By Don Steinbrugge, CFA, Founder and CEO, Agecroft Partners
The Chartered Financial Analyst (CFA) designation has long been regarded as the gold standard for investment professionals, equipping charter holders with a deep, comprehensive understanding of global capital markets. However, the declining number of candidates taking the CFA exams threatens to erode the program’s impact and the broader industry’s access to highly skilled talent.
The CFA Exam: A Pillar of Excellence
Unlike MBA programs, which often focus on management and broader business principles, the CFA exam offers a rigorous, specialized focus on investment analysis, portfolio management, and ethics. This deep and broad knowledge forms the bedrock of many successful careers in the investment management industry. Historically, the number of CFA candidates grew steadily year over year until the COVID-19 pandemic disrupted this trend. Since then, participation has declined consistently and is down approximately 40% from its peak. This concerning trend raises questions about the designation’s future and the role of the CFA Institute in revitalizing charter interest.
What’s Driving the Decline?
1. The Value Perception Gap
A significant factor behind the decline is a mismatch between the perceived and actual value of the CFA charter. Many potential candidates are skeptical about whether the extensive time, effort, and financial cost of earning the designation translates into meaningful career advantages. The CFA Institute must address this gap by effectively communicating the tangible benefits of the charter in real-world applications.
2. Shifting Industry Dynamics
The investment management industry has evolved rapidly, with increasing focus on alternative investments such as private equity, hedge funds, and real assets. Unfortunately, the CFA Institute has lagged in adapting its curriculum and outreach to these growing sectors. While the CFA designation remains highly regarded in traditional long-only asset management, it has less visibility and relevance in alternative investments—an area driving much of the industry’s growth.
The CFA Institute’s Strengths and Weaknesses
Success in Long-Only Asset Management
The CFA charter remains a highly respected credential in the traditional asset management industry. This recognition is a result of the CFA Institute’s historical efforts, including the development of Global Investment Performance Standards (GIPS) that revolutionized how long only investment management firms report performance. When implemented, these standard were so well thought out that they were quickly adopted as a requirement by large institutional investors and consultants in order to be considered in investment searches. Almost all traditional long only firm’s performance is in compliance with GIPS reporting standards.
Missed Opportunities in Alternative Investments
The alternative investment industry, however, presents a stark contrast. Many professionals in this space, particularly those transitioning from sell-side roles in investment banking, have not embraced the CFA designation. Their expertise often lies in specific niches, and they may not fully appreciate the broader knowledge base the CFA program provides. Furthermore, the CFA Institute’s poorly executed attempt to establish performance standards for alternative investments has hurt its credibility in this sector. As a result, few alternative investment firms have adopted GIPS reporting standards.
A Path Forward for the CFA Institute
To reverse the decline in candidate numbers, the CFA Institute must take responsibility and adopt bold strategies to reposition itself as a cornerstone of investment management. Recent statements by the Institute, pointing to slowing growth in China and India, fail to address the broader structural issues at hand. Two primary objectives should guide its efforts:
1. Launch a Comprehensive Marketing Campaign
The CFA Institute needs to invest in an advertising and educational initiative aimed at bridging the value perception gap. This campaign should target potential candidates and industry stakeholders, showcasing the career-enhancing benefits of the charter and highlighting success stories of CFA charter holders across various sectors.
2. Deepen Engagement with the Alternative Investment Industry
The CFA Institute must proactively integrate itself into more effectively into the alternative investment community by:
- Partnering, advertising, and increasing publicity in leading publications that serve hedge funds, private equity, and other alternative investment professionals.
- Increasing sponsorship and participation in more prominent alternative investment conferences to increase visibility.
- Completely overhaul its performance standards for alternative investments, ensuring they are practical, relevant, and widely applicable, thereby encouraging greater adoption by firms in this space.
Conclusion
The 40% decline in CFA candidates is a wake-up call for the CFA Institute. To maintain its relevance and uphold its legacy of excellence, the Institute must address the root causes of this trend and adapt to the industry’s evolving needs. By investing in strategic marketing and engaging deeply with alternative investments, the CFA Institute can reinvigorate interest in its program and continue to shape the next generation of investment leaders and reinforce its standing as the industry’s gold standard.
