Solomon Islands Finance

Sep 18 2018

Battle Royale MBA vs. CFA

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An MBA and a CFA are not mutually exclusive, nor are they perfect substitutes for each other. I have both and would recommend that route to anyone, but it’s worth a minute comparing the two.

CFA – Chartered Financial Analyst

The CFA designation is given to those who pass three extraordinarily hard exams and who also have the prerequisite work experience. The entire CFA program can cost less than $5,000 depending on the quantity of study materials acquired. However, all three exams have pass rates that are less than 50%. Odds are that you will fail at least one exam. Avoiding failure means a lot of self-studying. This is not fun.

The CFA program is a pain the a$$, and everyone with the CFA charter knows this. I believe much of the value in the CFA is its signal to others that you are a diligent self-starter. The content learned from the CFA program is directly applicable to investing, though. It won’t necessarily make you a better investor, but it will give you the building blocks to become one.

MBA – Master of Business Administration

To some the MBA is seen as a path to personal wealth. To others, it is everything that is wrong with corporate America. In reality, the truth lies somewhere in between. Getting an MBA can be extremely expensive, but the payoff lies in better opportunities and a higher salary. However, unless you are in an investing track, an MBA won’t make you a better investor.

So which one is right for me?

I could spend a lot of time debating the pros and cons of each, but there’s a better way to decide. The value of each is merely what the market is willing to pay. In this case, the “market” is the job market. All of the various investment management compensation surveys I’ve seen over the years have all shown the same thing:

  • MBAs earn significantly more than non-MBAs, as much as 30-40% more
  • CFA charterholders earn significantly more than non-CFAs, as much as 30-40% more

All else being equal, the increase in salary is roughly equivalent for both an MBA and a CFA. This brings us full circle to my starting advice:

  • CFA charterholders with an MBA earn more than CFA or MBA alone, as much as 10-15% more.

Simply put: You will make more money with an MBA and a CFA. But at what cost? Given that an MBA is so much more expensive than a CFA, isn’t the ROI on a CFA much higher? The answer is, as with most things in life: It depends.

Part of the CFA charter requirements is the need for relevant work experience in investment management. If you aren’t already in the investment management business, this makes the CFA a non-starter. In this case, I would take a look at my post on deciding to get an MBA to see that the MBA can be the only path for career switchers (this is the path I took). To summarize, here are some brief guidelines to follow:

  1. To make more money, get an MBA or become a CFA charterholder or both.
  2. If you are already in the investment management business and want to move up – complete the CFA program.
  3. If you are not in the investment management business and don’t want to start as an entry-level analyst as a career switch – go back to b-school for an MBA, then do the CFA.

For the career switchers out there, Option #3 can be combined at a number of schools now that have partnered with CFA Institute to offer MBA degrees while studying and taking the CFA exams. This would be my recommendation for those with a few years experience that want to switch to a career in investing.

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