Before sunrise, in his hometown of Birr, Ont., Ken Luce would drag himself out of bed to work 15-hour shifts on a dairy farm. He'd milk cows at six in the morning, then again at six at night. The rest of the time, he'd toil away on back-breaking chores, like baling hay or planting crops. That is how Luce spent his weekends and summers, all through high school. “I remember working for 48 days straight,” recalls the 25-year-old. “I drank protein shakes, so I wouldn't fall asleep on the tractor.” The dairy-farm job soured Luce on a career as a manual labourer. But the long hours, he says, prepared him for an entirely different, yet equally gruelling, task.
Luce is one of more than a hundred thousand people around the world enrolled in the Chartered Financial Analyst Program, a graduate-level, self-study course on investing. If he's successful, he'll join the ranks of the roughly 69,000 CFA charter holders, in 120 nations and territories. About half of the world's CFAs hold positions at institutional investment firms, mutual funds, banks, insurance companies, pension funds, investment houses or foundations. The Royal Bank of Canada, Merrill Lynch and Goldman Sachs are among the biggest employers of people with the designation.
Earning a CFA is a daunting challenge. In addition to racking up three years of work experience as an investment professional (the requirement will increase to four years in 2007), candidates must sequentially pass three six-hour exams. And that requires mastering thousands of pages of material, on 10 topic areas ranging from corporate finance and securities analysis to portfolio management and ethics. In fact, only one in five who sign up for the course actually completes it.
“People fail our exams for all kinds of reasons,” says Robert Johnson, a managing director of the CFA Institute, based in Charlottesville, Va. But he believes lack of effort is the main culprit. “Our candidate surveys suggest the majority of them are not spending the minimum 250 hours studying for each exam,” Johnson notes. He does, however, acknowledge that the course material has become more difficult in recent years. Johnson insists the change isn't a ploy to limit the number of CFA designations awarded each year, a popular conspiracy theory among program participants. “Our exams are a reflection of the investment management business, which has become more complicated with the development of derivatives and other complex strategies,” Johnson explains.
The challenge of learning mountains of material makes the CFA program stressful in and of itself. But other aspects of the course can also be anxiety-inducing. “Some organizations have made it mandatory for certain employees to sit for our exams,” says Johnson, “so failure for many candidates is highly visible.” What's more, grades are entirely based on test scores, so hundreds of hours of preparation boil down to a person's performance on a six-hour exam. (Rewriting a failed test is always an option, but candidates must wait six months to re-attempt the Level I exam, and a year for either the Level II or III tests.) And simply finding time for the demanding course can elevate blood pressures.
Luce feels he picked the right moment in his life to enrol, just after graduating from the University of Toronto with a bachelor's degree in commerce. Nevertheless, he's had to juggle the CFA program with a busy job as a client-relationship associate at Barclays Global Investors in Toronto, a passion for bicycle road racing and, more recently, a blossoming relationship with a PR exec. “It's tough when one person wants to spend all of their time with themselves preparing for an exam,” he says of the six-month-old courtship, “but things have been pretty cool.”
Is the CFA program worth the stress and sacrifices that come with it? Plenty seem to think so. Since 1990, the number of CFA candidates has increased at a compounded annual rate of 15.6%, with much of the growth coming from outside North America. “A big driver of the trend is that global financial markets have become more integrated,” says Johnson. The managing director also believes employers have become more appreciative of the high standards and practical focus of the designation. As support, Johnson holds up a 2005 Russell Reynolds Associates salary survey of CFA Institute members. It revealed that on a global scale, CFAs with 10 or more years of industry experience out-earn their peers without the designation by 24%. In Canada, the gap is 20%, with CFAs pulling down US$100,762 on average, and their non-charter-holder counterparts US$80,610. Given those numbers, you don't need a CFA to see a stellar return on the roughly US$2,500 cost of the program.
Dan Chornous, the chief investment officer of RBC Asset Management, in Toronto, says a CFA, or enrolment in the program, definitely helps job applicants stand out from the crowd. A charter holder himself, he believes the designation is especially useful for those without an undergraduate degree in finance, economics or accounting. Chornous also values the ethical component of the program. “We're faced with so many situations in a very fast-paced industry that it's helpful to hard-code into one's mind the right thing to do,” he explains.
As for Luce, he feels that earning a CFA will give him greater credibility when dealing with clients, prospects and co-workers. He also believes the designation will help him climb the corporate ladder faster. “I think a CFA will help me to gain more responsibilities at work and with that the opportunity to prove myself,” he says.
Ken Luce is dressed in a faded T-shirt and gym shorts, and seated on a green futon in the living room of his Toronto apartment. It's May 31. In three days, he'll tackle the third and final CFA exam at the city's National Trade Centre. “I can see the light at the end of the tunnel,” he says, with a smile. “The timing of the test isn't bad. Summer's just around the corner.”
Luce looks relaxed. Part of the reason may be his laid-back personality. A bigger factor: Luce has followed the same study strategy that allowed him to pass the first two CFA exams, both on the first try. “I put together a five-month plan with dates that I want certain things done,” he says. Luce finishes the required readings during the first four-and-a-half months. Then, he spends the last two weeks before the exam reviewing the material with his study notes. During the last couple days before the test, Luce works through practice questions. “I've always found that doing them really helps you to understand the concepts.” Luce estimates he'll have finished close to 2,000 practice questions–and logged more than 300 hours–before he writes the final exam. He prefers to study at home. “You can save a lot of time by not travelling.” He also eats fast food to squeeze more minutes out of the day. “Yesterday, I ate Quiznos–twice.” In fact, some CFA candidates have a name for the weight gained during the program: the CFA 15.
At a quarter after five in the afternoon, on June 3, a sea of people pours out of the CFA Level III examination room at the National Trade Centre. The comfortably and unfashionably attired group have just finished the six-hour test. Their expressions range from shell-shocked to cocky. Luce appears exhausted but in good spirits. “The morning was fine, but the afternoon session was pretty difficult,” he says. “It's tough because you don't know if you passed for a couple of months.”
Only a few minutes later, though, Luce's thoughts have moved on to other matters. He jumps in a cab with a friend. “To the Madison,” he tells the driver, directing him to his local watering hole. “As soon as possible.”
Regardless of whether Luce ultimately makes the cut, he has already reaped one reward from the course. A close friend recently told him, “You're more confident.” Luce's response to the compliment: “Right on.”
