CFA Level 2 Exam and Overall Strategy

CFA Level 2  exam still draws from the same 18 study sessions seen in the level 1 exam but with different topic weights. The topic area weights for all three exams are shown at:

A couple of things you might notice:

1) Ethics!!!!! Learn Ethics! You saw it at I and will see it again at III. I cannot stress enough that the earlier you learn the ethics portion the easier all three levels will be. The CFA Institute has explicitly said that scores close to the cut off pass/fail are determined by how well you did on Ethics. LEARN IT!

2) All study sessions will be tested at least 5% but Financial Reporting & Analysis, Equity, and Ethics will be at least 45% or more of the exam. That is almost half the exam in just three topics! Cover all the material but make sure you master these three.

The volume and depth of information at level 2 is intense! I, along with many CFA candidates, feel it is the most difficult exam. The level 1 exam was much more an introduction, while the level 3 is more conceptually-focused and can be relatively easy if you master the essay portion. The CFA level 2 exam is very quantitative and analytically-focused.

CFA Level 2 Exam Format

The exam is split into morning and afternoon sessions each with 10 ‘item-set’ questions. Each item set question is about a page long scenario followed by six multiple choice questions. Each item set will only cover one study session topic like ethics, economics, equities, etcetera. Each question within the item sets will be worth 5% of the overall exam score.

This means there is a possible 360 points with each question being 3 points and each item set worth 18 points. The passing score is determined after grading all the exams at each level. While the CFA Institute does not publish what the passing score is for each year, they have said that no score of 70% or above has EVER failed the exam. What does this mean? It means you should be completing practice exams and aiming for a score of at least 75%. Your practice exams may not mimic the actual exam exactly, but shooting for a higher average will give you some breathing room when it comes to test day. Check out the FinQuiz question bank for nearly 5,000 practice questions and 200 item set problems.

As with the other level exams, pass rates have been decreasing and range around 40-50% of candidates. Just as with the passing score determination, there are theories about why the pass rate is declining, but again does it really matter? You only need to be concerned with averaging above 75% on practice questions, nothing more. Focus on that.

Basic Strategy for CFA Level 2 Exam

Many providers will suggest that you read through the six item set questions then go through the scenario. This will give you an idea of the information for which you are reading. For example, if you see an item set question asking for the portfolio sharpe ratio then you know that you must look for the portfolio return and standard deviation within the scenario.

The strategy works like this:
1) Read through each question, highlighting and noting important data needed.
2) Start reading the scenario.
3) When you get to data or information needed to answer a question, you can either highlight it or immediately stop to answer the question.

Time is critical in the level 2 exam, especially if you are a slower reader. This strategy is a useful one (and generally recommended for most), but do not force yourself to do it if it does not suit you.

I knew that the strategy above was not appropriate for my style. I like to take each question separately and reading through all six at once wouldn’t help to remember the pieces of information needed. My strategy (as with above, don’t force yourself into a strategy, go with what feels natural):

1) Skim the scenario, highlighting and making notes for numerical information and stuff that might be important.
– After enough time studying, you get a fairly good idea of what information might be important.   For example, if the item set is on ethics and you read that someone is tipping off their aunt before significant news is released, then that will probably come up in a question.
2) Start with the questions, they are often in the same order as in the scenario. For each question you go back to the part within the scenario and pick out necessary details to answer the question.

** I have to stress that this will not be the best strategy for everyone. If you are not able to skim the scenario quickly and pick out important information, then use the other strategy and read the questions first. The important advice here is that no single strategy will work for everyone.

Do not think that you can approach CFA level 2 exam like you did the first exam. You must be comfortable with the item set format and understand HOW you are going to answer the questions.

After each study session, i.e. reading through a topic:
1) Complete individual questions, at least 20 or so. This will help to quickly test yourself on the material.
2) Do at least (2) item sets to test yourself on the material and get comfortable with the format.
3) Always, Always revisit the material the next day with another round of questions and an item set or two. This will help to solidify the material you learned the day before and turn short-term memorization into long-term memory. It will also help test how well you are studying and learning the material.

Good Luck. Looking forward to your questions and comments.

Joe Hogue, CFA

Last updated: September 19, 2016 at 8:23 am

CFA Level 1 Jobs – How to Distinguish Yourself

As candidates put the exam behind them, their minds turn firmly to using the designation to land that dream CFA Level 1 jobs. Some are quickly rewarded but many are just as quickly disappointed that their candidacy in the program does not make them a hot commodity in the labor pool.

I’ve talked a few times about the reality of today’s labor market for our industry. Cuts in the tens of thousands at the big banks means a steady stream of qualified and experienced applicants competing for that position. As the inbox of every HR representative fills up with resumes, candidates need to reach deeper into their toolbox to distinguish themselves from the masses.

Isn’t spending upwards of 300 hours to upgrade my skills enough? Isn’t it enough that I could soon be a charter member of the industry’s most respected designation?


CFA Level 1 Jobs and Networking

Networking has always been a requirement in the industry and it’s becoming even more important as competition heats up for fewer CFA jobs. While there are volumes of books on the subject, the easiest and most direct opportunity is right there in front of you. Other candidates, charter holders and your local CFA society could be your best chance at getting your foot in the door to an interview and that eventual job.

Misery loves company and candidates have a huge bond in the grueling six months you’ve all been through. Hopefully you already know some of the other candidates in your area but the LinkedIn group and the local CFA society are good places to start if you don’t. A conversation about how brutal the exam and what they are hoping to do with the designation can easily be steered to where they work and which supervisors you could talk to about opportunities.

Other charter holders know what it takes to take the exams and this could give you some implied credibility. Even if you don’t have much experience, you have the persistence to put in the work and get the job done. Again, your local society is a good place to start for charter holders working at a specific firm. You might also try the member directory on the CFA Institute website.

CFA Societies and CFA Level 1 Jobs

Local CFA societies are always looking for volunteers. These range from short-term assistance with specific events to longer-term commitments as a volunteer or even on the Board of Directors. I volunteered for the CFA Society of Iowa and was elected to the Board even before I had the charter. With the CFA Institute Investment Foundations Certificate still in its infancy, there is a great opportunity in establishing yourself as the “go-to” person for the program in your area. Volunteering to head up an event or a committee is going to put you in the spotlight and will turn into some excellent networking opportunities.

It’s tough out there but not impossible for someone that is willing to put in the time and develop a few connections. Don’t jump right into your elevator pitch on why you should work for the firm or asking if there any opportunities. Develop a rapport with your connections first and find out what they need. Then figure out how best to fill that need.

Stick with it. You’ve already been through the tough part and sat for the exam.
Joseph Hogue, CFA

Last updated: September 14, 2016 at 5:18 am

CFA Results – It Doesn’t Matter! It really doesn’t!

Here we are more than a month after the CFA results and the elation hasn’t worn off for those that passed. Nor has the disappointment gotten any better for the candidates that did not make the cut. You can read about how to deal with failure in my earlier post. Statistically, about half of you are looking forward to the end of your studying and the other half are wondering if you want to continue in the process.

Whether it comes as a cruel reality or a reassuring truth, the fact is, it doesn’t matter whether you got good news or bad last week. It really doesn’t!

I’m not saying that the CFA charter is not a significant milestone and something worthwhile. I am glad I took the challenge and made it through. What I am saying is that it is just part of a continuing process in your life as an analyst.

Passing the CFA Exam and landing a job after CFA results

While passing the exam might help you land a job, failing the exam won’t keep you from getting one. Networking and persistence will trump the CFA charter in the job search any day of the week.

Not passing the exam also does not mean you will not be a good analyst or investment professional. Everyone that failed this year’s exam will eventually pass, given enough determination and hard work, the same amount of determination and hard work that are prerequisites to being successful in the industry.

