Chartered Financial Analyst (CFA)

What it is:

Chartered Financial Analyst (CFA) is the designation attained by a person who has successfully completed all three phases of the Chartered Financial Analyst program.

How it works/Example:

To use the Chartered Financial Analyst designation, an individual must first have a bachelor's degree and three years of practical experience in the investment industry. He or she must then pass a series of three, six-hour examinations. Passing these rigorous tests requires a comprehensive understanding of accounting, economics, and portfolio management, as well as successful demonstration of a high level of proficiency in the valuation and analysis of both equity and fixed-income securities.

The level one exam is a 240-question multiple-choice format test that measures an applicant's ability to apply basic facts, concepts and formulas. The level two and three exams comprise essays and "real-world" case studies that require more advanced calculation, evaluation and problem solving methodology. Some of the concepts in the curriculum include:

-- Financial Statement Analysis
-- Micro and Macro Economics
-- Securities Analysis and Valuation
-- Derivatives
-- Statistics
-- Fundamental and Technical Analysis
-- Corporate Finance
-- Global Markets
-- Portfolio Management
-- Ethics

Why it Matters:

A CFA certificate is one of the highest awards bestowed in the investment industry, and is an internationally recognized and respected designation. Furthermore, to receive the Chartered Financial Analyst designation, the organization which administers the program, the CFA Institute (formerly known as AIMR - the Association for Investment Management and Research) also requires an adherence to certain ethical standards and principles.

The coursework for the program is generally considered to be "master's level" and typically requires several hundred hours of study time per level. Still, even as the number of applicants has risen from 7,000 to over 30,000 during the last decade, the failure rate for the level one exam remains around 66%, or nearly two-thirds. As of the beginning of 2005, there fewer than 70,000 people worldwide had earned the CFA credential.

Chartered Financial Analyst charterholders usually end up working for a broad range of employers, ranging from mutual fund firms to hedge funds to investment banks to brokerage houses to boutique money managers. Regardless of their exact job description, though, the three-letter CFA designation represents the definitive mark of a competent financial analyst bound to the highest standards of ethical behavior.

Best execution refers to the imperative that a broker, market maker, or other agent acting on behalf of an investor is obligated to execute the investor's order in a way that is most advantageous to the investor rather than the agent.