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The Chartered Financial Analyst (CFA) Program is a professional credential offered internationally by the American-based CFA Institute (formerly the Association for Investment Management and Research, or AIMR) to investment and financial professionals. The program covers a broad range of topics relating to investment management, financial analysis, stocks, bonds and derivatives, and provides a generalist knowledge of other areas of finance.
A candidate who successfully completes the program and meets other professional requirements is awarded the "CFA charter" and becomes a "CFA charterholder". As of June 2016, there are approximately 132,000 charterholders around the world. Successful candidates take an average of four years to earn their CFA charter. According to the CFA Institute, fewer than 20% of candidates who begin the program receive the CFA Charter.
|Functions of CFA Charterholders:
The predecessor of CFA Institute, the Financial Analysts Federation (FAF), was established in 1947 as a service organization for investment professionals. The earliest CFA charterholders were "grandfathered" in through work experience only. Then, the series of three exams was established along with requirements to being a practitioner for several years to qualify to take the exams. In 1990, in the hopes of boosting the credential's public profile, the CFA Institute (formerly the Association for Investment Management and Research) merged with the FAF and the Institute of Chartered Financial Analysts (ICFA).
The CFA program began in the United States but has become increasingly international with many people becoming charterholders across Europe, Asia and Australia. By 2003 fewer than half the candidates in the CFA program were based in the United States and Canada, with most of the other candidates based in Asia or Europe. The number of charterholders in India and China had increased by 25% and 53%, respectively, from 2005-06.
To become a charterholder, candidates must satisfy the following requirements:
Independent of any other requirements for becoming a charterholder, the CFA Program takes an average of four years for candidates to complete.
|Year||Level 1||Level 2||Level 3|
|2017 Pass %||43%/||47%||54%|
|2016 Pass %||43%/43%||46%||54%|
|2015 Pass %||42%/43%||46%||53%|
|2014 Pass %||42%/44%||46%||54%|
|2013 Pass %||38%/43%||43%||49%|
|2012 Pass %||38%/37%||42%||52%|
|2011 Pass %||39%/38%||43%||51%|
|2010 Pass %||42%/36%||39%||46%|
|2009 Pass %||46%/34%||41%||49%|
|2008 Pass %||35%/35%||46%||53%|
|2007 Pass %||40%/39%||40%||50%|
|2006 Pass %||40%/39%||48%||76%|
|2005 Pass %||36%/34%||56%||55%|
|2004 Pass %||34%/36%||32%||64%|
|2003 Pass %||42%/40%||47%||68%|
|2002 Pass %||44%||47%||58%|
|2001 Pass %||49%||46%||82%|
|2000 Pass %||52%||54%||65%|
|1999 Pass %||64%||54%||59%|
|1998 Pass %||59%||62%||59%|
|1997 Pass %||53%||59%||59%|
|1996 Pass %||53%||65%||64%|
|1995 Pass %||51%||46%||70%|
|1994 Pass %||48%||48%||73%|
|1993 Pass %||55%||56%||76%|
|1992 Pass %||59%||64%||82%|
|1991 Pass %||62%||54%||75%|
|1990 Pass %||60%||63%||75%|
|1989 Pass %||54%||64%||79%|
|1988 Pass %||55%||60%||71%|
|1987 Pass %||58%||64%||72%|
|1986 Pass %||59%||64%||77%|
|1985 Pass %||60%||74%||73%|
|1984 Pass %||58%||61%||81%|
|1983 Pass %||65%||65%||64%|
|1982 Pass %||59%||68%||73%|
|1981 Pass %||61%||85%||74%|
|1980 Pass %||63%||77%||86%|
|1979 Pass %||63%||84%||88%|
|1978 Pass %||64%||85%||75%|
|1977 Pass %||63%||81%||78%|
|1976 Pass %||72%||74%||84%|
|1975 Pass %||70%||75%||84%|
|1974 Pass %||70%||74%||84%|
|1973 Pass %||60%||57%||65%|
|1972 Pass %||64%||77%||73%|
|1971 Pass %||61%||74%||80%|
|1970 Pass %||66%||77%||61%|
|1969 Pass %||74%||78%||68%|
|1968 Pass %||70%||75%||77%|
|1967 Pass %||71%||89%||90%|
|1966 Pass %||77%||66%||83%|
|1965 Pass %||85%||78%||91%|
|1964 Pass %||79%||94%||95%|
|1963 Pass %||-||-||94%|
|Overall Pass %||42%||46%||57%|
|Last 10 years' (2008-2017) Pass %||40%||44%||52%|
The basic requirements for participation in the CFA Program (with or without obtaining the charter) include holding a university degree or being in the final year of a university degree program (or equivalent as assessed by the CFA Institute), or having four years of qualified, professional work experience in an investment decision-making process. To obtain the charter, however, a candidate must have completed a university degree (or equivalent) and four years of qualified, professional work experience, in addition to passing the three exams that test the candidate's knowledge of the academic portion of the CFA program. However, an accredited degree may not be a requirement.
