Realistic Opportunity Cost of a CFA
Lots of posts on here discussing whether the CFA is worth it versus the alternatives. Wanted to touch on one of the most common fallacies of deciding wether to do the CFA or not.
A primary argument against the CFA are the alternatives outside of the 300 hours per test. For example, what if you network instead or what if you read 300 hours of finance books? Not a bad argument. If you spent 300 hours networking, you probably would be further along. Same goes for reading 300 hours of finance books. But ask yourself honestly.....are you really going to do 300 hours of networking instead?
What you need to compare is the 300 hours of a CFA test to what you would actually do with the extra time.
Here is my list:
CFA
300 hours studying for Level I
Don't Get the CFA
75 hours at the gym
75 hours of watching Netflix
50 hours of drinking beer
50 hours of reading other finance books
25 hours of networking
25 hours of scrolling my Twitter feed
Is 300 hours of studying better than 300 hours of networking? Probably not. Is it better long term for my career than the 150 hours that I would have otherwise spent watching Netflix, drinking beer, and scrolling Twitter....definitely! The list is different for everyone. I would have liked to get in some more time at the gym instead of doing the CFA but if I'm being honest with myself, I would have spent very few of those extra hours on other career enhancing activities. Just some thoughts please share yours.
I agree with your opinion that its a good use of time and you'll learn a lot. There is a compounding effect though. Assume you fail each level once (high likelihood) then that would be 150 hours of networking opportunity cost in your example. If you passed everyone first time then that's amazing, but for the majority the time cost of failing is tough. 900 hours can turn into 2,000+. In that case it would be hard to argue those are hours well spent.
I have tossed around doing the CFA or CAIA (work at a MFO so the latter seems more relevant) for awhile now. Its just such a hard thing to commit when knowing the pass rates for CFA and time commitment. Obviously its the gold standard so hats off to anyone that has it. I'm going to make a decision soon on which I'm going to do and try hard to pass without it messing up too much of my social life/work/mental.
I think this is a fair discussion for level 2 and 3; however, if you have a finance/accounting degree and/or work in the finance field, level 1 should not take you more than 100 hours of prep. If you spend 300 hours on the level 1 and/or are already pre-planning to fail multiple levels then I don't think the careers that you benefit from having a CFA are really careers you are going to excel in. The people that are studying for the CFA and increase the fail rates are often people who have never worked a day of finance in their life and are simply taking the exams in hopes of breaking into the industry. The people failing are not a bunch of finance guys grinding out prep and still failing.
I was pretty much of this mindset that it would only take me a few hours to study for L1. I skimmed the material and it all seemed relatively easy. I probably studied less than 100 hours for my first L1 attempt. It seemed like a sum of all the material I studied as a business major in undergrad. But, there were two problems:
- CFA exams require mastery of the material
- The CFAI is very good at creating questions that trick you
In hindsight, I wish I studied 200 hours or more the first time to make sure that I passed it. The 100 hours and scrape by and passing mentality isn't a good idea even for finance majors. Plus the financial statement analysis (or is it called FRA these days) builds from L1 to L2. So you need a strong base for L2. Finally, I didn't spend enough time on Ethics either, which is easy to underestimate.
Pass rate is only low for L1 because a lot of people dont take it seriously, as they get the fees paid for by their employer.
If u actually study, you shouldnt have a problem passing L1 by a lot.
I sit for my L3 exam in 58 days
All the "is the CFA worth it" discussions end up in the same place: the value of the program varies widely depending on your circumstances. If you already studied finance at a good school it's probably worth very little. If you're trying to break into finance and can't do an MBA it's a great option. If you already work in IB and nobody in your reporting line cares about it, it's a waste of time. Et cetera et cetera until the heat death of the universe.
I think you're missing another key point, which is the CFA is not really helpful in terms of career advancement / pivot opportunities. A CFA unfortunately is not a key driver of helping you land a front office job or not. If you want to do it for learning or you're in public equities and need it, sure, but if you're an experienced hire with no front office experience, you're better off doing your MBA if you want to do IB or a chance at PE
Bingo. Unless you wanna do SS ER or work at a long-only, the CFA is by and large a waste of time. L1 curriculum is basically a finance degree condensed into one test and 2 & 3 are meaningless BS. The tests are a great challenge and the charter does hold weight in ER and AM but outside of that wouldn’t bother
There is no way you've taken the CFA exams or even looked at the curriculum if you think that L2 and L3 are useless. They're arguably much more useful than L1.
Second, I would argue that there is a divergence between what you learn and where the CFA will be useful for career advancement. There are things you learn in L2 that would be useful on a sell-side fixed income S&T desk (pricing a swaption, understanding implicit & explicit trading costs, understanding caps, floors, delta & Gamma hedges, etc). Even though the CFA isnt a surefire way to get a job outside of ER & Am, it can still help people get jobs in other areas of finance. I've already gotten a few interviews for sell side trading roles just because I had passed L2
For an entry level job, it can still help get your foot in the door if you don't have a target degree. I can attest that Level I did a lot to help me land my first IB role as well as other early interviews.
I agree that the impact of the CFA is marginal to your career overall, but my point here is compared to what? A top 20 MBA if you can even get in? Definitely better than a no-name MBA. Definitely better than 900 hours of Netflix for your career.
My main point is to compare the CFA's career impact to your personal realistic alternatives, not unrealistic alternatives like 300 hours of networking or for many people getting into a top 20 MBA program. Compare it to what you would be otherwise doing with your time and what other MBAs / Degrees are realisticially available to you.
My non-consensus opinion is that most people would be better off trying to become more interesting than pursuing the charter.
Spend those hours learning an instrument or fly fishing or traveling or reading compelling fiction. WSO loses sight of the human element that dominates client and employer interactions. Being able to talk NFL and the rise of DeVito with NYC clients has served me way more than studying defined benefit plans.
Not to say that pursuing the charter and becoming more interesting are mutually exclusive or incompatible, but there are options between the extremes of 300hrs of networking and 100s of hours of Netflix/beer (not to mention that 100s of hours of beer with the right people wouldn’t necessarily be time wasted).
I think someone on this board mentioned a scenario where a charterholder boss and a client casually chat about CFA ethics and ask why you (some junior analyst/associate) have not started the journey … I could not sincerely imagine such a scenario ever playing out. You have failed at your client-facing job if the conversation ever takes that turn outside a CFAI sanctioned event.
And even for working in public equities—I’m content to immerse myself in my coverage. Maybe if someone forces me, I’ll finally bite the bullet …
—neurotic SS associate who wastes too much time thinking about this topic
This response falls into exactly what I'm talking about. Comparing studying 300 hours to an unrealistic alternative outcome.
I mean if you can become a more social and interesting person, yeah do that. It's an extremely important skill.
If we could all become more likeable and interesting people, we would all choose to do that! However, becoming more likeable and getting the CFA are not realistic comparisons. Becoming more likeable is not something where you can devote X hours and get Y results.
You might spend a 1,000 hours traveling and watching sports and be the same boring unlikeable person. With the CFA, if you put in the hours, you will get the certification.
Side note.....if you think talking about sports makes you interesting and unique.....you're probably not interesting or unique. Don't mean to be offensive. Just a truth bomb to someone to who has seen a million people "connect" talking sports. It's not a real connection when everyone is doing the same thing.
You’re conflating quite a few things from my admittedly non-consensus (!) comment, and I don’t understand the animosity. I wasn’t prescribing those other activities for career outcomes over and above earning a charter.
Your premise was that, realistically, the opportunity cost of the CFA program is much lower than people think. Most people aren’t networking 300hrs in lieu of L1. I agree. But you mention Netflix and pounding beers as your personal alternatives. I was trying to point to many other things that are both more “productive” than Netflix and more realistic than constant networking. My point was that these pursuits between the poles of Netflix and nonstop networking can contribute to your interactions with clients/employers non-trivially.
Maybe you pursue those other things and are still boring or unlikeable, as you say. But an unlikeable charterholder beats an unlikeable non-charterholder, right? Lol I guess. That’s a dismal lens.
And where did I claim to be unique for following sports lol? Sports are unifying projects … literally meant to connect people under a common banner and language, however superficial that connection may be. Am I going to a PM’s son’s wedding bc I gassed up DeVito? Of course not. Am I incrementally more interesting than the guy casually bringing up ethics? Maybe
I would 100% concur with this post. I am a CFA charter holder and worked in investment banking before going to the buyside. I wish I spent those hours studying for the CFA working on unique extracurricular skills like my golf game. The elite jobs where you think a CFA matters , the harsh reality is your work experience and pedigree (undergrad/grad school) matter much more. After that your network matters the most. Third your “chad” like personality traits (are you a competitive golfer, runner, tennis player, etc) matter the most. I’d put the CFA way down the list for most elite jobs. This is the unfortunate reality for those who hope the CFA will propel them into great careers.
Here's another rebuttal as someone who is 2/3 through the CFA.
I often found myself in my 300+ hours of revision asking, "why is it impossible to have this level of discipline, this level of focus and time management, outside of studying for this wretched exam?"
And the answer I came to is - it really isn't. You just have to plan and decide to do it.
Many people take life as it flows and CFA puts a break on that and says "here's this stuff you need to do, here's when you need to do it by, and at the end you get a chance at succeeding at achieving a probabilistic outcome which is a function of your effort". This isn't something that is unachievable to do in your general life - whether that be career-wise or not. The only difference with CFA is someone has put that plan pretty much in place for you. If you dedicated even half the time one spends on the CFA into first creating a plan of action, and then executing it with discipline, with certain, measurable goals in mind - which I don't think is unachievable - would your outcomes be "better"? Quite possibly.
So I think that your point of "what will you realistically end up doing" is the wrong way to approach it. The right way to approach it is to start applying CFA - level discipline to other areas of your life. Start to think truly why you are able to activate that discipline for CFA and tap into that. (It probably isn't money because 1k/exam for most of us isn't super significant).
