The CFA® Charter in Business and Banking

Considering the CFA charter? Wondering whether you should get an MBA or a CFA charter (or both)? Trying to decide your career path in the world of finance given changing industry trends and the rise of FinTech? As a commercial banking finance manager and a business school professor, I apply my CFA knowledge outside of the traditional path of the investment portfolio manager, and I share that experience with you here.

The CFA Charter or MBA: Which Is Right for You?

The MBA and the CFA charter complement each other. The MBA is a broad curriculum on business management and leadership, in contrast to the CFA charter, which involves a detailed study of finance. Both are widely applicable to a business or portfolio of businesses. While the CFA curriculum level eventually focuses on investment portfolio management, a business today is often a portfolio of businesses or products that are not unlike an illiquid investment portfolio, making the knowledge globally relevant. There are many very good articles that discuss this debate elsewhere, but as Warren Buffet has said before, “Ultimately, there's one investment that supersedes all others: Invest in yourself."

The CFA Charter in Commercial Banking

My first job in commercial banking was owed to simply being a CFA candidate. While the CFA designation is typically associated with investment portfolios, a business can be thought of as a portfolio of products or business lines, and a bank can similarly be thought of as a portfolio of pooled, illiquid, fixed-income securities.

CFA knowledge may be applied to subasset classes such commercial real estate (CRE) loans and not just investment securities. With changing accounting regulations, quantitative methods and finance meets accounting with the new current expected credit loss (CECL) standard, where loan reserves must be booked on a forward-looking lifetime basis for credit risk. Other examples of specific-use cases include the more traditional asset/liability management (ALM) and regulation for stress testing from the Dodd–Frank Act (DFAST and CCAR).

The CFA Charter and Financial Models in Business Startups

Many entrepreneurs have the drive and motivation to get their product or idea off the ground, but often a simple business financial model can help steer the course, save time, and improve the likelihood of funding from investors. While nothing replaces a deep understanding of what a customer will pay for a product or service, taking time to plan and understand the return from an investor’s standpoint, the cost to acquire customers, and required financial milestones can help the startup team focus their attention on key financial drives along their quest to become the next unicorn.

Business Mergers, Acquisitions, Divestitures, and Spinoffs

The pinnacle of business portfolio management is the management of whole businesses and product lines. Many CEOs and CFOs often act as an active portfolio manager for shareholders, choosing to acquire businesses; however, fewer CEOs actively manage both the long and short position where subsidiaries or business lines are both actively bought and sold as part of the overall business strategy. Fewer still include the value of real options on a valuation exercise when considering a company (without hiring investment bankers or valuation advisory). Valuation and active business management is a complex process that merges both CFA and MBA knowledge to create returns for shareholders.

The FinTech Wave

FinTech continues to be a trending topic in finance as industry leaders discuss what’s next and where the industry is going. A common question is how the portfolio manager fits into this trend with the rise of algorithmic trading and wealth management. Assets under management continue to rise, not only for these automated wealth management tools, but also for general investments as well as hedge funds. The CFA charter is still the standard in the industry. Considering the nature of the market trends, the strategic CFA candidate will think about not only the portfolio management tools from the curriculum, but also how the knowledge fits into the forward-looking market demands.

In Summary

The CFA content is globally applicable, with a mixture of knowledge of investments, asset classes, corporate finance, quantitative methods, accounting, and so forth to prepare the candidate for a wide range of careers. The MBA is a complement to this knowledge. Whether you are planning for Wall Street, startups, commercial/retail banking, or the FinTech wave, the CFA charter is a strong bet on your journey.

About the Author

Chris Kennedy, CFA, is both a VP at BankUnited and an adjunct assistant professor for UNC Kenan-Flagler Business School. Chris earned his PhD from North Carolina State University and his MBA from UNC Kenan-Flagler.

Christopher Kennedy