Actuaries vs CFAs

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Dr.Mavashi01

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So, during my stint as a Great Panic unemployed I’ve tried studying for SOA’s Financial Mathematics - what is considered the easiest of 8 exam! And it kicked my ass I must say. Did not actually pursue it as I got back to work and it did kick my ass. But during my short lived time on ActuarialOutpost.com I got an impression that the crowd was not impressed with level of rigor and difficulty that the CFA path presents in comparison to the SOA’s path to fellowship. What say you ?
 
I’m typically pretty impressed with the actuaries I’ve met. Their exams seem to not have much to do with valuation, so the emphasis is pretty different, but the statistics and probability calculations that that have to do blow away anything on the CFA exam, from what I’ve seen. I believe that their exams are also similar in that they’re basically tasks that you tackle on your own - there’s not much of a support network for people slogging through those exams, which (just like the CFA) increases the difficulty of finishing them.
That said, I would not extrapolate this into, “Therefore, actuaries must be harder working/smarter/better investors”. There are an enormous number of smart investors who aren’t actuaries, and vice versa.
I can think of people with actuarial-type mindsets who do very well in investing - Buffett comes to mind, as he’s made a good deal of his wealth from his insurance businesses. There are also people (the geeks behind Long-Term Capital Management, some of the folks at AIG, and so on) who are mathematically brilliant and it leads to their downfall.
I personally think that hubris and humility are pre-requisites for successful investing. One needs considerable self-confidence to say something like, “I’m sorry, but I don’t think we should invest in this because I don’t understand it well enough.” There’s a great story out there somewhere about an energy analyst who said just that with Enron - after days of research, he basically went to his boss and said, “Sorry, but I don’t think I can value this company.” I can think of two or three people I’ve met with incredibly strong math or hard science backgrounds, and I can’t imagine them admitting when they didn’t understand something.
 
Not to generalize, but I personally know 2 actuaries who easily blew away all exams of the CFA program. These guys had no finance background either. They felt that although the program covered a lot material, it didn’t go as deep as actuarial exams.
 
I’ve perused the SOA exams. I think it still takes 8 or 10 exams to get all the way to FSA status, and this takes at least several years, or more, to complete, which very few do. Their pass rates are lower than the CFA. In terms of the rigor of their exams, I can see why the actuaries are not terribly impressed with the CFA as a professional credential, but many will still pursue it.
 
I believe for actuary exam you can sit several times in a year, and there are total of 7 or 8 exams. They are not comparable to CFA, b/c there are only 3 levels in CFA, L2 and L3 only offer once a year. Keep in mind, one does not interested doing actuary’s works doesn’t mean he/she is not capable of passing the exams.
 
Well, I started this thread to see if those who have a deeper familiarity with both exam sets could offer a different perspective in comparing the two. Yes, no one will argue that quantitative aspect of SOA exams is far and beyond anything CFA candidates have to overcome, but perhaps there is a different way to look at CFA vs SOA especially with Level 2 and 3 curriculum in mind. Just very curious ….
 
I work with three people who have both FSA and CFA. None of them seemed to have any trouble passing any level of the CFA.
 
No idea about actuarial exams, but it’s not like the CFA is that hard.
 
I think a lot of people would disagree about the CFA being hard. But it is not hard in the same way as the actuarial exams are hard.
Whether you think CFA is hard or not, you can say that it takes a lot of work to pass the exams. For many people, being a lot of work = being hard, simply because it takes dedication to get through them all.
 
I’ve never taken the actuarial exams, but I think you would have to say the CFA exams are pretty hard. The minimum passing score is regularly around 65% correct and nearly two-thirds of people fail to meet this level most years on most of the exams (L3 is a little different some years, I guess). And most of the people taking the exams seem to have relevant backgrounds that “should” have prepared them for such exams.
In terms of content, I would agree that most of the concepts on the CFA exams are not brain busters, but there are a lot of them, and you have to know them in detail. I think most people would not be able to pass these exams.
 
I agree with bromion. You don’t have to be all that brilliant to understand the concepts, but just understanding the concepts doesn’t mean you’ll pass the exams unless you put in a fair amount of time and effort practicing and applying them.
 
This debate is so tiring…mental masturbation and ‘I’m smarter than you’ tones…
Actuaries and quants do fail the CFA exams without adequate preparation (and at times WITH adequate preparation); I know because I have colleagues/friends who have taken the plummet after finishing a PhD or MFE.
The CFA is a test of longevity -> can you synthesize large volumes of moderately difficult concepts and perform in an exam condition.
With Quantitative subjects, it’s less volume (at least for each individual test) but deeper; you can sit on a question and get nowhere if you do not have the right mindset or trained appropriately.
When I was taking the CQF, at times I would break my head on a single question for hours just to toy with -> well, if I multiply the equation by x/x and then group terms, this now looks like a gamma equation, etc… CFA is more, well just finished 100 pages, 1200 more to go…ugghh
Only half of the actuarial exams are of a quantitative nature (I believe the first 3; heard from various participants in the program).
Go to the Wilmott forum and you see a long discussion of how much smarter quants are than actuaries and how much more difficult the maths for quant work is….everyone needs someone to pick on I guess…
 
