CFA® Charter vs. CAIA® Charter: Everything You Need to Know
In the finance world, there seems to be a sea (or is that a C?) of financial designations. Two of the most frequently mentioned are the CFA® charter and the CAIA® charter. If you’re thinking about becoming a financial analyst, these are two designations that can advance your career. So, what’s the difference and which is right for you? Let’s take a look at CFA versus CAIA.
CAIA® vs. CFA® Charter: What Does Each Mean?
The Chartered Financial Analyst® (CFA) charter is the professional credential offered internationally by CFA Institute to investment and financial professionals. The program covers a broad range of topics relating to investment and portfolio management, financial analysis, stocks, bonds, and derivatives, and provides a generalist knowledge of other areas of finance. Industry professionals worldwide recognize the CFA charter as the “gold standard” of all financial analyst designations.
The Chartered Alternative Investment AnalystSM (CAIA) charter is offered by the CAIA Association. It is recognized globally as the benchmark for analysis, application, and standards of practice in the alternative investments arena. Alternative investments include real assets (e.g., real estate, infrastructure, natural resources, commodities, intangible assets), hedge funds, private equity, and structured products (e.g., collateralized debt obligations, credit derivatives). In other words, alternative investments are not stocks, bonds, and cash.
Both are credentials for financial analysts, and both are earned by passing a set of exams called levels—you have to pass each level before taking the next. The exams require a great deal of study, practice, and commitment to learning and analysis, and all have a section on ethics and professional standards. To pass the CFA exams and the CAIA exams, you have to demonstrate knowledge of alternative investments.
It is possible to hold both charters. In fact, CAIA Association is currently running a CAIA stackable credential pilot program that enables up to 500 CFA charterholders in good standing with CFA Institute to skip Level I of the CAIA exam.
The CFA charter requires knowledge and expertise in a much broader range of financial analysis topics, such as portfolio management, economics, reporting, quantitative analysis, and more. The CAIA charter is more specialized—its only focus is the world of real assets, hedge funds, private equity, CDOs, credit derivatives, and other structured products. Another difference is exam structure. The CFA exam has three levels, and the CAIA exam has two.
CFA Charter and CAIA® Charter Requirements
To become a CFA charterholder, you need to:
- Have a bachelor’s degree (or equivalent) or be in the final year of your bachelor’s degree program. If you have 4,000 hours of relevant work experience or a combination of professional work and university experience that totals 4,000 hours, you are also eligible to start the CFA Program.
- Take and pass Level I, Level II, and Level III of the CFA exam.
- Become a member of CFA Institute (which costs $275 and includes agreeing to abide by its code of ethics).
- Provide CFA Institute with proof that you’ve been working full-time for 4,000 hours in a role that either involves investment decision-making or with a product that contributes to that process. This can include any work experience you had before passing the exam, as well as after.
To earn your CAIA Charter, you need to:
- Take and pass the CAIA exams. There are no degree or work requirements for taking the exams.
- Earn or finish earning a bachelor’s degree or equivalent and have at least 1 year of professional experience or complete a minimum of 4 years of professional experience without a degree.
- Join the CAIA Association (which costs $350 and requires you to abide by their terms and conditions).
- Submit two professional references to the CAIA Association.
Exam Topics, Formats, Fees, and Pass Rates
In a discussion about CFA versus CAIA, people are most likely to be concerned about the exams. Here’s what you need to know.
The topics of the CFA exams are as follows:
- Quantitative methods
- Financial reporting and analysis
- Corporate finance
- Equity investments
- Fixed income
- Alternative investments
- Portfolio management
To accommodate candidates whose 2020 exams were postponed or canceled, in 2021, all levels will have additional testing windows. Starting in 2022, Level I will be offered four times a year, and Levels II and III twice. For more information on the exact dates, read this article. CFA exam fees range from $700 to $1,000, depending on when you register. The pass rates for the exams can be found in this article.
By contrast, the topics of the CAIA exams are as follows:
- Professional standards and ethics
- Introduction to alternative investments
- Real assets including commodities
- Hedge funds
- Private equity
- Structured products
- Risk management and portfolio management
Both levels of the CAIA exam are given in March and September. Level I is multiple-choice. Level II has a multiple-choice portion and a constructed response portion. There is a one-time enrollment fee of $400. The fee for each level ranges from $1,150 to $1,250 based on the exam registration period. If you want to retake the exam, the fee is $450. The September 2020 pass rates were 52% for Level I and 65% for Level II.
Preparing for the Exams
Another similarity between the two charters is that the exams are nearly impossible to pass if all the candidate does is last-minute cramming. So, whether it’s the CFA Program or the CAIA exam, you should start studying early.
To prepare for the CFA exam, CFA Institute advises a minimum of 300 hours of study for each level. You should focus on the Learning Outcome Statements (LOS) from CFA Institute because they detail exactly what you are expected to do on exam day. CFA exam preparation classes can really help, as will immersing yourself in practice questions. In addition, you should plan to take as many mock exams as you can to get used to the whole exam process.
To prepare for the CAIA exams, the CAIA Association recommends more than 200 hours of study for each level. The Level I exam tests your knowledge of alternative investment concepts and tools. Level II evaluates your ability to apply those tools to analysis and investment. To pass both CAIA levels, exam technique is as important as understanding the curriculum concepts and topics. Therefore, it’s a good idea to enroll in classes, but you should also practice answering questions by taking mock exams.
CFA Charter vs. CAIA® Charter: How to Choose
Deciding which designation to pursue really depends on what you want to do as a financial analyst. If you’re interested in becoming a portfolio manager, research analyst, consultant, risk manager, corporate financial analyst, financial adviser, or moving into the C-suite, then the CFA charter will be a better fit. If you’re more interested in specializing in unconventional investments such as hedge funds or private equity, then the CAIA charter is right for you.
Of course, you don’t have to choose at all. As we mentioned at the beginning of this article, you can hold both charters if you’re willing to put in the work. Today’s investors are becoming more interested in having conventional and unconventional investments in their portfolios, and with both credentials, you will be well-rounded enough to meet their needs. It’s more common for someone with a CFA charter to decide to sit for the CAIA exam, and with the new program that enables select CFA charterholders to skip Level I and take Level II, there’s no added incentive. But, earning the CAIA charter first has worked well for some investment analysts as well.
No matter which path you choose, there is a wealth of information out there that can help you earn the credential or credentials you need. You can get started here.
Free eBook: Before You Decide to Sit for the CFA® Program Exam
Free eBook: CFA® Program Fundamentals, 2nd Edition
Ready to Pass the CFA® Exam?