The only difference between those that pass the exams sooner rather than those it takes a few extra years is that the early birds realize one indisputable truth a few years earlier. Passing the CFA exams does not mean you are done studying!

CFA Results – Exams Passed? Now read more

I do more reading now than I did while studying for the CFA exams. The only difference is that now, I have to find the material instead of having it all delivered to me in a series of texts. I have to find and study a company’s annual and quarterly reports, any press releases and news reports. I have to find and study other analyst opinions on the company and the industry. An analyst has to find and study the specific industry’s trade journals. One has to study the macro trends that are going to affect the industry.

Beyond the ‘studying’ you will do to analyze your coverage universe or group of investment products, you will also need to keep on top of the general regulatory environment, changes in tax code and accounting principles, and the newest paradigms in wealth management.

It may seem a dismal truth for many, the idea that hard hours of studying never really end, but I don’t mind it at all. Why? Because I have embraced it as a part of being a true professional, as a part of being the best in my career.

In fact, I have embraced the idea of this life-long process so completely that when someone asks what I do for fun, I have a hard time not saying, “I like to read some of the trade journals or surfing the web for new ideas on accounting gimmicks.”

Your first three years as an analyst

Maybe I’m a nerd and just love this stuff too much but you really do need to find some joy in it. The industry is extremely demanding on its analysts, especially the new ones. Your first three years as an analyst, you will put in far more time ‘studying’ than you ever did for the CFA exams. Those thinking about dropping out of the CFA program after CFA results because they are tired of studying may want to reevaluate their chosen career path.

Think of it this way, in your career as an analyst just as with the CFA exams, there will be a minimum passing score but not a maximum passing score. The minimum score is not published and is always changing depending on the size of the candidate pool and their knowledge. Falling behind this MPS once or twice will not doom your career but you need to continuously improve on your score to be a better professional.

‘til next time, happy studyin’
Joseph Hogue, CFA

Last updated: September 7, 2016 at 7:38 am

CFA Level 1 Study Plan – The addiction

According to the good people at Merriam-Webster, many of you have an addiction. You have, “a compulsive need for and use of a habit-forming substance.”

The addiction…social media and web browsing.

While it may not be as devastating as an addiction to narcotics or lead to financial ruin like an addiction to gambling, the compulsion to surf the internet can also have huge consequences for your preparation of the CFA exams.

Candidates love to talk about the exams. They talk about which level is most difficult and why. They ponder the minimum passing score and trends in the pass rate. I have even seen forum posts on the best beverage to drink while studying.

The real problem is that these activities are done with the guise of productivity. Yes, you need to understand the topic weights on the exams. Yes, there are some great tips and tricks out there on how to approach the CFA exams. The problem is that candidates too easily use the web as a subtle form of procrastination and an excuse to get out of actual studying. How many hours have you spent ‘researching’ how the tests are conducted, how to approach each topic area, the earliest one should start studying, or a myriad of other questions about the exams?

Don’t be too hard on yourself. You are not alone. The average U.S. internet user spends 32 hours per month online and total time connected from sea to shining sea was measured at 121 billion minutes in July 2012. That’s 230,060 years spent online by internet users in one month alone. Americans spend approximately 19% of this time on email and 22% of it across the social networks.

I have to be careful here. Your internet addiction is what brought you to the blog and I want you to come back regularly to listen to my ramblings. But I also want you to pass the exams and I have seen too many candidates sabotage themselves by spending too much time on the forums and not enough time actually studying.

CFA Exam Everything in Moderation

As with most habits, the first step is understanding the behavior and approaching it with moderation. There is some great advice out there and it can make your life incredibly easier come the first Saturday of June. You need to know the general process involved and the idiosyncracies within each exam, but you also need to know when to get off the forums and get to work studying.

Give yourself an hour or two every week to answer questions about the exams. You might take a little more during the first couple of weeks to familiarize yourself with a new level and you might take less time toward the end after you’ve learned what you need. The important point is to understand how much time you are spending and to make sure it does not come at the expense of studying.

  • If you have a specific question about the exams, especially while studying the curriculum, do not stop studying. Write the question down and address it later, after studying.
  • When looking for the answer to a specific question, try searching for the question using the forum’s search bar rather than making a new post. This will help answer the question quickly and will not bring you back to the post every time someone leaves a reply.
  • Find a couple of good sites (I hope this blog will be one) that you visit once or twice a week to see if there are any updates. Finding a new site can be helpful but don’t spend too much time surfing the web for new places to visit.

Would love to hear your own checklist to kick the habit.

‘til next week, happy studyin’
Joseph Hogue, CFA

Last updated: August 26, 2016 at 8:28 am

CFA Ethics – Madoffs and the Scrushys of the world

One of the most common questions on the Candidates forum is where to find used study resources like condensed notes and tip sheets. Notice the difference here between asking which resources to use and outright asking for those resources. Replies to the posts usually start out pretty modestly until someone offers up their old material that can be emailed. I saw a post last month that had 12 candidates offering up their email address within a day in the hopes of scoring some free study guides.

CFA code of ethics – Sale and use of 3rd party resources

The sale and use of 3rd party resources without expressed permission is a violation of the CFA Code and Standards. Most candidates understand this but figure the practice of sharing resources falls within that proverbial gray area that everyone does and in which no one ever gets in trouble. While test prep providers have not cracked down on these kind of violations, it is well within their right to report it to the Institute.

My 11th grade psychology teacher started the first class of the semester with something I will never forget. It really had little to do with psychology and I can’t say I remember anything else from the class but this one thing. She said, “It doesn’t matter how careful you are, if it is wrong, you will eventually get caught.”

I have thought about what she said many times over the last 18 years, just about every time I was doing something I knew I shouldn’t be doing. I realized a while ago that she wasn’t talking about singular events or activities, but about your general conduct. Sure, you may get away with getting those study guides free off the net but the Madoffs and the Scrushys of the world always get caught. Stepping over that line once makes it easier to do it again, and again.

But should getting caught really be your deterrent to the double dealing, shenanigans and questionable morals that seem to pervade the industry at times?

CFA Level 1 Ethics – Do the right thing

As cliché as it may be, having the fortitude to follow an ethical path has its own rewards. By pursuing the CFA designation, you have already committed yourself to the hard work it takes to be one of the true professionals of our field. You understand that there are no easy outs in an intensely competitive industry and that the true spoils of life are all the sweeter having been earned rather than gifted.

It’s tough out there. Your boss is pushing you generate alpha. Your family needs something on the table. There are bills to pay and you have three tests to take. Work hard, do the right thing and know that you earned every letter after your name.

“I took the one less traveled by, and that has made all the difference.” Robert Frost

‘Til next time, happy studyin’
Joseph Hogue, CFA

Last updated: August 24, 2016 at 4:44 am

CFA Level 1 Jobs – How to get the perfect job

It’s a jungle out there! I get emails every week from candidates that continue frustrated in their job search, even after passing one or more levels of the CFA exam. We’ve talked about the value of the curriculum and the need for networking in previous posts. I’ve recommended getting active in your local CFA society as well.

But there’s one tool that we haven’t talked about, one that I always avoided in my own search. I would go so far as to say that I even had a disgust for it when I was just out of school.

CFA Jobs – The Unpaid Internship!

I hated even seeing notices for these when I was looking for a job. Are my skills really that worthless that a company would pay me nothing for my time or is the company just too cheap? Either way, do I really want to work for that type of company?

Maybe I’ve mellowed in my old age or maybe the difficult job environment for some has changed my concept of the value of time, but I am actually coming around to recommending these opportunities…for the right opportunity!

Let’s face it, if you’ve been without a paying job for the last few months and have no real leads, what could it hurt to spend a few months in an unpaid position? The trick is, make it on your terms and don’t be afraid to negotiate.

