CFA or MBA What Pays More?

We already gave our initial thoughts on the CFA and the MBA and luckily those that work on Wall Street understood the underlying message. If you make your firm money you will not have to obtain either. With that post out of the way we also provided a map of the jungle that is Wall Street.

We  posted several answers to questions on the posts above but overall, people seem to get the point. Unless you’re really at the top of the food chain, using the map will help you jump around the Street like a pinball machine. We have a few commenters who work on the Street that want to hammer home the importance of being a PM – which is true and of course we agree. However, we’re going to stick with the Map to help explain how a CFA or MBA can help you accelerate or decelerate your career in each field. Starting with the most prestigious positions.

Hedge Fund Manager/Long-Only Portfolio Manager: The holy grail of all market based positions (Capital Group, Citadel, Fidelity, Soros etc.). We would comment on how to obtain a slot here but unfortunately none of our writers are pulling in 8 digits a year balling out of control. For fun, some of us have interviewed at a few of the names listed in the parenthesis and needless to say the credentials needed are immense (for a leg up try building and selling a Company or having a successful PM career at another name brand firm). With that aside, if you can land a spot here, you have no need for this website and have no need for any life advice at all. You’ve already won the game of life. With that said lets move on to looking at alternative positions on Wall Street…

Hedge Funds: Today, many entry to mid-level positions actually come from starting your career in Investment Banking. The downside, is you cannot spend too many years on the Sell-side before you’re pegged as a “sell-side lifer”. Knowing that, as of 2014, more hedge fund careers are started by flipping from Investment Banking. Finally, we also note that most of these hires are actually ex-Investment Banking Analysts and not Investment Banking Associates. The lines are quite blurry in this space because you can certainly jump from Equity Research or other sell-side positions to a hedge fund, but we’re going to go with an MBA by a hair. The main issue with the CFA in the case of a hedge fund is this (we’re quoting a hedge fund PM with no MBA or CFA):

“Yeah get a CFA, that is how you get an edge… by thinking just like everyone else”

A hilarious comment, but there is truth in there, look at the top managers in the world and very few of them have a CFA. However if you’re looking to a long-only…

Mutual Funds and Other Long-Only Positions: Any position where your job is to think long-term in terms of investment horizon and manage a large sum of money (not searching for performance metrics on a one-year basis). This is a vague description and gives you a range from a high end Asset Management position or a position at Franklin Templeton. These all fit the bill. So if we take a look at the type of work you’re doing, much more heavy on value oriented investing compared to a Hedge Fund that runs long short equity and merger arb etc., the most transferable knowledge will come from a CFA. To put icing on the cake, practically every firm will pay for your test… Assuming you pass.

Private Equity: You can take a guess here. The answer is a no brainer. Get an MBA. Your job is going to be based much more on relationships and transaction oriented business. If you need to raise funds, you need to have contacts and if you need a buyer for your turnaround story… You need contacts! The CFA is not going to do much for you here compared to an MBA.

Investment Banking: This one is another immediate no brainer. Get an MBA. Many successful bankers do not get an MBA and simply move up the food chain as they have great sales skills. If you end up getting pushed out of the industry for a few years, an MBA can quickly put you back into a front office role within investment banking. If this is what you want to do, the MBA is for you. As noted several times on our blog, you don’t need one though. Focus on work performance at all times.

Equity Research: Here your clients are primarily on the Long-Only side. Why? There is more money being managed in long-only shops than the hedge fund industry. Yes you will speak to many people who work at hedge funds, but at the end of the day… Follow the money. Given that more of your clients have a CFA type mindset, your best bet is to obtain a CFA. You can certainly use an MBA, however, the firm will pay for all of your tests and you can move up the ladder within the firm without spending  $200K on an  an MBA.

Sales and Trading: The first coin flip. Sales and Trading is a mixed bag. Some of the best sales traders have a CFA, some have an MBA and some have neither. With that in mind, to break into the industry we’ll say the following. Use the first level of the CFA to break into the industry if you’re young, and if you’re in your mid 20’s with no Street experience you are likely better off obtaining an MBA. This truly is the most middle ground in terms of the CFA vs. MBA debate. To clean up this advice, if you already work in the industry then we would recommend the CFA route as you can avoid the MBA cost.

Corporate Finance/Investor Relations: So you don’t want to work on Wall Street and prefer lower hours. Well corporate finance and investor relations are about as close as you can get to the Street without actually working on the Street. In this case you are either working on transactions (Corporate M&A group) or you are constantly speaking with investors, the buyside and the sell-side. The answer is clear. Pick up an MBA.

