One of the most common questions we get here at 300 Hours from potential CFA exam candidates is: What is the CFA program and charter?
As this site is for potential candidates as well as for current candidates (and charterholders), it’s important for us to revisit the basics and understand what exactly is the CFA program, how the exam process is like, and its history.
And history is what we’ll cover today.
To understand the origins of the CFA program, we must first go back to 1942, the New York Society of Security Analysts (NYSSA), and a guy called Benjamin Graham – who wrote this book, which is part of our recommended reading.
As those who studied economics will know, Ben Graham wasn’t just any run-of-the-mill analyst. ‘The Dean of Wall Street’, as he was called, was considered the first proponent of value investing, an investment approach he began teaching at Columbia Business School in 1928, where he published Security Analysis with his colleague David Dodd, which laid the intellectual foundation for what would later be called value investing, and is still used to teach in Columbia Business School to this date. His subsequent book, The Intelligent Investor, which Buffett calls “the greatest book on investing ever written”, introduced the Mr. Market analogy, perhaps the best investment analogy in history.
Warren Buffet Takes A Schooling
Through his class at Columbia, Graham went on to teach and mentor a determined, ambitious young man by the name of Warren Buffett. Buffett would eventually go on to work for Ben Graham in his investment partnership, and acquire GEICO, an insurance company of which Graham was Chairman in earlier years. In fact Buffett cites Ben Graham as the second most influential person in his life (after his own father) and even named his son, Howard Graham Buffett, after him. A likeness of Ben Graham, commissioned by Warren Buffett, adorns the headquarters of the CFA Institute today in Charlottesville, VA.
The Qualified Security Analyst
During the 1940s, Graham originated the idea of a certification process for financial analysts, which was then formally proposed and approved by the New York Society of Security Analysts. Illustrating his thoughts in The Analyst’s Journal, published by the NYSSA in 1945, Graham outlined the advantages of such a certification, then put forth as the Qualified Security Analyst (QSA):
- An indication to investing clients the attainment of minimum requirements on knowledge and professional competence
- Additional prestige for the analyst
- The possibility of increased financial reward and employability
It’s interesting how much of it still holds true to the CFA program today.
Pass rates were atrociously lax then, tsk tsk.
However, although the NYSSA endorsed Graham’s proposal, it had a dissenting opinion, spearheaded by Lucien Hooper (we’ll get to him later) and it was not until 1963 that the program got off the ground.
Although Graham’s idea was not implemented at the time, it was refined over the years and in 1953 the NYSSA again reviewed a proposal of a ‘Senior Security Analyst’ designation, to be earned after 10 years of investment experience and submission of an analytical appraisal of securities. Many objections on the overemphasis on seniority followed the proposal review and a certification process resembling Graham’s original idea began to take shape.
However it was to be another 10 years before financial analyst societies across the US would agree on a single defining accreditation that became the Chartered Financial Analyst designation.
Karma’s a b*tch – the CFA program is born
The first exam was held in June 15, 1963, and over 300 analysts studied for and took the exam. As this was the first time, many of the candidates were actually seasoned pros – in fact all who studied for that particular exam were at least 45 years old – 33 of them were over 60 – and many had 30+ years experience as analysts.
Among those was good old Lucien Hooper, 66, who originally opposed Ben Graham’s proposal back in 1945.
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