Honestly, I tend to think the whole quant focus is overblown and basically agree with Keys, I look at these people who are always worried about what’s harder (based on what metric?) and who must be smarter (quants are probably most guilty of this). They just look like the kids in elementary school that are always trying to be picked to answer the question so someone will notice how smart they think they are. I kind of feel bad because the most contentious of them routinely have reduced their life to one dimension and so they defend their intelligence vehemently because it’s all they have. I think I used to be a lot like that, sometimes still am.
Anyhow, last time a similar discussion to this came up, a quant type on the forums said (poorly paraphrasing) to him (given his background) passing the actuarial exams didn’t seem like such a feat, but creating a nice piece of art or a painting, that was a real accomplishment. I think the point is well taken obviously we have different strengths and it’s probably best to just leave it at that. I think Einstein said, “Not all that can be counted counts and not all that counts can be counted.” This is a point many quants miss completely (both investing and life) and probably the most important lesson my current management has been impressing on me. Not just that the qualitative analysis is important (and nearly always overlooked), but that you can’t force it into a quantitative mold, so accept that it will always be fuzzy and appear weaker than it is. For this reason, I believe qualitative analysis is the richest frontier in terms of adding alpha, because so few managers are willing to dig into it (but most of your legendary managers have). I see it a lot when people try to invent models for “black swan” type events. I kind of laugh because they’ve missed the entire point by trying to force something so undefined into a mold.
Anyhow, moral of the book I just wrote^ is that for all these reasons, people may view the CFA as easy or qualitative, but in reality, they’ve probably just failed to give the material the proper amount of thought.
 
^^^BS, I like this quote a lot: “Not all that can be counted counts…”. On a lighter note, from one of the great thinkers of the post-modern era: “Facts are meaningless. You can use facts to prove anything that’s even *remotely* true” - Homer (the Simpsonian version)
 
I work in an actuarial department of a decent sized insurer, am sitting for LIII in June, and contemplating the actuarial path after that (there is a great program here for support after passing several exams).
I don’t think you can argue the CFA exams are more difficult as a body of work, on sheer volume and number of tests, SOA exams win hands down (or lose, depending on how you look at it). However, the exams are different. CFA exams are broader and cover more material, with less depth. The subject matter is quantitatively easier (again, my opinion). I’ve heard of people spending 600-700 hours for LIII, and I’ve heard the same for some of the individual latter SOA exams (the path to becoming a fellow essay tests).
That said, they are different paths (could be complimentary from a risk/portfolio management, or within the insurance space - once again my opinion). Here’s my ‘outlook’ from somewhat of a decent perspective:
1) CFA - Investment management - higher salary upside, somewhat more difficult to get into the ‘good’ roles - broader opportunities as well in that corporate finance type roles (which I’m in) can use this credential as leverage and affords at least some credibility instantly. Somewhat seasonal commitment and you get some time off.
2) SOA Fellow or Associate - more year round to pass in a comparable amount of time. Exams get progressively more difficult, with the early ones seeming not too bad relative to CFA exams (from looking at the materials/syllabus and speaking with a number of people with both designations). Decent starting salary (for a young person) which ramps up pretty good (exam bonsues and salary increases on top of merit increases/bonuses) but caps out for most (unless advancing to leadership roles) at a respectable but lower level than good buyside gigs (particularly PM roles).
At my company, the actuarial program is an ‘Executive Development’ program, and there are lots of leadership roles that originate from within this area. Seems like not as crazy hours, but capping out comfortably without the possibility of banner type years and huge bonuses (until you get to senior manager levels). It’s not as hostile as investment management environments can be, but it is fairly competitive and perfection is expected in output.
Overall, I like both sides, and could see myself in both roles (using the CFA for more investment focused education, and SOA for more insurance and corporate finance background). Ultimately, I think I’d prefer buy side research and eventually PM, but I like having an option that I consider comparable with it’s own relative strengths and weaknesses.
My advice given what I see about you, would be to do CFA exams say Jan-June, and then try to bang out a couple of SOA exams the second half of the year (assuming that’s possible/reasonable for your lifestyle). That will give you options to go either route.
The SOA folks I’ve met generally view the CFA exams favorably and as a strong credential, although not on the same level of difficulty as the actuarial path is my perception.
 
Well, I have to admit I am more of a quant groopie than a quant by any means. I only have one semester of applied calc and most of it was not stochastic, just a few exam questions, and then I spent a few months preparing for SOA’s FM2 and kind of struggled but loved it. But would you say that Actuaries might be fair to say that while CFA path is equal in depth to the SOA path, on the qualitative side, but significantly less demanding on the quantitative?
Thanks.
 
SOA blows the CFA away. My boy( who is a genius by the way 1560/1600 on SAT)is a full-fledged FSA and he said the CFA exams are a joke.
 
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