An aspiring portfolio manager asks:
I’m just starting out in the investment business and would like to work my way up. Should I start the CFA program or get my MBA first?
When I started in this business, I asked this same exact question to every portfolio manager, analyst or investment consultant I came into contact with. I didn’t have a ton of experience coming into the industry, so I realized early on that one or both of these would be necessary to move up the ladder.
I ended up getting my CFA designation first and then went on to get my MBA. First, let me just say that no one needs either of these to succeed in portfolio management. There are obviously plenty of great investors who didn’t need a graduate-level program to succeed. You don’t need an MBA to learn about business principles. You could do that on your own for free from any library. But they can be helpful, especially on the career-front because they show initiative and the fact that you’re trying to improve your skills and knowledge base. I’ve heard of many instances where people were able to get interviews simply because they had passed the first level of the CFA exam.
From personal experience, here’s my tale of the tape:
Time: The CFA takes two to three years to complete, assuming you pass all three in succession (something that only around 1in 5 do). A full-time MBA can be completed in 18 months or so. I went part-time for my MBA so I could still work and it took me three years to finish.
Support: You’re on your own for the CFA because it’s a self-study program. In many ways, it’s really a test of willpower and the ability to put in the time. MBA classes are more useful when they’re full of other intelligent students and the assignments require group projects.
Cost: Including the cost of the course curriculum and exam fees, the CFA will only set you back $3,000 or so, which isn’t too bad when you consider the tuition for an MBA program is in the $60-80k range. The best advice I received, if you plan on doing both, was to get your CFA first. This shows a company you’re intelligent and hard-working and then you can let them pick up the tab on an MBA. That’s pretty much how it worked out for me. Tuition reimbursement is a huge perk if you can find it.
Studying: I probably studied more for the first level of the CFA than I did during four years of undergrad. I read somewhere that there are close to 9,000 pages of study material for the CFA. They say to plan on 300 hours or so for each test. That’s probably what I put in. For an MBA the biggest time constraint for me was sitting through a three hour class once or twice a week along with a few outside group projects.
Curriculum: It’s pretty much impossible to get anything below a B in an MBA class if you just show up, so it’s more about being able to finish the readings so you can contribute in class than anything. The CFA program isn’t so much about the depth of knowledge as it is about the breadth. It covers more topics than you could imagine. Neither are perfect when it comes to their curriculum, but that’s a post for another day.
The Bottom Line: Both can be helpful, but it depends on your situation. Many firms now require at least one or sometimes both for new applicants. If you’re looking to become a portfolio manager, the CFA is the way to go. If you’re still unsure about where you want to go with your finance career, an MBA is probably the better choice. An MBA is a broader business degree, more expensive and more about building your networking skills than anything else (although a good program will hopefully improve your decision-making ability somewhat). A CFA is more focused on the analytical skills, the markets and portfolio management. It’s much cheaper but somewhat lonely as you’re on your own for studying purposes.
You just have to put both of these programs into context. Neither matters if you don’t know how to apply them to what you’re doing. You’re not going to learn to become a better investor because you obtain the CFA designation. You’re also not going to learn how to run a business by getting an MBA. Neither signifies that you’re better or smarter than anyone else in the industry; just that you put in the time and are dedicated to the craft. In fact, if getting your CFA or MBA does inflate your ego, it’s likely to be a huge disadvantage.
My Letter to Young Analysts
Observations from a Decade in the Investment Business
Great post Ben. I agree on just about everything here! I got my MBA first, but only because my company paid for it and I wasn’t working in the investment industry at the time. I put in similar numbers of study hours for the CFA. The Level II test was one of the toughest I have ever taken, and I have an engineering degree.
Agreed on level 2. To me that was by far the hardest one. I know a number of really smart people who couldn’t get by that one. Seems to be the one they use to weed out a few people.
Awesome post, especially the last part. I just received my charter last summer, but I realize I still have so much more to learn.
Congrats. The CFA is a great learning experience and it has the majority of the textbook stuff you need, but there are a few qualitative aspects that are impossible to teach through an exam.
Absolutely correct. You don’t need either to become a good investor, but you need at least one or both to convince someone else that you can invest (i.e. get a job).
That’s not to say that these courses aren’t worthwhile, its just to say that they aren’t they only way to learn. But they are they only way to prove to someone that doesn’t know you from a bar of soap that you know what your doing.
A lot of people are trying to get and keep a job in finance. Think of both courses as a quick rule of thumb for employers and recruiters to use to sort people out.
They are a lottery ticket. They get you into the game, along with a lot of other people, but that’s not enough to win. To win, your numbers still have to come up. And that’s getting harder and harder to do as more and more people are chasing fewer jobs.
So get your CFA or MBA, learn some important skills, but don’t kid yourself sbout the importance of what you’re studying or the true probabilities of finding your ideal job as a PM.
PS of you go for a job where everyone has a CFA/MBA then of course they will expect you to have one too. After having gone through the sacrifice and expense themeselves, there is no way they are going to give you a free pass.
Very true. It is funny that you don’t get much slack from people who already have one or both. They basically just expect you to get it because they did. I like to think these programs can be very helpful for those who get the right lessons out of them.
Either or both can be valuable, but more for resume building than knowledge building.
For the most part yes, although there’s so much material for both that it’s tough to not learn something from these programs. It’s just about figuring out how to make it applicable to the real world.
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Completely agree with what you have to say. I’d just add one thing and it depends on the BSchool you get your MBA at. At the one I went (a top 10 globally) every class, the grades get bell curved so you have to beat the other 50-200 students in the class to get the A or A+. This ended up being really important because generally iBanks, PE, Hedge Funds only considered the top 5-10 students. So the material wasn’t that difficult but reaching the top definetly was!
True. I’d say the top ten schools are probably a different category and more helpful getting your foot in the door somewhere too.
Great article, Ben! As with anything education related, both these programs are about learning how to learn (Mark Cuban said this on the Ritholtz show). MBA helps hone networks and teamwork, whereas with the CFA one get investment knowledge one may not have known before or will use again. Both provide perspective, and keep one in the grind. And either can be replaced with regular and voracious reading and sponging of knowledge from better minds.
By the way, I am a new reader and already a fan of the blog. Any plans to speak to the CFA Society of Detroit or around Ann Arbor anytime soon? I’d make a point to come see you!
Thanks. I’ve never spoken with anyone in the Detroit society (I’m a member of the local W. Mich society) but if you’d like to make an intro or email me a contact I’d be happy to.