Start with what you want to do and where you want to do it. Is there a firm in your city that dominates the industry? Is there someone that you admire? What are your skills and what can you offer to that person, role or company?

CFA Jobs – The Game Plan

In most cases, the company will not formally have an internship program for exactly what you want. Believe it or not, that works to your advantage. There won’t be other candidates applying for the opportunity!

Use the CFA member directory, your local CFA society or your existing contacts to find out who works in the company or the specific department. Send an email first but then follow it up with a call no more than a day later. Explain that you are trying to decide in which part of the industry you want to pursue a career and would like to invite them to lunch to talk about what they do. This is not the time to ask if there are any jobs available! It’s just an informational interview, no pressure. If they don’t have time for lunch, a phone interview would also work.

Research everything you can about the company, the person and their role before your lunch. At the meeting, relax and don’t worry about getting that perfect opportunity. Use the time to learn about the industry/role and decide whether it is truly something you would want to pursue.

Towards the end of the conversation, mention that you have been interested in the company for a while but that no job opportunities or internships have come up. Ask if the person would be willing to work with you on an informal internship program. Explain that it would be more of a mentoring role, a way for you to develop some real experience and a way for them to benefit from the enthusiastic help.

The biggest thing to remember is that every, “No,” or hesitation is not the end of the conversation but a topic to negotiate.

  • They don’t think there would be enough for you to do 40 hours a week. OK, what about a 20 hour schedule.
  • They wouldn’t feel comfortable not paying you for your time but do not have it in the budget. OK, what about a stipend for travel costs?
  • They just don’t have time to put something like that together. OK, how about a floating role where you worked with multiple people within the department.

Don’t get frustrated if you have to talk to a lot of people and face a lot of rejection. Not everyone will be open to the idea of an informal program. Just remember, just because you haven’t landed that six-figure salary yet doesn’t mean your skills and knowledge don’t have value. You just have to establish that value and sell it to your network.

The worst that could happen is that you add to your list of contacts in the area but do not find anything, which is still better that where you were. On the flip side, there is a good chance that someone you talk to likes your enthusiasm and ability to think outside the box. They may decline your internship offer to put your name through to someone that is hiring for an actual job.

“No” may be a closed door but you can open it back up with the right key.
‘til next time, good luck.
Joseph Hogue, CFA

Last updated: August 23, 2016 at 5:53 am

Unwinding after a tough CFA exam

I always love hearing the familiar segue line from the old episodes of the Monty Python series. In case you’re not familiar, often between skits of slapstick absurdity during the tv show would appear a straight-faced, button-down gentleman to proclaim, “and now for something completely different.” Of course, the promise was always followed by more slapstick absurdity, but that’s what we loved about it.

The segue became so popular that it developed into a film spinoff for the comedy troupe in 1971 meant to introduce the show to American audiences. While the film itself did not do terribly well, it developed a cult following and expanded the group’s audience leading to four additional feature-length films.

Your “something completely different”

For those of you just unwinding after a tough CFA exam a ‘something completely different’ may be just what you need.

Regular readers will know that I’m a huge advocate for active involvement in your local CFA society. I had the opportunity to volunteer and serve on the board for the local society here in Des Moines and would highly recommend it to all candidates. I made the case earlier this year for contacting your local society for volunteer opportunities.

For those wanting to keep sharp between 6-month study marathons, I recommend looking around the CFA Institute’s website and the seemingly infinite pages of research and advice available in the Learning & Events section. Resources cover every asset class as well as networking, management and the most current insight on every topic area of the curriculum. Information ranges from brief 15-minute webcasts to full publications and online courses.

O.k., so the above two suggestions are not really, “completely different,” from studying for the CFA exams. Try to break out of your comfort zone and get involved in something outside the financial industry as well.

  • Establishing a routine at either of the extremes of physical activity may pay off big time when studying for the next exam heats up. Those boot camp-type fitness programs are great for clearing your head and flushing your system of the day’s stress. At the other extreme, a yoga or Tai Chi program can help you relax and put things in perspective.
  • Read a book outside of financial topics. I like history but have to throw in a fiction novel every once in a while to avoid the compulsion to be ‘learning’ something.
  • Studying for the CFA exams is, for the most part, a solitary activity and can isolate you for long periods. Join a team event or group (billiards anyone?) to reconnect with friends or to make new ones.

Just as Python’s ‘something completely different’ opened them up to new audiences and made some great movies possible, what you do between exams could dramatically change your course. Have fun with it and take a little time to relax.

Time to study for the next CFA exam will be here soon enough.
Until next time, happy (not) studyin’
Joseph Hogue, CFA

Last updated: August 21, 2016 at 6:01 am

CFA Level 1 Exam and Drinking from the Fire Hose

Reading through the LinkedIn group lately, someone was asking about the difficulty of the CFA Level 1 exam and how it related to another professional exam. A couple of candidates commented how tough the material was and how much there was of it.

I just had to smile.

CFA Level 1 – The challenge of the first exam

Looking back, especially on the first exam, I agree completely with comments on how broad the material is and how daunting it can be for new CFA candidates. It is hard to say that difficulty of the material in the first exam really isn’t really that tough because I had come from a background in finance and several years of working in investments and accounting by the time I took the test. For those making their first steps into finance and asset management, I can imagine the books read like another language.

The challenge of the first exam, even for those with backgrounds in the industry, is the sheer volume of material you need to master. Forget going to the gym, you’re going to get all the exercise you need carrying around those books. I took full schedules every year of my undergrad and I don’t think my curriculum for any one semester (maybe two) had the page length of the first CFA exam.

We all know how it is to drink from a garden hose. If the water is turned up to full stream, it’s a little challenging. Now imagine trying to drink from a fire hose and you’ve got an idea about the difficulty of the level 1 exam.

CFA Level 1 – Don’t try to catch all the water at once

Just like drinking from a fire hose, don’t expect to get all the material on your first read through the curriculum. Most brains just do not work like that. You are going to remember maybe 30% or so after your first read through the curriculum, and that is if you work the practice problems. If you just plan on reading through and not working any problems, you may remember even less.

To really master the curriculum, you need to keep going back to the fire hose and getting the water you missed. I made a point to hit the curriculum at least 5-6 times for each exam. I would first read through the books, then work my way through study guides and videos. Then I would work through the official books one more time making flash cards for the difficult topics. I worked practice problems and test banks through each round of reading to make sure I was progressively picking up more of the material. This kind of plan takes a little longer but you’ll go to the exam fully relaxed and confident that you will succeed.

CFA Level 1 Study strategically

Linked here is a graphic published by the CFA Institute showing the exam topic area weights across the three tests. After just a brief glance, it becomes extremely clear what topics are most important for passing the exams. Don’t misunderstand, you need every point you can get and cannot afford to completely ignore any one subject but with limited time to study you need to focus on the topics that mean the most points.

Use this information to develop a study plan. Let’s say you are doing well on practice exams except for two topics, Alternative Investments and Financial Reporting. Which do you think you need to spend more time on? Answering 60% of the Alt Investment questions correctly means you only missed about 1% of the total exam points. Answering the same percentage correctly on FR&A means you just lost 8% off your exam score!

Put the two ideas together and you’ve got a good chance at passing the exams. Read through the curriculum once, working the practice problems, then use study guides to work through the material quickly once more. After that you should have a good idea about which topics are giving you the most problems. From there, focus on the high point topic areas. Keeping working the practice problems and test banks for the entire curriculum so you don’t slip too much on the lower-point topics.

Less than four months left to the December exam. Good luck.

‘til next time, happy studyin’
Joseph Hogue, CFA

Last updated: August 15, 2016 at 4:58 am

CFA Level 2 Exam – How hard ?

