Financial Qualifications - The Differences And Requirements (CFA, CAIA, FRM and IMC).

Today's article is on financial qualifications/exams - namely, the CFA, CAIA, FRM and IMC (don't worry, expanded acronyms are all below). Though I'm in no position to tell you which will help you land your dream job or which qualifications are 'right' for your career, I've highlighted some of the key differences between them. I've also touched on the logistical aspects of attaining these qualifications such as the recommended hours of study, how many exams/levels for each qualification, dates of exams, etc.

Quick caveat: Yes, there are other financial qualifications out there, and yes there are also actuarial and accounting qualifications too, however, I've focused on these four as they seem to be cropping up more than the others (from a banking and finance perspective). Hopefully, this article can provide some clarity or clear up any grey areas you might have had prior to reading. Enjoy!

CFA (Chartered Financial Analyst)

The CFA covers a very broad array of financial topics ranging from portfolio management to ethics to corporate finance and accounting. It also includes areas and chapters on the varied range of asset classes within the world of finance (fixed income, equities, alternatives, etc.). The CFA consists of 3 levels, each increasing in complexity as you pass through them. The institute recommends preparing for around 6 months (or 300 hours per exam) ahead of each exam. It's a big commitment and juggling studying for the CFA whilst having a full time job requires commitment and dedication. Having said this, it isn't impossible to pass the CFA whilst working as thousands have done already.

You can sit the CFA level 1 exam in June and December, however, level 2 and 3 are only available in June. Though there are three levels to pass, on average, successful candidates take four years to attain the full CFA qualification. In addition to this, it's useful to keep in mind that you'll need at least 48 months (4 years) of relevant experience in the industry to be able to become a charterholder (and put the 'CFA' letters at the end of your name). Once you pass all three levels you'll need to send the institute a reference letter that they'll need to approve before fully qualifying you.

You can't sit the exams in random order, i.e. level 2 before level 1. They have to be passed sequentially and the exams are only available in English.

The level 1 exam consists of two 3 hour exams which cover 120 multiple choice questions each. 3 hours in the morning and 3 hours in the afternoon. Questions across all topics are asked across both sessions. Full details here.

The level 2 exam consists of 10 item set questions in the morning and 10 in the afternoon. These end up covering a total of 120 items worth 360 points (1 point per minute of the exam - 6 hours of exams in total; 3 hours in the morning and 3 hours in the afternoon). Level 2 is a big step up from level 1 and the exam style changes quite a bit. Full details here.

Finally, the level 3 exam consists of 8 to 12 constructed response (essay) questions in the morning followed by 10 item set questions in the afternoon. Full details here.

2017 June exam pass rates were as follows: Level 1 - 43%. Level 2 - 47%. Level 3 - 54%. The usual pass boundary is 70% or thereabouts, however, this moves up/down depending on overall candidate performance for that specific sitting. For June and December 2016 pass rates click here.

For information on fees, locations and everything else regarding the CFA click here.

CAIA (Chartered Alternative Investment Analyst)

The CAIA designation isn't as common as the CFA, however, it's popularity is slowly increasing. It's the qualification for those who predominantly want to focus on alternative investments. The CAIA covers topics including private equity, hedge funds, commodities, managed futures and real assets to name a few.

The CAIA qualification differs from the CFA in that it consists of two levels rather than three. The recommended study time per CAIA level is around 200 hours (or 4 months) as opposed to the 300 hours for each level of the CFA. In addition, you can sit CAIA levels 1 and 2 in March and September of the same year. Thus, you can complete the whole qualification within a year if you wanted to.

For the level 1 CAIA exam you'll have 200 questions split over 4 hours. That's 2 hours to complete the first 100 questions followed by an optional 30 minute break, and then 2 hours to complete the final 100 questions. All questions are multiple choice.

For the level 2 CAIA exam you'll have 2 hours to complete 100 multiple choice questions followed by an optional 30 minute break, and then 2 hours to complete 3 constructed response (essay) questions.

In March 2017, 63% of candidates passed level 1 and 59% passed level 2. Results are either pass or fail and hover around the 70% mark for a pass per exam (this fluctuates depending on the sitting and overall results).

75% of candidates complete both levels within 12 to 18 months. You can put the 'CAIA' letters after your name upon completion of both levels given you have the relevant experience.

For more details on the CAIA, click here.

FRM (Financial Risk Manager)

The FRM is a risk management qualification focusing on topics including quantitative analysis, risk management, risk modelling, investment management and current market issues. There are two parts and both are available in May and November each year.

In order to attain the 'FRM' designation you'll have to complete parts 1 and 2 (part 2 has to be completed within 4 years of completion of part 1) and demonstrate at least 2 years of risk management experience. A recent survey of part 1 candidates found that on average, individuals spent around 240 hours studying for part 1. This, of course, varies case by case.

Part 1 consists of 100 multiple choice questions and is only available in the morning. You'll have 4 hours to complete all questions. Part 2 consists of 80 multiple choice questions and you'll also have 4 hours to complete all questions.

In May 2017, 42% of candidates passed part 1 and 54% of candidates passed part 2. Exam results are once again either pass or fail and they'll usually let you know your results six weeks after sitting the exam.

Click here for more colour on the FRM.

IMC (Investment Management Certificate)

The IMC is the least taxing and demanding of the four qualifications covered in this article. It's an entry-level qualification focusing on portfolio management, research analysis, accounting, regulation, ethics and a few other topics. It covers these at a high level and does not explore them in as much depth as some of the other qualifications.

The IMC consists of two units. Unit 1 focuses on the investment environment and consists of 85 multiple choice questions which are tested over a 100 minute exam. Recommended study time for unit 1 is around 80 hours.

Unit 2 focuses more on calculations and investment practice and consists of 105 questions which are tested over a 140 minute exam. Recommended study time for unit 2 is around 120 hours.

Results are either pass or fail and hover around the 70% mark for a pass. One of the great things about the IMC is that you find out your result on the day right after completing the exam.

For more information on the IMC, click here.

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Disclaimer:

The views and comments expressed in this article are solely those of Afzal Hussein and are not representative of any organisation, charity or third party.

This is not a paid advertisement for any of the qualifications addressed.