Important Additional Remarks: For an intelligent reader, there is an enormous elephant in the room which has been mentioned multiple times. Cost. While a top tier MBA offers a lot more mobility, where you can interview for anything from Hedge Funds to Private Equity to Equity Research and beyond, you should always run the numbers. If you are no where near a Wall Street position and are already in the work force, you likely need to jump to an MBA program to get in the door. If you’re already in the business, more likely than not a CFA will serve you better or you need to focus on simply getting promoted.

With that said, we hope to hear about your success soon. 

*****

Notably, from a Salary perspective, they are roughly equal. This is because the real income gains come when you generate revenue. Be that in selling companies, taking them public or making amazing trades/investments or raising large amounts of funds for your firm.

Comments

  1. CFA says

    The CFA is better to me because if you work jobs that require market hours it is usually more respected since an MBA is a two year party. The job mobility points are true though.

    • Wall Street Playboys says

      This is an interesting one. In short the CHP or other Hedge fund type certifications are not well established yet. With that said, if you’re young and want to show interest in the subject, getting a hedge fund certification would at least let employers know you are serious about working on Wall Street.

      Overall it would be smarter to simply pass Level One of the CFA instead (younger side)

  2. mike says

    On sales and trading. If you are on the trading side the CFA is a solid way to give you some sort of “safety” and insurance. The issue is however, if you’re trading the time horizon is short term i.e seconds to maybe a month long. If you decide to change over to longer-term investing/running bigger risk then you’ll need to do something to transition to a position like that.

    I have seen many traders do the CFA and contemplate an MBA (Insead, LBS, HBS, Stanford, whatever). This is of course not entirely necessary but the MBA is usually a better way to transition across to a new type of position. Furthermore, doing well at the more senior side requires great examples of communication and running risk on your own dime i.e. public speaking (you need to stand up and eloquently defend your position), writing white papers (you get your name in print and into the markets to stand out), using your own money to invest (i.e building a small portfolio of property, equities, bonds, whatever). These things are necessary even with all the pedigree, qualification and experience because competition is UNBELIEVABLY FIERCE.

    Those are very small examples of how people are attempting to stand out in the industry as it begins to contract and the top roles grow smaller in numbers. You can’t rely simply on having the CFA or an MBA because there are literally 100s if not 1000s with those qualification (sometimes both) in droves.

    • Wall Street Playboys says

      Yep the sales and trading one is the most on the cusp. As you alluded to, our main point from the original CFA or MBA comparison remains, generate revenue/profit and no one gives a crap about your credentials anymore. If you make the company money, you’ll get paid.

      This post is more of a “if I have to get one” scenario, which do you choose.

  3. AC says

    I am a senior in college(non target) graduating in June. I landed an investment banking (MM) analyst position (TMT) in SFstarting in July. My pursuit is either PE/ HF. Should I take the MBA or CFA if I want to eventually work in PE / HF? If so should I start studying for the GMAT and see how I do before July or pass the CFA level 1 before July?

    Obviously it would be a lot harder to study for either exams during my banking stint so I assume that studying now would be helpful. What are your thoughts on this?

    Different question: How do I know whether PE or HF is right for me? I.e. I’m indifferent right now. I have my own investment portfolio and have been investing since highschool and following the markets etc. I also had an internship with PE fund and liked the work. How did YOU decide which one you wanted to go into? Is it just a matter of trying each one out later on (once I land the position) and seeing which one I like?

    • Wall Street Playboys says

      Well the PE/HF question is answered in the post above. If you want to do PE an MBA is better and if you want to do a HF generally you don’t need either and would lean toward a CFA if you’re more interested in working with securities (market based jobs) instead of transaction based jobs (IBD/PE).

      Yes taking level 1 of the CFA would be much easier to pass before you graduate. Your time will go near zero.

      We also noted that you definitely do not need a CFA or an MBA to get promoted to Associate/VP level. If you have a high level person who likes you, you’ll get pulled up the ladder. We have covered this several times, essentially if you work for someone such as Paulson and he likes you, that approval is worth much more than any MBA or CFA. The whole idea of getting an MBA is to increase your contacts… However… If you already have the right contacts pulling strings for you, it makes the value of an MBA decline dramatically.

      Choosing between PE and HFs is completely different (caveat merger arb fund). If you like M&A deals, then you’ll like PE. If you don’t like M&A deals and prefer investing for shorter time horizons you’ll enjoy HF work. If you are a value investor type of person you’d likely prefer the work at a long-only.

      Note: Congrats on the offer and don’t put the cart before the horse! When you get to work do everything you can to get ranked at the top. We will have a Wall Street related post this week that you should read, stay tuned.

Leave a Reply

Your email address will not be published.