The Level II Exam is, in mine and many other candidates, the most difficult level of the three CFA exams and it might be hard to narrow it down to just five things.

CFA Level 2 – Don’t Underestimate

I was pleasantly surprised at the ease of the Level I exam. The exam was not necessarily easy but it was less detailed than I was expecting and I had studied more than I probably needed. While I am not sure that I consciously underestimated the Level II exam, I may not have studied as hard as I did for the first exam. The exam was harder than I anticipated and I was sweating bullets for the full six hours.

The CFA Level 2 Exam is arguably the most difficult of the three and also possibly the most important. It includes some of the most important valuation and analysis techniques that you will use as an analyst. Spend as much time as you can devote to learning the material.

CFA Level 2 – It’s all about the Detail

While the first exam seemed a mile wide and an inch deep, CFA level II exam is a mile deep but covers less breadth. Sure there are still the 18 study sessions covering the same topic areas, but it seemed like only a fraction of the material in each topic was important but that fractional portion went into amazing detail.

Case in point, the financial reporting topic in the level I exam barely scratches the surface with a general description of the statements and how the relate to each other. In CFA level 2 exam, you will be looking at the accounting for individual line items within the statements and the calculations can get extremely lengthy. The CFA Level I exam was mostly questions on qualitative concepts, the Level II exam is much more quantitative.

CFA Level 2 – Practice the vignette structure

The item-set structure of the CFA Level 2 exam throws some candidates. While the questions usually appear in the order that information appears in the vignette, it can still be a lot to read and remember.

There are two approaches to the structure. Some candidates prefer to read the questions quickly to get an idea for the information for which they are looking. Then they read through the vignette and underline relevant data. The second approach is to read through the vignette first, underlining data that looks important, and then go through the questions. After having gone through the curriculum and practice problems, you’ll have an idea of important information so it’s not entirely a guessing game.

CFA Level 2 – Don’t buy your flashcards

Practice problems are even more important when studying for the Level II exam. The test is very quant focused and there are quite a few accounting processes that you must remember within the FRA topic area.

Writing down the problems and processes is a much more effective learning technique than simply reading pre-made cards (remember active learning?). After working through the curriculum once, make flashcards for the more difficult and important LOS on your second run. Instead of simply writing the calculation and variables, try to make the cards as much like word problems as possible to simulate the exam. After several runs through your flashcards, you may even try re-writing the ones that are most difficult.

CFA Level 2 – You are not alone

Despite being a self-study course, understand that you do not have to go it alone. There are really two tips here. First, you are in the middle of one of the most difficult professional curricula out there. You passed the first exam but it may be hard to see the light at the end of the tunnel. Most candidates approach their breaking point studying for CFA Level 2 and you need a support system to get you through. Friends and family are the obvious choice but seek out a couple of candidates as well. Take 15 minutes a week to talk about your studying and motivate each other.

You may also need help getting through some of the intense calculations and accounting within CFA Level II curriculum. No matter how hard I tried, I could not seem to get through the derivatives material. Whether it’s another candidate or someone with professional knowledge in the topic, it may be helpful to have someone explain it from another perspective.

Half of passing the exams is studying more effectively and not being surprised on that first Saturday in June. Knowing and avoiding some of the biggest mistakes candidates make will put you well ahead and help to get you through to the next exam.

‘til next time, happy studyin’
Joseph Hogue, CFA

Last updated: August 12, 2016 at 4:44 am

CFA Curriculum – I Can’t Believe I Read the Entire Thing

I wrote yesterday about the importance of reading the entire CFA curriculum and that too many candidates miss out of valuable points due to only relying on study guides. If my inbox is any indication, many candidates are still skeptical that they can get through the curriculum in their limited time available and much less with their sanity intact.

Aziz from Turkey writes, “I understand the importance of the curriculum and know deep down that I should read it but just cannot find the time. What if I read a study guide two or three times in the same time it takes for the curriculum? Is that not better?”

Vikas in India points to another problem many candidates have when he writes, “The curriculum is SO BORING! Some of the information is interesting but too much academic writing makes it impossible to get past.”

I completely understand both of these points. I worked a full-time job throughout my CFA studies and was married while studying for the final test. Throw in a social life and who has the time to get through thousands of pages of material?

If you want to pass the CFA exams, then you have to make time. It can be difficult to sacrifice a little more time for studying but we are all investors here and I guarantee you the return you realize for that extra time will be well worth it. As I wrote in yesterday’s post, you must commit to the official curriculum if you want the max points possible. Studying only the study guides is a sure way to miss important information that is left out. Studying these guides three or four times isn’t going to help if the material is not in there.

CFA curriculum – Information you do not see in study guides

I did get some positive feedback from a few candidates on yesterday’s post. Mark from St. Louis writes, “I tried for two years to pass the Level I CFA Exam with only study guides. I tried two different providers but failed the exam each year. On the third attempt, I committed to reading the entire curriculum and finally made it through. Can’t say that it was only because of the curriculum but I can say that there was information in the books that I don’t remember seeing in the study guides.”

CFA curriculum – Making it through without falling asleep

Making it through the curriculum is one thing, making it through the curriculum without falling asleep every couple of hours is another thing. I agree that the curriculum can be a little boring at times. Think of it as exercise for all those company reports you will need to read as an analyst. If you thought 2,500 pages of the CFA curriculum is tough to get through in six months then you have a rude awakening coming as an analyst.

Reading through the curriculum translates to about 400 pages a month. As an analyst, I read through that just about every week! You will constantly be looking through annual and quarterly reports, trade journals and other analyst’s commentary in your daily work routine. Not all of it is going to be compelling material and you just have to learn to push through it. Taking quick notes in the margin of the page helps to stay focused and there’s nothing wrong with a little help from Mr. Coffee.

No one said it would be easy working through the entire CFA curriculum but it is definitely worth your time. It takes determination and sacrifice but those traits will serve you well that first Saturday of June and for the rest of your life. Good luck.

‘til next time, happy studyin’
Joseph Hogue, CFA

Last updated: August 11, 2016 at 6:16 am

the market - Copyrights

the market – Copyrights

CFA Curriculum Warning: Do Not Neglect

The actual length of the CFA curriculum varies a little each year but it’s generally between 2,500 and 3,200 pages. When you get the books in the mail, or receive the digital version, that may seem like a monstrous task. Over the three years of studying for the exams, I think my upper body strength grew just as much as my financial knowledge just from carrying the books around.

Study guides meant to substitute for the curriculum vary but generally range between 1,400 and 1,700 pages. At under two-thirds the length of the official curriculum, it seems like a no-brainer and I know many candidates who have only rarely even peaked inside their curriculum books.

And many of them are still candidates.

Do Not Neglect the Official CFA Curriculum!

Candidates that have tried to substitute the CFA curriculum with study guides have come to me afterwards with their horror stories. My reply is always the same, “I wish we had talked before because if you do the math then the answer is pretty obvious.” The minimum passing score for the exams is never released but I would guess it is around sixty-five percent. No candidate has failed with a score of 70% or better and I doubt if the Institute would want to charter someone that knows less than two-thirds of the subject matter.

Even the most gifted candidates are going to miss points. If about half the candidates fail the exam every year, I am guessing that most miss at least a tenth of the points and probably much more. We have no way of knowing but it’s obvious that you need every point you can get.

Now, I have seen pretty much all the study guides commercially available. There are some that do a pretty good job of condensing the material but none are able to get everything in a packet that is half the length of the curriculum. It’s impossible and information is going to get left out. Try to fit nearly 3,000 pages of information in less than 2,000 pages of notes and I would say you’re lucky if 20% of the information isn’t lost.

