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07/05/2011

What’s In Your Portfolio? Investment in CFA vs. MBA for Finance Professionals


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Career DevelopmentIf you’ve ever visited finance or analyst forums, you will probably immediately recognize the debate: which is better, the Chartered Financial Analyst (CFA) designation or a Master’s in Business Administration (MBA)? Some argue the MBA is a waste of time and money unless it comes from one of the top-ranked MBA programs. Others claim MBA graduates have a flimsy grasp on finance compared with those with a CFA charter. MBA enthusiasts counter that CFAs have a deep knowledge of asset management principles but lack context about the broader aspects of business. Underlying these arguments is the answer: no one program is right for everyone.

Even the CFA Institute does not discount the value of an MBA. According to an article on eFinancialCareers.com, Bob Johnson, managing director of the CFAI’s education division, says the MBA and CFA are ‘complementary’ designations. ‘For a young person who is preparing for a career in investment management, both educational opportunities are something they should consider.’ Furthermore, a recent study of portfolio managers, found no discernable difference in portfolio performance between CFA charterholders and MBAs.


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So, should you start preparing for the CFA Level I exam or download a practice test for the GMAT? Analyst Forum, an online community focused exclusively on preparation for the various financial analyst examinations, has explored this question in depth, including (naturally!) a spreadsheet to compute the net present value (NPV) of both the CFA program and MBA programs. Although the CFA comes out ahead in this analysis with a NPV of $204,394 compared with $177,884 for the MBA, the author notes that ‘a change in assumptions can change the answer.’ Since the right program for you depends largely on your resources, your skill set, and what you ultimately want to do, the following are key considerations when making your decision:

Your resources and future earning potential. The difference between the financial investment in an MBA and the CFA Program is stark: most top full-time MBA programs cost more than $45,000 for a single year of a two-year program. The CFA Program, all-included, costs just a fraction of that at under $4,500 (more if you don’t pass exams on the first try). The time commitment for the CFA, however, is significant, as the average time to earn a charter is four years. Those already employed might consider part-time programs, as many employers will pick up the tab for the CFA Program or an executive MBA program.

In addition, while a CFA charter holds the same value for all who earn it, not all MBAs are created equal. And while the reputation of the MBA program matters to many employers, a US News article also stresses the importance of a program’s job placement rates after graduation. Should you decide an MBA is right for you, the following criteria, used by the Economist in its yearly program rankings, are important to consider:

  • Opening of new career opportunities and/or furthering of current career;
  • Personal development and educational experience;
  • Increase in salary; and
  • Potential to network.

Your commitment to finance. While the CFA designation has reached the status of ‘gold standard’ in the industry for asset management, the curriculum primarily teaches the technical skills required for investment management. An MBA, on the other hand, provides exposure across a broader field of study. If you’ve decided asset management is the thing for you, the CFA Program is a better investment. But if you’re still uncertain about a career in finance, an MBA might be a better long-term bet.

Your learning style. Because the CFA is a self-study program, candidates can move along at their own pace. For the self-directed, this may be an advantage. However, some learners may benefit from, or even require, the structure of classes, discussion, and ongoing evaluation that a master’s program provides.

A final thought to keep in mind: your credentials don’t make your career. Most firms choose candidates with relevant job experience in addition to their education. Whatever program you decide will work for you, it’s not just the initials after your name—but what you do with them—that really count.

 Jennifer Swartz-Turfle

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Comments

In today's business world, the correct answer is have both... there are a lot of MBAs with CFA degrees... and they have the edge

Hi, I have an MBA (finance concentration) and I wrote the level 3 exam in June.The bulk of level 1 and level 2 material is covered in an MBA program with a finance concentration. This is based on my personal experience and will vary depending on school, courses, etc.

I feel that both the MBA and a CFA charter are complementary. I use concepts and skills learnt in both everyday in my professional career (Corporate Development Manager for a multi-national).

I have both a CFA and a MBA. In my experience, the MBA is more valuable. Why? Because the CFA has become so difficult to pass that it has become a poor man's MBA. This means those who have unlimited amounts of time to study--meaning not in a difficult, time demanding job--can pass. The CFA is a poor man's MBA or the easy way to a credential.

The CFA Insitiute is not doing CFAs a favor by making the pass rate so low. It is not actually improving the prestige. Instead, the CFA pass rate implies that those who pass have unlimited time to study, and therefore do not have a challenging job. So the current value of the CFA is going down.

Having both is the way to go. It shows motivation. In short the CFA is box to be checked off, for a job search. One learns the craft on the job.

Given the higher earning potential of the CFA (I was surprised), the choice would seem to tilt in favor of the CFA for undergraduate business majors from reasonably good schools.

Most MBA programs do not add much, if any, to the knowledge obtained from a good undergraduate program and a few years of experience. And the networking and "certification" benefits of second tier and below MBAs may be limited.

An MBA may still be a good way to "rebrand" in preparation for a career change or provide an explainable time out between jobs.

The CFA is really only useful if you're already working as an investment analyst, particularly if you're at a firm where promotion requires either a CFA or MBA. In that case, the CFA makes a lot of sense.

However, if you're more than several years into your career and working in an area outside pure investment analysis (including something complementary), you can pretty much forget about the CFA allowing you entry into the career.

With due respect to the CFA Institute, they shouldn't promote the program to people who work in areas completely unrelated to investments or at least financial analysis, as it's a false hope. Some years back when I was trying to hire an analyst at a family office, I was shocked to see how many lawyers, network engineers, telecom salesmen, etc., applied, all trumpeting their involvement in the CFA program. That kind of thing is silly, and doesn't serve them nor the current membership.

Anyway, my point is if you're trying to break into the industry, you're better off with an MBA, particularly from a strong school.

I am a CA already and i am sailing through CIMA. I have plans for CFA and MBA as well. If you got to reach the top you got to do a lot of things... This is my view

I am currently in my final year of MBA. However, I seen in the corporate world, how people with CFA grow much faster in rank than some one with an MBA. I strongly believe that the two should go together and I would like to do the CFA exam once I complete MBA, because this will enhance my career opportunities immensely and also build the confident I need to progress in the business world.

Thank you, very useful article!!!

surely a quality piece of article that give insight knowledge about Investment in CFA vs. MBA for Finance Professionals.

The comments to this entry are closed.


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