Candidates take one exam per year over three years, assuming a pass on the first attempt. Fees as of December 2009 for each exam range from $710 to $955, depending on the date on which the candidate registers to take the exam, plus an additional $400 to $480 for program enrollment for new members. Level II and III pass rates apply to candidates that must have already passed the prior level(s).
All three exams are administered on paper on a single day; the Level I exam is administered twice a year (usually the first weekend of June and December). The Level II and III exams are administered once a year, usually the first weekend of June. Each exam consists of two three-hour sessions. Level I has 240 independent, multiple-choice questions—all information required to answer the question is contained in the question. Level II has 120 multiple-choice questions, organized as 20 six-question item sets, each set having its own vignette of facts. To answer each question, the candidate must refer to the vignette as there is insufficient information in the question stem. Level III consists of a session of constructive response, essay-type questions, and a session of 10 six-question item sets as in the Level II exam. On the multiple-choice/item set sections, there is no penalty for wrong answers. For the test, only two models of calculator are allowed (the Hewlett Packard 12C including the HP 12C Platinum), and the Texas Instruments BA II Plus (including the BA II Plus Professional).
Candidates who have taken the exam receive a score report that is intended to be fairly unspecific: there is no overall score for the test, only a Pass/Fail result, and a range within which his or her performance for each topic area falls: less than or equal to 50%, 51%-70%, and above 70%. Failing candidates are informed of their decile rank within the body of failing candidates. The passing grade for the exams had been defined as 70% of the top percentage of exam papers until 1989; since then, the grading method is not explicitly published and the minimum passing score is set by the Board of Governors after each exam. The Board of Governors reviews the results of the standard setting process and input from independent psychometricians.
Standard setting is a process that defines the passing score of the exam. The CFA exam uses the modified Angoff method which is a commonly used approach to setting standards for certification and licensure examinations. Subject matter experts review the exam and recommend a minimum passing score for the "just-qualified candidate". The minimum passing scores are presented to the Board of Governors in a report. The Board of Governors is not bound by this recommendation, but does recognize it as a very important information.
The curriculum for the CFA program is based on a Candidate Body of Knowledge established by the CFA Institute. The curriculum comprises the topic areas below. There are three exams ("levels") that test the academic portion of the CFA program. All three levels emphasize the subject of ethics. The material differences among the exams are:
For exams from 2008 onward, candidates are automatically provided the curriculum readings from CFA Institute at the time of registration for the exam. The curriculum is not provided separately in the absence of exam registration. If the student fails an exam and is being allowed to resit in the same year, the CFA Institute offers a slight rebate and will not send the curriculum again (the curriculum changes only on an annual basis). If the student resits in a year other than the year of failure, he or she will receive the curriculum again, as it may have been changed. Study materials for the CFA Exams are available from numerous commercial learning providers, although they are not officially endorsed. Various organizations (some officially accredited) also provide course-based preparation.
Members of CFA Institute, including charterholders and candidates for the CFA designation, must:
The ethics section is primarily concerned with compliance and reporting rules when managing an investor's money or when issuing research reports. Some rules pertain more generally to professional behavior (such as prohibitions against plagiarism); others specifically relate to the proper use of the designation for charterholders and candidates. These rules are delineated in the "Standards of Professional Conduct", within the context of an overarching "Code of Ethics"; see sidebar.