So if you neglect the official curriculum completely, you are already out something like 20% or more of the points. Now you need to remember at least 80% of the material just for a score of 64% on the exam.

Most of you have taken practice exams through test banks or the CFA Institute. How many have scored better than 80% on these? I know reading all those books is a daunting task but you just cannot afford to leave points on the table by neglecting the official curriculum.

CFA Study Guides

I don’t talk about the FinQuiz study notes much here on the blog other than to reference specific sections of the notes and the curriculum. I don’t want candidates to think I am being biased by pushing one particular study provider over another. But I can say, without any bias, that the FinQuiz notes have at least one big advantage over other study products, that they are meant to be used as a complement to the curriculum instead of a substitute.

The FinQuiz notes vary by length as well but are generally around 600 pages. It’s really the best of both worlds, you get 100% of the information from the curriculum and additional condensed explanations where you need them.

Free examples of the FinQuiz notes are available for download on the website. Take a look and compare them with the curriculum. FinQuiz regularly offers discounts on products and packages so you may want to contact the provider to get the best deal possible.

‘til next time, happy studyin’
Joseph Hogue, CFA

Last updated: August 10, 2016 at 4:30 am

How hard is CFA Level 3 ?

CFA Level 3 experience

After CFA Level 2 exam, I enjoyed the final exam of the series though it presents its own challenges. If you approach it wisely, following these five points, CFA Level 3 exam can be just as enjoyable when you take it.

CFA Level 3 – It’s all about the Essays

The essay portion of the exam terrifies many candidates and for good reason. Not only are you asked to come up with your own answers, much more difficult that picking it out of three options, but the essays present a physical challenge as well. When is the last time you spent almost three hours straight writing by hand? The post-exam party is filled with more than a few horror stories about muscle cramps and aching hands. You must physically prepare yourself by doing consecutive essay problems and writing for hours or you will not make it through the morning section.

CFA Level 3 – Essay questions topics

Most of the topic areas are fair game for essay questions. The first two questions will always be on individual and institutional wealth management so being ready for those two topics can give you a huge confidence boost for the rest of the test. I covered the essay section in more detail in a prior post linked here.

CFA Level 3 – The only exam with prior year’s available

Ok, this one is about the essays as well but I thought it merited its own bullet. The Institute releases the essay section, along with guideline answers, for the last three years. This is huge and I don’t think most candidates take advantage of it. Working through these essay questions not only helps you study the material and practice writing for an extended period, it also helps you write more efficiently and get a feel for the types of information for which the Institute is scoring.

We worked through several essay questions from prior years, click here and scroll through last year’s study plan. While only the last three years’ exams are available, you should be able to get prior years’ essays from members of your local society. Ask around to see if anyone has the PDF copies. It is well worth the effort to have a couple more sets of practice essays, especially in the all-important wealth management topic area. Make sure you check for LOS changes between the test year and the current year for material that has been dropped or changed.

CFA Level 3 High Pass Rate – Don’t get overconfident

You’ve made it through two of the hardest exams of your academic life and notice that the pass rate for the CFA Level III exam is above that of the other two. Sounds like it is time to sit back and ease through to your charter, right?

You have put in too much work to get lazy now. While the pass rate on the Level III exam, 54% in 2016, is higher than that of the other exams it is still incredibly difficult. Think about it, every CFA Level III candidate has had the perseverance and has put in the effort to pass the other two exams but less than half will make it through the exam this year.

Put in just as much time and work for this final exam as you did for the other two levels. Not only will you be rewarded with a passing score, but mastering the essay section will give you the ability to talk through these topics in your job.

CFA Level 3 – Harder to ‘game’ the topic areas

You could clearly see in the other two exams which topic areas were most important and where you should focus your studying. The topic weights don’t help much on the CFA Level III exam. Ethics and the asset classes are weighted but the investment tool topic areas are wrapped up in portfolio management. This uncertainty throws some candidates for a loop and leads to inefficient use of study time.

Fortunately, by studying the prior essay sections, you can get a good idea of topic area importance. Look through the prior three years’ morning sections and you will see that the two portfolio management topics are always considered (with each historically above 10% of total exam points).

Again, studying these previous morning sections can give you nearly everything you need.

Do not wait until you pass CFA Level III exam to start thinking about the charter

You will not immediately be granted the charter after passing CFA Level III exam. You first need to fill out an application for membership and acquire two sponsors that will answer questions on your experience. One of these will need to be your current supervisor, the other needs to be a charter holder from the local society. Now is the time to start talking to society members and establishing a sponsor. In my own experience, it is frustrating when a candidate comes out of nowhere and asks for a sponsor when you have never talked or really know what they do.

CFA Level 3 – Work requirements

You will also need to complete the requirement for 48 months of professional experience. This is the sticking point for a lot of candidates and many have to wait years until they can use the designation. There is not much you can do if you are taking the exam this year and do not have the necessary experience. Review the work experience guidelines established by the Institute, linked here. If your current responsibilities do not qualify, you need to start looking at your options. Consider talking to your supervisor to add some responsibilities to your role that might help qualify.

CFA Level 3 – Study as hard as you did for the other two

As a level III candidate, you are almost there and the anticipation building up to the exam can be unbearable. Take a step back and realize that you still have one hurdle to jump. Study just as hard for the final exam as you did for the other two, maybe harder, and go into that first Saturday of June with the confidence to pass.

‘til next time, happy studyin’
Joseph Hogue, CFA

Last updated: September 16, 2016 at 13:11 pm

CFA Level 2 – Item-set Questions – How to pass

The CFA Level 2 exam is considered by most to be the most difficult of the three exams. Whereas the first exam was largely conceptual and tested your basic understanding of a broad range of information, CFA Level 2 exam takes that same broad range but tests detailed concepts and data interpretation. On top of this, the exam is extremely formula intense. You will be responsible for calculating two and three-part formulas in almost every study session.

There are strategies that will get you through all three exams and those that you will need to change for each test. We will cover those strategies and advice specific to CFA Level 2 exam here and hold the broader suggestions for a future post. We will also look at two different schedules in the strategy post that could aid in planning.

CFA Level 2 Format and Basic Strategy:

CFA Level 2 exam consists of 20 item-set questions, each with six separate multiple choice questions that must be answered from information in an approximately one-page vignette. Each item set question will only cover one study session (i.e. ethics, quantitative methods, asset allocation, etc.) which makes it a little easier to concentrate on one topic at a time. As with all levels of the CFA, there are a total of 360 points possible, so each item set is worth five percent of your total points.

CFA Level 2 practice exams

While the CFA Institute does not publish what the passing score is for each year, they have said that no score of 70% or above has ever failed the exam. What does this mean? It means you should be completing practice exams and aiming for a score of at least 75%. Your practice exams may not mimic the actual exam exactly, but shooting for a higher average will give you some breathing room when it comes to test day.

CFA Level 2 Exam Item set question – Read questions or vignette first?

There are two schools of thought when tackling the individual item sets on the level II exam. Many candidates read through the six questions quickly to better understand the information for which they are looking. Other candidates start by reading the vignette, looking for information that may be important. After studying through the curriculum in preparation for the exam, you will begin to get a sense of what information is important for questions.

Remember, you are able to make notes in your exam booklet, so be sure to underline or highlight numerical information or other important points to find them more easily while answering the questions.

CFA Level 2 – Which item-set questions to answer first?

You may want to complete those item sets first in topics in which you are stronger. This will do two things. First, answering a good portion of the questions quickly and strongly will boost your confidence for the harder item sets. Secondly, answering those questions you are more likely to get right will save time and book the easy points before moving on to the less probable points. Just remember to effectively watch your bubble-sheet answer form to make sure you are filling in the correct numbers.

CFA Level 2 Topic Weight Differences on the Exam

Comparing the topic weights for the level II and the level I exam provided by the CFA Institute, there are a couple of things you should note.

