If you are just starting or have already begun building a career in finance, you may be considering becoming a CFA (Chartered Financial Analyst®) charterholder. It’s clearly a respected credential in the investment community. At the same time, you may also be considering obtaining an MBA, and concentrating your studies in finance. Many top MBA programs have excellent reputations for teaching finance. Beyond academics, they provide students with real-world experiences and academic skills that would help them build careers in the finance industry or related fields like Private Equity.
Finally, you may have heard of a recent entrant into the field of finance credentialing, the Master’s in Finance, or MF. This degree carves out the type of finance coursework found in an MBA into its own degree, without requiring the student to take classes in other business fields, like marketing or strategy or entrepreneurship. It may also go a level deeper in the finance coursework offered to students.
How does one go about evaluating whether to pursue a CFA desgination, MBA, or MF? These degrees are not mutually exclusive, and I know people who have more than one of them. But they do tend to open up unique career paths, and each is a significant investment in time, money, and energy. For most people, an upfront analysis of their career goals, financial situation, and personal preferences is likely to reveal that one of the above finance designations makes more sense than the others. In this article, we’ll compare and contrast these finance credentials along the following dimensions:
- Career paths
- Cost (in time to obtain and money)
- Skills / curriculum (defined broadly, both academic and practical)
What career paths are opened by obtaining a CFA designation, MBA, or MF?
Each of these certifications, without a doubt, tends to lead to different careers. That is not to say there is not any overlap. But examining career paths is an easy way to start to understand which of these certifications makes the most sense for you.
The CFA Program
Let’s start with the career paths typically pursued by CFA charterholders.
In general, you pursue a CFA designation because you are interested in a career in investment management. Typical job functions for CFA charterholders include: portfolio management, equity or fixed income research, consulting, risk analysts and management, and investment strategy. These job functions are typically performed in sectors such as: asset management, private wealth management, commercial banking, investment banking, and insurance. If you’ve ever read “analyst reports,” which are produced by stock analysts assigned to specific sectors of the equity markets, you’ll notice that almost all of them have the CFA designation next to their name.
Here is a list of best CFA Exam Prep Providers: https://crushthefinancialanalystexam.com/best-cfa-study-materials/
Now, let’s contrast the above career paths with those of students pursuing an MBA with a concentration in finance.
An individual with an MBA that focused in finance can clearly pursue some careers that overlap with those of a CFA charterholder. Most notable would probably be investment banking. This is a common career path for both CFA charterholders and MBAs. In fact, some individuals who are focused on this career path may endeavor to earn an MBA and CFA designation. An MBA, however, is more likely than a CFA to help you land a corporate financial analyst role in a public or private company, or a career in venture capital or private equity. Management or strategy consulting is also a common industry and career path for MBAs with finance backgrounds. The key difference between a CFA designation and an MBA that focused on finance is one of depth vs. breadth. A CFA designation has an impressive depth of finance knowledge but may lack exposure to the breadth of fields that are adjacent to finance. A private equity firm, for example, values the MBA’s ability to put a financial value on a company they are considering acquiring and may recognize that a CFA charterholder may be even better at doing that. But an MBA can think about the marketing and operations strategies of the company in question and how best to optimize them, which are topics a CFA likely knows less about.
Here is a list of the best MBA Programs: https://www.topuniversities.com/university-rankings/mba-rankings/global/2020
Master’s in Finance (MF) Programs
The MF prepares graduates to enter fields such as trading, investments, or risk management. In fact, from a career path perspective, it’s more like the CFA Program than an MBA. But, it doesn’t take as long to earn this degree. A typical MS in Finance program lasts one year of full-time study, but can often be completed in other formats as well (part-time or online, just like an MBA).
Here is a list of the best MF Programs: https://www.topuniversities.com/university-rankings/business-masters-rankings/finance/2020
How much does it cost to earn a CFA designation, MBA, or MF?
The effective cost of these degrees varies widely. Let’s break the cost down into two components: direct cost and opportunity cost. All three of these designations may require supplemental investment in test prep, so let’s just ignore the expense of CFA Program tutoring or hiring a GRE tutor (for MBA or MF admissions).
It’s important to understand that people generally do not take a break from their careers to pursue a CFA. You generally study for these exams while working full-time. You spend many hours in the evenings or on the weekend studying, but you do so at your own pace around your schedule. While you can certainly pursue a part-time or evening MBA, for this analysis, let’s compare the CFA to a typical two-year MBA program where you stop working and pursue your MBA. Let’s also assume you do the same for your MF, and study full-time for one year. Finally, let’s assume you make $100,000 per year.
The “opportunity cost” of pursuing the CFA Program is $0 because you get to continue working. The direct cost associated with signing up for the three CFA exams (level 1, 2, and 3) and buying the basically required official CFA Program curriculums adds up to ~$5,000.
The opportunity cost of pursuing an MBA is $100,00 per year, and it takes two years. So, that’s $200,00. The direct cost varies a lot by the program, but $55,000 per year, or $110,000 in total is a reasonable estimate. So, the full cost of getting an MBA is ~$200,000 in opportunity cost + $110,000 in direct cost = $310,000. Yes, there are cheaper programs. And yes, there are online programs that don’t require you to stop working. But many students do engage in a full-time two-year MBA experience.