This topic area is dominated by statistics: the topics are fairly broad, covering probability theory, hypothesis testing, (multi-variate) regression, and time-series analysis. Other topics include time value of money—incorporating basic valuation and yield and return calculations—portfolio-related calculations, and technical analysis.
Both microeconomics and macroeconomics are covered, including international economics (mainly related to currency conversions and how they are affected by international interest rates and inflation). By Level III, the focus is on applying economic analysis to portfolio management and asset allocation.
The curriculum includes the more fundamental corporate finance topics—capital investment decisions, capital structure policy, and dividend policy—as well as advanced topics such as the analysis of mergers and acquisitions, corporate governance, and business and financial risk.
The curriculum includes analyzing financial reporting topics (International Financial Reporting Standards and U.S. Generally Accepted Accounting Principles), and ratio and financial statement analysis. Financial reporting and analysis of accounting information is heavily tested at Levels I and II, but is not a significant part of Level III.
The curriculum includes coverage of global markets, as well as analysis of the various asset types: equity (stocks), fixed income (bonds), derivatives (futures, forwards, options and swaps), and alternative investments (real estate, private equity, hedge funds and commodities). The Level I exam requires familiarity with these instruments. Level II focuses on valuation, employing the "tools" studied under quantitative methods, financial statement analysis, corporate finance and economics. Level III centers on incorporating these instruments into portfolios.
This section increases in importance with each of the three levels—it integrates and draws from the other topics, including ethics. It includes: modern portfolio theory (efficient frontier, capital asset pricing model, etc.); investment practice (defining the investment policy for individual and institutional investors, resultant asset allocation, order execution); and measurement of investment performance.
CFA Institute is strictly not affiliated with the Chartered Financial Analyst degree offered by the Institute of Chartered Financial Analysts of India (ICFAI) University of India or its affiliate, the Council of Chartered Financial Analysts (CCFA). In 1998, CFA Institute's predecessor organization, AIMR, sued and won a judgment against ICFAI/CCFA.
The judgment prohibited ICFAI/CCFA and its members from using the CFA or Chartered Financial Analyst mark in the United States and Canada. In August 2006, an Indian court issued a temporary injunction against the Indian entity, as well.
The judgments made no assessment of the quality of the Indian program and merely discussed the trademark violation. The Indian Association of Investment Professionals is the only organization in India which is affiliated with CFA Institute. CFA Institute trademark rights to the "CFA" and "Chartered Financial Analyst" brands have been recognized in India by the Delhi High Court. Further, the Delhi High Court issued an interim injunction ordering ICFAI and its affiliated Council of Chartered Financial Analysts to stop using CFA Institute trademarks. The Deputy Registrar of Trade Marks did recently determine that a trademark registration issued to CFA Institute for the "CFA" brand must be republished because of an error by the Trade Marks Registry. CFA Institute has numerous trademark applications on file with the Trade Marks Registry, and CFA charterholders from CFA Institute are free to use the "CFA" and "Chartered Financial Analyst" marks throughout India.
On May 8, 2007, the U.S. District Court for the Eastern District of Virginia vacated a default judgment issued against ICFAI that CFA Institute obtained in October 1998. ICFAI recently moved to reopen the case and to vacate the Default Judgment because the Court lacked jurisdiction over ICFAI at the time the Default Judgment issued. With the default judgement vacated, ICFAI informed Indian CFA Charter holders that they could legally use their Charter in the United States and Canada. However, on September 4, 2007, the Court reversed its decision to vacate after a motion to reconsider that decision was filed by CFA Institute. The latest update on the CFA Institute's legal battle in India can be found from the interview of Ashvin P. Vibhakar, Managing Director of the CFA Institute.
In January 2007, the Trade Marks Registry, UK refused to register "Chartered Financial Analyst" as a trademark, as the word "chartered" in the United Kingdom is associated with bodies incorporated by royal charter and thus "the relevant public in the UK would, prima facie, expect a person using the mark applied for to be representing themselves as a member of an organisation of the kind subject to a Royal Charter". "CFA" is a registered trademark in the UK, but only for "Educational services" (class 41) rather than "Financial services" (class 36) under which the attempt to register "Chartered Financial Analyst" had been made.
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