  • Ethics is still a good portion of the exam, but not as much so as the level I exam. Your time spent here depends on part by how much you remember from the first exam and how well you did. If you got above 70% on the first exam and can score well on practice tests, then you will not have to study quite as much. Do not neglect the area because you will see it again on the level III exam.
  • CFA level II exam is much more heavily weighted towards asset classes than investment tools. The second exam is an analyst’s exam because you are going to spend a ton of time learning how to analyze the specific assets and investments within each. It is much more quantitatively intensive than the first exam.
  • Equity investments is the single biggest section and should be treated as such in your study schedule. Closely behind this is the Financial Reporting and Analysis section. Hopefully, you spent the time necessary to build a good base of knowledge in the three financial statements on the first exam. If not, you will need to review to be able to do well on FRA.

Ethical and Professional Standards, while not worth as many points as in the first exam is still very important. It is still a guaranteed 10% of your points, and you will see almost the same material at level III. I was able to reduce my time studying on the ethics portion of the level III to just looking over the new material because of my time spent studying for the other two exams.

Corporate Finance and Economics is again fairly conceptual though you will be responsible for some growth and emerging market formulas as well as dividend policy formulas. Summary sheets are often the best way to approach conceptual study sessions because you can outline the ideas and key points. This should get you the majority of points on the exam and free up study time for other areas.

Financial Reporting and Analysis is, with equity, your two ‘core’ topic areas for the level II exam. These two topics are worth between 35-55% of your total exam score. If you picked up a good base of understanding in the three financial statements at the first level, then the second exam is just detailing separate accounts and valuations. The readings here are extremely long and you will need to work through them. Do not expect to pick up the material with reading alone. The material is practice-based and you need to actively work through the examples in the books.

Quantitative Methods is slightly less important in the second exam and more so when you get to the third exam. The material here builds on some of the methods learned in the first exam. Do not neglect the section because you will get at least one item set, maybe two. You should be able to get the majority of the points by understanding the basic procedure in the formulas and any strengths, weaknesses, or biases.

Alternative Investments is slightly more important at the second and third level exams compared to the first, but still of secondary importance overall. The curriculum follows a finite set of ‘alternative’ assets (i.e. real estate, hedge funds, private equity, etc.) and each level builds in little more detail. While there are more calculations required in the second exam, it is still largely conceptual. Again, with conceptual topic areas, use a summary guide to learn the key points, strengths, weaknesses and biases.

Derivatives is also marginally more important on the second exam but extremely more quantitatively intense. You will confront some fairly lengthy pricing formulas here and will see between one and three item sets on the exam. For the formulas, first try to understand the logic behind the calculation to better memorize the formula. Often, working over practice problems is the only way to really convert the material to long-term memory.

Equity Investments is potentially the largest part of the exam with between four to six item sets. This and Financial Reporting & Analysis is where you really need to spend your time and learn the material. Working through practice exams, you should be aiming for at least 75% or higher going into the exam.

Fixed Income is also more quantitatively intense at the second level of the CFA exams. Many candidates are less familiar with debt instruments and do poorly on the topic. Begin with a basic understanding of the topic before you proceed to the detailed formulas. Do not neglect pricing and amortization of debt or some of the other formulas.

Portfolio Management  will set you up for the third exam where it is extremely important. Pay particular attention to the Investor Policy Statement (IPS) because it is pivotal to the third exam. Fortunately, much of the section is conceptually-based so you can get the majority of the points by understanding key points and ideas.

While you cannot afford to neglect any of the study areas in the level II curriculum, there are some on which you can spend more or less time. Ethics, FRA, Equity and Fixed-Income will account for upwards of two-thirds of the exam. If you concentrate your study time in these sections, aiming for a score of 75% or higher, you will have a very good chance of passing the exam.

You have a finite time before the exam so remember to use your study time efficiently. Take advantage of condensed study guides, summary sheets and flash cards to focus on the key concepts and formulas.
Happy studying
Joseph Hogue, CFA

Last updated: September 14, 2016 at 4:27 am

CFA Retabulation ?

The results of the June CFA exams were released last week, marking the end to a long and difficult exam season. Less than half the level one candidates (43%) passed the exam with level two candidates doing a little better with 46% passing their CFA exam. These are both above the ten-year averages at 39% for the first CFA exam and 44% for the second exam.

Results for the level 3 CFA exam are due out on August 9th with an average pass rate of 53% over the last ten years.

CFA retabulation worth it?

Around this time, I get a lot of emails asking if candidates should request a retabulation of their CFA exam score. The CFA Institute offers the service, for a fee, but is it really worth it?

Understanding CFA Exam Results

CFA exam scores are given on a pass-no pass basis with a 10-level scoring system for those that did not pass. While the minimum passing score is never released, we know that no candidate has ever failed a CFA exam with a percentage score of 70% or higher.

The scoring band system of 10-levels for candidates that did not pass is an equal-band measure, meaning that each band is the same number of points. The number of points separating you from the next higher band are not known either but you can put together a rough estimate by thinking through it. If we assume anyone with a 70% passed and that even the candidate guessing on every question should have gotten a 20%, then we have about 50% within the ten bands or about 5% in each band.

There are a total of 360 points available on each CFA exam with individual questions worth three points each, not counting the essay portion of the level 3 CFA exam. That means, if there is a 5% difference from one band to the next, that you need to have answered as many as six more questions correctly (6*3 = 18 points) to make it to the next band.

This is a very rough estimate and we can’t know the actual numbers. I would say it is probably a maximum for the percent in each fail band. Even if each band is only 3% then you still have 10.8 points or at least three questions within each band.

What does this mean? For retabulation to change the score on your CFA exam to the next band, your original score will likely need to be wrong by at least three questions.

Should you Request a CFA Retabulation?

A CFA retabulation request for your exam score is due by the 9th of September along with your payment of the $100 fee. The CFA exam retabulation form is available here and must either be mailed or faxed to the address on the form. It takes between one and three weeks to receive your retabulation results by email.

CFA Retabulation will not change an incorrect answer to a correct one and will not get you extra points on missed questions. The process is done by hand but only checks to make sure the machine scored your answers correctly, noting which circles were marked.

For example – If you marked B, the correct answer, but the machine read your answer incorrectly as marking C then a CFA retabulation would result in a higher score. Retabulation of your CFA exam does not change the answer you marked, nor will it make a judgement call and give you partial credit for an incorrect answer.

Retabulation of the level 3 essay questions will not change the score given for a segment, only that your scores were added up correctly.

If the retabulation changes your score, you are refunded the $100 fee. If your score remains the same, your fee is not refunded.

There is no data released on scores changed by retabulation but I have never heard of anyone that got a higher score, much less anyone that changed a no-pass to a pass. If you are in the final fail band 10, you might consider it but it is still unlikely to make a difference. The accuracy rate on optical mark recognition (bubble-sheet scanners) is above 99% which means only 1% of tests have any error, much less an error on multiple questions.

It is extremely painful to feel like you wasted the last six months of your time but a retabulation isn’t likely worth the fee. Thinking about the tests in a larger context will make it a little easier. Really, how much difference does it make whether you pass this year or next when considering a 30- or 40-year career. Your additional studying only means that you will have a stronger grasp on critical material and the opportunity to be a better professional.

Take your CFA exam fail as what it is, a learning experience. Commit to hitting the material early next year and mastering the curriculum.

‘til next time, happy studyin’
Joseph Hogue, CFA

Last updated: August 6, 2016 at 5:48 am

When to start studying for CFA ?

Looking through forum posts and talking to a few candidates about timing and planning for the CFA exams provides some interesting stats and might help you assess how well your own preparation is going. The two core issues here are: when to start studying and exactly how much is enough studying.

When to Start studying for CFA Exam ?

It might be a little simplistic, but I see candidates starting their study plans in one of three categories: really early, about right, and what are you thinking! The actual dates started appear to follow a fairly normal distribution with the median around mid-February. I usually started with the ‘really early’ crowd between October and November, so I’m a little biased toward earlier rather than later.

While pre-January may be earlier than necessary, we see a lot of people waiting until March to begin studying. Biased I may be but 13 weeks to cram approximately 300 hours of studying seems a stretch. There will always be the intellectual giants out there (or at least those that think they are) that will have no problem learning all the material in three months. Then again, while actual pass-fail statistics are not available, I would put good money on the bet that the 50% of candidates in the fail band come disproportionately from these late starters.

Is it too late to begin studying for CFA Exam ?

Then there are always the (comical) posts in late April and through May asking for opinions whether it is too late to begin studying and still pass the exam. Most of the candidates I have met and talked to were fairly smart, but sometimes I’ve got to wonder.

Like I said, I am probably a little overcautious and biased to starting early. Most candidates have fairly relaxed schedules and can sacrifice a few extra hours for something that is undoubtedly going to change your career prospects and arguably your life (going out with that hot co-ed you met last week or keeping up with this season’s American Idol are not as important as you think). Nothing I could say would get most of you to start before January, but hopefully you will not wait until March.

How Much is Enough for CFA Exam ?

More important than when you start studying is (duh!) how much studying you do. Reading through forums and taking a few polls, I was surprised that the consensus is for reading through the material only once and then working through practice problems and a mock exam. At most, I found that candidates expect to read through study guides once then review a quarter to half of the material again. Most candidates planned on working through all the end-of-chapter questions and doing ‘some’ practice problems from a provider question bank.

Again, I might be a little conservative, but this seems entirely inadequate. Who are all these candidates with eidetic (photographic) memory that can pick everything up that easily? Practice exams taken through question banks will give you a good indication if you have picked up the material but most do not start taking these until late in the season. What happens when you take your first inclusive practice exam in May and find out you are not nearly as prepared as you thought?

The candidates that expressed a higher level of confidence with their preparation were mostly those that had read through all of the material at least twice and had started monitoring their progress through practice exams at least two months before the test date. This leaves time to focus on a few of the weaker topic areas as well as going through the material with a few other media (video, summary sheets, flash cards).

I guess it comes down to being realistic about your abilities and taking a rational look at the statistics. Surveys by CFA Institute show that candidates (both passing and otherwise) averaged around 300 hours of study time for each exam. We also know that approximately 50% of candidates fail the exam each year. This is one area where being ‘average’ is likely to not be enough.

I imagine that the absolute number of hours reported belies a fairly large distribution, but we’ll call it 200 hours minimum and maybe 400 maximum needed to pass the exams. Now think about your pre-CFA studying schedule. How many hours per week do you think you can realistically commit to studying? You need to plan conservatively if you are married, have children, or have a job with increasing workload around quarterly reporting. Life happens, don’t expect to be able to study as much as you would like every week.

‘til next time, happy studyin’
Joseph Hogue, CFA

Last updated: August 4, 2016 at 4:21 am


CFA Level 3 – Essay Type Exam – How to Pass?

Arriving at CFA level 3 exam for the CFA charter is an accomplishment in itself. With a fail rate of around 50% at each level, you have made it where approximately 75% of candidates could not. While the final exam is not one to underestimate, there are some strategic decisions that will make it easier.

There are strategies that will get you through all three exams and those that you will need to change for each test. We will cover those strategies and advice specific to CFA Level 3 exam here and hold the broader suggestions for a future post. We will also look at two different schedules in the strategy post that could aid in planning.

CFA Level 3 Contents, Format and Basic Strategy:

CFA Level 3 exam can be the most intimidating for some because of the essay questions. Unlike the other two levels, you will be asked to take the concepts in the curriculum and develop your own recommendations and solutions. This can be tough for a lot of people and will almost certainly test your ability to manage time during the test. The good news is that the essay section does not have to be overly difficult, you just need to follow some basic preparation strategy. I was actually pretty surprised at how easy it seemed compared to what the monster I had built it up to be before exam day.

CFA Level 3 Exam – For those that can put everything together!

CFA level 3 exam is more conceptual and practically-based than the other two exams, making it easier for those that can put everything together. The morning session of the CFA Level 3 exam has a maximum score of 180 points and will include 10-15 essay questions with as many as 7-8 separate questions within each. Some questions will require that you write on lines directly under the questions, other questions will be answered in a template box on another page. Do not answer the ‘template’ box questions directly under the question on the exam. It will not be graded! It can be confusing answering some questions directly below while others are answered on separate pages so you want to go through and draw a line under the ‘template’ box questions so you are not tempted to put your answers under the question.

CFA Level 3 and time management

Time is many CFA level 3 candidate’s worst nightmare, but it doesn’t have to be. Just because you have five lines or a three-inch by three-inch box in which to answer does not mean that you must use this entire space. Nor does it mean that you cannot use bullets! Graders are not looking for spelling or grammatical ability, only that you understand the curriculum and can put together a solution.

CFA Level 3 – Topic Weight Differences on the Exam

Comparing the topic weights for CFA level 2 and CFA level 3 exam provided by the CFA Institute, there are a couple of things you should note.

  • First, it is much harder to concentrate on ‘core’ topics because the Institute rolls up many of the topics into Portfolio Management. This means that, while the percentage weights for Investment Tools shows a zero weighting, these sections are still tested within the 45-55% of the exam under portfolio management.
  • The topic weight ranges in Asset Classes is fairly wide and difficult to draw conclusions as well. Fixed Income is given a slightly higher weighting, but only on average. You are guaranteed of seeing at least one essay or item set from each topic, but could get more. This, combined with the fact that no clues are given as to which subjects within each topic are more important, means that you must cover these topics fairly broadly as well.

CFA Level 3 Exam and last three years’ essay exams

Fortunately, CFA level 3 exam revolves around the essay questions and the Institute makes available the last three years’ essay exams for practice. While the Institute changes the questions each year, practicing these essay exams is a great start to building your confidence and understanding of the material.

CFA Level 3 – Which questions to be answered first?

As with CFA level 2 strategy for item set questions, you may want to answer those essay questions which you feel strong in the material. This will get you the points you know, will help you bank some time and help your confidence. What I mean by ‘banking’ some time is that you will be able to do those questions you know in less time than the allotment leaving you more time for the more difficult questions.

Do not spend too much time on relatively low-point questions within the essay section. Time is a problem for many candidates, so If a question is only worth a few points it doesn’t make any sense spending 15 minutes trying to get it right. Spend time on the higher-point items and the easy ones, then return to unanswered questions if you have time.

Another critical point on the essay section is to show your calculations when the question asks for it. The graders are allowed to assign partial credit for correct procedures or partial answers. If you do not show your calculations in the exam booklet, not only will you not get partial credit you may not even get credit for correct answers.

Ethical and Professional Standards is off less importance on the last exam but still two item sets in the afternoon. You should have a good understanding of the Standards, so spend some time understanding the new material and move on to other topic areas.

Economics is again fairly conceptual section other than a few growth and market valuation formulas. The topic is also secondary, so make sure you understand the key points and reasoning then spend your time on other areas.

The asset classes (Alternative Investments, Derivatives, Equity Investments, Fixed Income) are also much less quantitatively intensive at the third exam but still include quite a few formulas. The impetus on the third exam is how these asset classes fit together in a portfolio. A large section is devoted to risk management and how the asset classes each have different fundamentals. Be sure to understand return drivers and risk characteristics for each class.

