting to make a career in corporate finance do well in CFA.  I personally think if you enjoy reading about stock exchange, derivatives, policies related to exchange money control and foreign exchange and the subject economics and world around it excites you, CFA probably would be a good bet for you to try as a career option.

But, having said that it doesn’t mean that people who don’t like reading economics or who have not been students of economics can’t do CFA, they surely can if they develop that interest.

However, if you (like me J) have more interest in reading balance sheets, picking up issues on taxation, understanding how accounting entries are passed for complex transactions, know how to interpret legal provisions and enjoy auditing the past transactions, then making a move towards CA might be a good option. 

Doing CFA after completing CA in my opinion is a good option provided you have interest in capital markets and related fields.  Your knowledge of financial management in CA exams will surely help but then don’t expect yourself doing the same kind of work that your CA friend might be doing, post qualification.

It is critical to understand in minutest of the details how each course/degree unfolds its career options and if you take a decision without being clear in the objectives, the results may be damaging and catastrophic. 

Don’t play with your career.  Do your research well and take informed decisions without anyone’s compulsions and pressure.  After all, it’s your life and only you have the right to make it right.

Good luck and stay blessed…

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Authored by Nimish Goel who by profession is a qualified chartered accountant but by passion, is an active blogger.  Nimish has worked with EY and PwC in India and has also worked with KPMG in Europe.  He now runs his own consulting company (International Business Advisors) and manages his blog www.nimishgoel.com.