CFA vs. MBA

Despite repeatedly warning against taking the CFA and even admitting the few cases where it’s actually helpful, I still get CFA-related questions all the time.

One common one is the CFA vs. MBA – should you take an intense exam that requires hundreds of hours of preparation, or spend 1-2 years at a top business school?

It depends on your past experience and what you plan to do in the future – the CFA is better for some industries and the MBA is better for others.

Why You’d Take the CFA

The CFA is most useful for portfolio management – managing large investment funds and deciding where to invest money.

It’s also helpful for equity research, but more so at the higher levels – in equity research, Analysts are above Associates and when you look at research reports, many Analysts have the CFA credential next to their names.

It can be helpful for certain types of hedge funds as well, though it’s certainly not required – in fact, hardly any of my friends in the hedge fund industry actually have the designation.

Outside of those industries, the CFA can be helpful as a resume booster – especially if you have weak business/finance experience or you’re in a region like India or South Africa where it’s valued more highly.

But if you’re aiming to break into investment banking, private equity, venture capital, or sales & trading, the CFA is marginally helpful at best.

It won’t hurt you, but there are better ways to spend your time.

More Fine Print

The other issue with the CFA is that you need 4 years of full-time work experience before you can list the letters after your name.

You can still list “CFA Level [xx] Candidate” on your resume or CV, but that makes less of an impact than dropping the letters after your name.

So if you have absolutely nothing business-related – no clubs, coursework, or personal investing – you can study for Level I just to write it on your resume, but don’t go beyond that – otherwise the return on time invested is poor.

Why You’d Go to Business School

The fundamental difference is that business school gives you direct access to recruiters at top banks, consulting firms, and other companies.

If you go to a top program, you get in and immediately get to apply to positions at the biggest and most prestigious firms worldwide.

It’s less about gaining fundamental knowledge and more about re-branding yourself, expanding your network, and breaking into a new industry.

You don’t need to study for 900 hours to get into business school, but you do need to take the GMAT and score well, get great recommendations, and tell a compelling story in your application: it’s just like university admissions all over again.

If you’re even contemplating business school at some point in the future, it’s a good idea to take the GMAT early because the scores are valid for up to 5 years.

Listing your GMAT score on your resume is fine, but you shouldn’t take the exam just for a resume boost – it’s less helpful than the CFA there.

Long-Term Career Choices – Which Industry?

The CFA is like a pencil sharpener: it makes you sharper, but also more narrow.

If you do anything outside of portfolio management, equity research, or (some) hedge funds, it’s useless – so if you make a career change and decide to do business strategy at Facebook, wave goodbye to all the time you spent studying.

The MBA is broader, but less useful for specific fields – if you did IT before but now want to be a venture capitalist, people will take you more seriously with an MBA; if you want to move from advertising to M&A, an MBA makes that easier.

With a top MBA, you can work at almost any company – the only exceptions are portfolio management and equity research, where a CFA is expected / required.

A lot of MBAs still become bankers or consultants since banks and consulting firms are lucrative and always in search of fresh blood – but even if you want to work in other industries, the degree is “proof” of your worthiness.

Recognition of the CFA and MBA Internationally

In the US and other developed markets like Western Europe, top business schools are plentiful – so banks and consulting firms place more weight on an MBA from one of those institutions.

In other parts of the world – especially East Asia and emerging markets like India and South Africa – many employers recognize the CFA and MBA equally and job requirements often include “CFA or MBA.”

That’s because the top business schools are still mostly in the US and Europe – as that changes and the reputation of schools elsewhere in the world rises, so too will the reputation of the MBA there.

The Bottom-Line

To summarize the CFA vs. MBA argument:

CFA Pros

  • Almost required for portfolio management, equity research, and certain hedge funds
  • Gain specific, specialized knowledge that’s widely recognized in finance
  • Can study for the exam while working full-time

CFA Cons

  • Requires close to 1,000 hours of study for all 3 levels, which means sacrificing your limited free time if you’re in finance already
  • You won’t build your network until after you’ve already taken the exam and joined a CFA Society; you also won’t get access to recruiters
  • Outside of finance, the CFA has little value

GMAT / MBA Pros

  • Gives you direct access to recruiters at banks, consulting firms, and other finance and non-finance companies
  • You gain a strong network and better “soft skills” for evaluating businesses
  • The MBA degree is useful and widely recognized even outside of finance

GMAT / MBA Cons

  • Requires leaving your full-time job for 2 years for the best programs (some exceptions internationally, such as INSEAD)
  • Very high cost ($150,000 USD for top programs) and opportunity cost
  • Not terribly helpful if you’re already in a finance or business role

Further Discussion

There’s surprisingly little thoughtful discussion of this one elsewhere on the Internet – one good article was written by my friend David Harper at the Bionic Turtle, covering the CFA vs. the FRM.

The FRM is an entirely different exam geared toward risk management, but he discusses the CFA vs. MBA argument there as well.

I don’t agree with everything he says since he’s coming from a risk management / general finance-perspective, but it’s a good read nonetheless.

GMAT Prep

I haven’t done much research into options for CFA prep, but if you want to prepare for business school you can take a look at all your different GMAT prep options right here.

And here’s how you can take the GMAT as an investment banker, and whether or not an MBA will get you into investment banking.