These thoughts are still developing for me as I figure out whether or not I want to complete the program.
Yes, if you can apply that level of discipline elsewhere without guided help, then you are correct. For example, if you really will network 300 hours rather than study 300 hours, you will be better off networkking.
Unfortunately, for most people, they just don't have that sort of willpower outside of a very structured environment.
Maybe best example across the board is health. Why are very few people chiseled to the level of professional athletes? Well, turns out self guided discipline day in and day out is pretty tough for most people.
Opportunity cost is exactly what I think about whenever I start wanking - more precisely, on how many networking calls I could be making instead.
Gotta start wanking during networking calls - no opportunity cost there.
I like your thinking. Kill two birds with one stone.
Let me throw this out there.
Your network will be much greater with those three letters after your name. People will answer your cold calls to connect at a much higher rate.
You can turbocharge your networking ability.
I'm working on level 3 (don't ask me why). I've probably spent more than 800 hours on this level, and no clue if I will actually pass.
I know a girl who passed L1 and L2 easily and then took 4 tries to pass L3. She said everyone else in her firm already had it and it became embarrassing. But, she finally got it.
It really is a different animal. I passed 1 and 2 easily as well.
My firm loves putting the number of CFAs they have on the investment team in their marketing decks. Definitely useful for some buyside roles as well as for ER.
How about:
100 hours of becoming the type of guy that doesn’t waste his free time on Netflix etc
200 hours of books, networking or whatever else is useful
I think that's a good argument because you don't necessarily need 300 hours of networking etc versus 300 studying. Maybe 150 to 200 hours of networking is already enough to get you way ahead if can commit to it.
I can give you some numbers, context that I'm European. It took me ~280 + ~430 + ~420 hours to pass L1, L2 and L3; got through all 3 levels in 18 months on 1st go. I quit my previous role in a ~60h /week niche boutique (basically 24/7 availability required) a few months after passing L1 to make sure I got L2 & L3 out of the way.
I'm now using it to recruit with, on top of a 2-year masters, and not really getting much (any) traction since (1) the market sucks; and (2) on-paper qualifications don't translate to suitability for any roles. Breaking into London with no visa feels impossible. Current idea is to start learning German to break into a relevant ER employer (Kepler Cheuvreux) or an EB/BB to cover DACH companies. I'd ultimately want to cover US equities, but there are so few buy-side roles covering US here in Scandinavia that it's smarter to see if a transfer from the DACH region to the US would be feasible.
In terms of the opportunity cost, so far I'd say it's ~15 months salary + ~€20-25k bonus that I missed out (some withheld by previous employer) - cost of living. I definitely think about whether I could've stayed and done L2/L3 simultaneously, but almost every time that thought comes to my head, I very quickly realize that the answer is no. I had signed on for L2 in March '22 and subsequently had 0 hours studied by June. In terms of alternative opportunity cost, at best I would've sacrificed some gym hours. But in the end, if the addition of the CFA helps me break into roles that previously would've never considered me, it'll be worth it. Only question is whether that will actually happen as so far CFA/post-graduate degree is typically towards the bottom of qualifications ("preferred" or "good to have").
it never stops to amaze me the how kids in the US get into IB at 21/22 years old through networking meanwhile Europeans have to pull up a top Bachelor's Degree with above avg. grades, 1-2 Master's, and preferably 3-4 internships to get a shot at a reputable bank.
Funny I even saw some shitty back office roles in banks around Europe saying "CFA would be highly appreciated" lmao gtfo
Relevant context is that as an employee I have 2 pretty prominent issues for roles in continental Europe:
(1) I don't speak a single continental European language at a C1 level. Most roles in the Benelux region require Dutch or Dutch+French or Dutch+German, roles in Germany/France obviously require those 2 languages, and roles in Switzerland occasionally will need some combination of German, French and Italian.
(2) I barely have 2 YOE. On-paper qualifications don't let me into associate roles that typically in Europe are recruiting for someone between 3 and 5 years.
I know networking does work, but if you're trying to transfer away from your region and almost nobody else does that then it's the same as recruiting just with a CV. I can't get my CV in front of anybody, because I don't have contacts and me, as a Scandinavian person, asking a random to stick their head out for me without even having met them feels rich. No alumni network, nothing to work off of (largely, not entirely).
Edit: Funny thing is I actually used to stick my nose up when people mentioned Big 4, but it has become so incredibly ironic that the only way to credibly break into IB is basically through Big 4 or M&A. Recruiting cycle is so bad that I'm actually considering regional options again too. Maybe I get lucky & land something soon though, never know.
I work in the back office for a fixed income desk.
Depending on what ur situation is, the knowledge of the fixed income products will definently come in handy. If you just refresh excel sheets no one cares though.
Not supposed to quit your job for it
OP - if you were in a niche boutique and are targeting a EB/BB like you mention in your post, did you think about continuing to get the work experience (not quitting) without going for L2/L3 CFA then lateraling?
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