The Master’s in Finance degree is typically a lot cheaper. Let’s assume you do take a year off of work to pursue the degree. There is then a $100,000 opportunity cost. But the direct cost itself varies between as low as $10,000 and as high as $70,000, with many programs hovering in the $20,000 range.
There are many benefits of getting an MBA relative to a CFA designation. If you go to a top MBA program for finance, you enjoy a rigorous finance curriculum, but you also get a broader background in business, real-world experiences, and the opportunity to network with hundreds or thousands of like-minded people. But let’s not gloss over the drastic differences in total cost. Sure, they are different experiences. But one costs $5,000 (CFA designation) and the other can cost north of $30,000 (MBA).
How prestigious is a CFA designation relative to an MBA or Master’s in Finance?
Let’s face it. As a professional early in your career, you may have a strong sense for the career path you want to follow, but it is always possible you’ll change your mind. You want to make educational decisions that provide option value. It’s generally a good idea to seek credentials that signal to future business partners and employers that, in general, you are a motivated, talented, hardworking, accomplished professional. What if you are targeting investment management, but you ultimately determine that’s too narrow of a path, and you want to pursue a more generalized business career?
One might be tempted to say, well, if you are not completely sure what path to pursue, an MBA is your best bet. It provides exposure to a broader range of functions and business issues. But it is important to understand that there are hundreds and hundreds of MBA programs out there. Where you obtain your MBA makes an incredible difference in the marketplace. In fact, at some more “elite” employers, earning an MBA from a lower tier school could potentially harm your reputation. An employer might say, why did he or she spend (i.e., waste) time and energy getting an MBA from xyz program? That was a bad decision the reflects poorly.
Sure, if you think you might pursue a career in finance, but aren’t 100% sure what shape and form that career may take, from a “prestige” perspective, an MBA from a top 20 program is probably a very reasonable bet. You’ll acquire many finance skills. You’ll learn cutting edge concepts and be able to pursue internships in various finance careers. And you’ll leave with a degree that signals to future employers that you are talented and competent.
How does this option compare to getting a CFA designation? I would argue the CFA compares surprisingly well. And once a person begins considering MBA programs that are ranked outside of the top 20, and certainly outside of the top 100, I would in fact recommend pursuit of the CFA? Why?
There are many MBA programs that are easy to get into. Many don’t even require you to take the GMAT, or they may accept a very average score. Obtaining a CFA designation, however, it is not easy for most people. There are a series of three exams that you must pass. Most industry sources suggest that a person needs to study for 300+ hours to pass level 1. The concepts covered in that first exam are very broad, from financial ethics to economics, accounting, the time value of money, and derivatives. The pass rate is only 40%. Each of the remaining two levels, each of which require you to go much deeper into specific topics (though you don’t know which specific ones in advance!), has a pass rate in the 40-50% range. Of all the people who sign up for the CFA Program and begin the journey, only 20% ultimately earn the CFA designation.
The finance community clearly values the CFA designation. It is preferred by nearly 90% of executive and senior-level positions in investment management. But the general business community places a very high degree of respect on the CFA as well. I have an MBA from Kellogg and spent a long career in management consulting, and the CFA “pops” as a signal that someone is highly competent and able to think critically and logically to solve problems. I know several people who are Certified Public Accountants (CPAs), which is a well-respected degree itself, who were unable to earn their CFA designation. Even if you abandon your career in investment management and pursue a more general business career, in consulting for example, a recruiter will value your CFA. That is not the case with an MBA unless it’s from a top program.
What skills and knowledge do you acquire when earning a CFA designation vs. an MBA or MF?
From an academic perspective, the narrowest degree is likely the Master’s in Finance. MF coursework will include financial theory, mathematics, quantitative finance, investments, markets, financial reporting and analysis, and valuation. The CFA Program curriculum will cover all of this, plus a few other areas less well covered in an MS in Finance curriculum, such as economics, ethics, and wealth planning. The full core curriculum for the CFA Program includes:
- Ethics and professional standards
- Quantitative methods
- Financial reporting and analysis
- Equity investments
- Fixed income investments
- Alternative investments
- Portfolio management and wealth planning
An MBA, of course, goes even broader. Even if you choose to really focus on preparing for a career in finance, any MBA program will require you to take some classes in marketing, strategy, operations, and human resources. The tradeoff will be that you likely won’t go as “deep” into particular finance topics as occurs in the CFA curriculum or when pursuing a Master’s in Finance.
The other big difference, though, is that the MBA degree also offers a wide range of “real-world” or “practical” or “immersive learning” experiences. You might get to do a little project with an actual private equity, venture capital, or even investment firm. You’ll meet people in the field, build a network, and see how the finance work is done day to day. There is of course the official internship process, where people seek out highly sought-after summer internships in investment banking.
When you pursue the CFA designation, it’s important to know that the curriculum is constantly updated, and the CFA institute works with respected practitioners each and every year to make sure the content is relevant to industry professionals and not overly academic. But the experience of studying for the CFA Program and the skills you obtain are somewhat academic. There is no mini project with an investment firm or summer internship built into the experience.
Each year over 240,000 people take the CFA exams. Still, a robust analysis of the designation, including its costs, prestige, and the career paths it opens might suggest that this number could even be higher. There is no admissions process to navigate, and the cost is low. If you work hard, you can earn this designation in a few years without impacting your career.
Want to learn more about the CFA designation relative to an MBA or an MF? Check out the helpful links below: