Some Thoughts on Chartered Financial Analyst (CFA) vs. Master's of Business Administration (MBA) Designations

By: Steve Rubis

Which came first, the chicken or the egg? The answer to this question typically leads to a discussion mired in circular logic. The Financier’s penultimate question “should I get a CFA or MBA” also leads to circular logic. Most financiers seem to believe that the CFA / MBA question is an either or problem. To suggest that one should either get a CFA or an MBA shows a lack of sophistication and understanding of the two designations. Anyone who seeks either or both designations must first assess their career path. Defining a career path will answer whether one needs either credential or both, as well as, in which order they should be taken. Generically, a dichotomy exists between these two credentials: the MBA acts as an entry to capital markets careers and sophisticated corporate finance roles, but the CFA provides a differentiating characteristic for established finance professionals.

An article on eFinancialcareers.com serves as the impetus for this article.

eFinancial Careers on CFA vs. MBA

The article original ran on April 18, 2007, and comments have been flowing freely. Many of those who have posted a comment seem to suggest that the CFA vs. MBA is an either / or question. Such a suggestion shows a lack of true understanding in terms of each designation. The CFA and MBA are two separate designations that support or enhance each other, but at the same time, can stand alone. A true professional should seek both designations attaining an MBA first and CFA second.

To understand this logic, it is important to understand each designation. The CFA designation is a rigorous process in which most applicants fail. In order to receive the designation, applicants must take three levels of tests, of progressing difficulty, as well as, accrue four years of professional experience within the financial services industry. A Master’s of Business Administration degree is something altogether different. An MBA is a true master’s degree, which calls for specialization and general business knowledge. These degrees typically take anywhere from one to three years and rigor is a function of the specific school.

There are some common misconceptions which appear in most comments regarding this debate. First, most overlook the four years of professional experience required to attain the full CFA designation. The problem with the CFA exam is that it makes most sense for professionals who already have sophisticated finance careers. Certainly, sitting for each level can help one get a foot in the door, but the greatest return is afforded to those with experience. In total, it takes three tests and four years to attain the designation for finance professionals. Those who pursue the designation, but not already possessing a financial services career, can expect the process to take as long as seven years (the worst case would be to pass all three exams and them accrue the four years of experience).

On the other hand, an MBA degree usually requires the taking of the GMAT exam and typically two years of study. The problem facing prospective MBA’s revolves around the reputation of a specific school. Those who seek employ in financial markets, i.e. investment banking or equities research, must obtain a degree from a well respected institution. The competition for such jobs is so fierce that employers can chose to be extremely picky about an applicant’s background. All in all, the time required to obtain the MBA is much less than the CFA. It is this shorter time requirement that lends the MBA to being more of an entry credential in comparison to the CFA

A glaring misconception also revolves around tuition costs of each designation. Most CFA marketing materials suggest that a CFA is cheaper with an average annual cost of $2,200. Most MBA programs will cost anywhere from $60,000 to $100,000, again based on reputation of the school. While the CFA is significantly cheaper, the time commitment and knowledge required for passing the exam is substantially greater than what is required for an MBA. The MBA is obtained by attending class over a period of semesters, and since it is not totally based on a comprehensive exam, most are more readily able to achieve this degree.

Those seeking a CFA or MBA designation must also understand what type of training each designation provides. The CFA is a specialized curriculum geared toward financial analysts who are heavily involved in the investment process. Curriculum is practical, hand on, and mostly applied. MBA’s are quite the opposite in that they are most theoretical, academic, and provide a broader body of knowledge. Again, well defined career goals provide the best answer as to which designation is best. If one wishes to be an analyst, the CFA might be the answer; however, if the analyst wants upward mobility, the MBA’s broader knowledge base, which includes management training, will work best.

To ask whether to obtain either a CFA or an MBA, or what order in which to obtain them, requires well defined career goals. In our estimation, the MBA should come before the CFA. The MBA is easier to obtain, and can be completed quicker, not to mention, a finance MBA serves as a good preparation for the CFA Level I exam. CFA designations are much tougher to complete and really serve as a differentiating credential. MBA degrees are the key to entry and the CFA separates the wheat from the chaff.