Focus of CFA Level 3 exam

Portfolio and Wealth Management is the focus of CFA level 3 exam. Your first two essay questions in the morning will be individual and institutional wealth questions. While these specifics of these two questions vary from year to year, there are a limited number of topics that are tested. This makes it extremely important to practice the old essay questions to get a feeling for what and how questions are asked.

Key in this section is the Investor Policy Statement (IPS) and its components. Spend as much time as you need to master this section because it will be big points on the exam. Understand the differences in risk and return needs for the institutional investors as well as their differences in IPS constraints. The biggest aid here is again the past essay exams posted by the Institute. Besides the exams, also available are guideline answers. These are important to get a feel for what the graders are looking for within the questions. Study the answers in detail to see what information you need to write in your own answers.

happy studying
Joseph Hogue, CFA

Last updated: September 14, 2016 at 4:53 am

CFA Level 3

Five Reasons CFA Candidates Fail the CFA Exams (Part 5)

This post wraps up our five-part series on the most common hurdles facing candidates for the CFA designation. The first reason was too much time spent studying about studying, posted here. The second reason, planning a schedule around life and burnout, is a big one for those of us with a family and a full-time job. The difference between active and passive studying, is probably the biggest hurdle to success for most candidates. Last we looked at the myriad of resources available to candidates and using the right ones.

Today’s hurdle could just as easily have been titled, “I’m an ethical person, so why study ethics?” While the material on Ethics and Professional Standards is not the only one neglected by candidates, it is probably the most avoided. Sure, you need to have a good understanding of the entire curriculum but a look at the topic weights provided by the Institute makes it clear that some topics are a source of some major points.

Ethics, the easiest and most difficult topic on the exams

Candidates have a big opportunity with the ethics section though it still presents a problem for most. The topic area is tested at each level and is worth at least 10% of your exam points. The opportunity comes in the fact that the topic is the only one that really does not change much as you progress. You’ll see a couple of additional sections but these are relatively secondary against the core Code and Standards, which do not change. For candidates that give the topic its due at level I, the next two levels are that much easier.

The problem with the ethics material is twofold. Some candidates consider themselves to be fairly ethical people and so think that the answers on the exam will be intuitive. They neglect the topic and end up failing on the exam. Other candidates read the material, to the point of memorizing the Code and Standards, but neglect to do practice problems.

There are two types of ethics questions on the exam, those with no answer and those that seem to have two correct answers. You absolutely must practice the ethics problems provided by the Institute at the end of the chapters. You’ll be surprised by the level of ambiguity in some of the problems and how minute details can make the difference between one answer versus another. Don’t let the first time you are surprised by this be at the exam.

You need to know Financial Reporting & Analysis for the CFA designations??? Who Knew?

If not of equal importance to the ethics material, I would put FRA a close second. Unfortunately, a lot of candidates avoid this section as well. The material, much of it focused on accounting issues, may not be as interesting for some. It can also get extremely complicated and detailed on the level II exam.

Anyone that works in the industry, whether a charter holder or not, will tell you that understanding the financial statements is of the highest priority. As an analyst, you will need to develop models and an expert knowledge of how the company is reporting its business and how it all flows together. Spending extra time on the material will not only help you pass the exams, it will make your life so much simpler further down the road.

Equity and Fixed Income: The fun parts that aren’t so much fun anymore

Many candidates start the path to the charter because the love analyzing investments, whether in the equity or fixed income market. When they realize that it is a little more than just calculating the price-earnings ratio for the stock everyone is talking about… it becomes less fun.

The two topics can get extremely formula-intensive and most candidates only have experience in one of them. Avoid the temptation of only studying the topic in which you currently work or in which you think you want to work. First, you’ll need the points from each section to pass the exam. Also important though is the fact that you never know how your career will unfold or when you might want to work in another asset class.

Each level has its own idiosyncrasies and no one topic area will get you through every exam. The four topic areas above are extremely important but you still shouldn’t neglect the other five topics. Other posts on the blog talk about specific strategies for each level and can help you further focus your study plans.

Are there any hurdles to passing the exams that I forgot? What tripped you up the most? Let me know if you have any questions about the last five posts.

‘til next time, happy studyin’
Joseph Hogue, CFA

Last updated: August 1, 2016 at 5:13 am

Five Reasons CFA Candidates Fail the CFA Exams (Part 4)

We’ve already been through three of our five reasons that keep candidates from passing the CFA exams. The first reason was too much time spent studying about studying, posted here. The second reason, planning a schedule around life and burnout, is a big one for those of us with a family and a full-time job. Yesterday’s post, the difference between active and passive studying, is probably the biggest hurdle to success for most candidates.

Should I use a third-party prep provide for CFA Exam

Today’s post again deals with the planning process, not finding the right time to study but finding the right resources. The big question on the forums is always, “Should I use a third-party prep provider or just stick with the curriculum?” The question goes deeper though to different products and ways to look at the material as well. Disclaimer: Obviously, we here at FinQuiz have a vested interest in the answer. Our study guides have been developed as a great complement to the curriculum and we’re proud of the feedback we receive every year. That said, this blog is here for all candidates and we want to see you pass the exams regardless. Check out our examples on the homepage or contact us and we can talk about helping you get the most for your time.

Variety is the Spice of Life

Beyond the specific test prep provider, candidates also need to look at a variety of different products. The CFA curriculum at each level is in excess of thousands of pages. I was always a fan of looking at it from as many different angles as possible. This helped to break-up the monotony and took advantage of the strengths within different media.

CFA Study Guides – two formats

Study guides come in two formats, those based on the specific Learning Outcome Statements and those that are curriculum-based. Some providers reason that structuring the guides on the specific LOS makes it easier to package the material in shorter pieces. FinQuiz has taken a different approach, developing curriculum-based guides as a complement to the curriculum instead of as a substitute. By following the curriculum, the guides are more condensed and focus on those areas that give candidates the most problems.

Some candidates completely ignore the curriculum, opting instead to only read study guides. Granted, this cuts down on the time spent to get through the material but you are sure to miss some points. As condensed notes, the study guides are not going to include 100% of the testable material in the curriculum. If the guide only hits 90% of the material and the candidate only retains 80% of the guide, then their score is already maxed out at 72%. This is why FinQuiz feels that a complement to the curriculum is more appropriate than a substitute.

Flash Cards for the CFA Exam

Flash Cards are the most appropriate for focusing in on those last remaining areas in which you are having trouble or keeping those important formulas and processes fresh in your mind. I also like flash cards for their portability and ease of use during short periods. We get (2) fifteen minute breaks during the day, not really enough to open up the books and start a new section but plenty of time to go through 10 cards.

You can easily buy or borrow cards off the internet. Most providers sell sets for around $125-$175 or someone in your social network probably has some you could copy. The best way, though, is to make your own cards. It may take a little longer, but they will be customized for your learning and will provide the opportunity to write out the material.

CFA Exam Videos

Videos are a good way to look at the material from a different format. The majority of your studying is going to be through reading a section and answering problems so it is nice to take a break every once in a while and have someone explain the curriculum to you. This is especially useful for some of the more complicated sections where a live example might help. While FinQuiz does not yet offer videos, there are many available on YouTube and can be found through a simple search.

CFA Exam Test banks


Test banks include thousands of problems to work through and are a great complement to those in the official curriculum. Working practice problems are really where you need to be focusing your time because the retention is so much better using this active learning method than simply reading the material. Candidates need to work through all the end-of-chapter questions and ‘blue-box’ examples within the curriculum. This is going to be the closest to the style and difficulty that you’ll see in the exams. The few hundred problems included in the curriculum really isn’t enough to prepare for the exams, making test banks absolutely necessary.

When working through a set of questions, don’t just score your results at the end of a study session. Go back through the questions. Figure out why you missed those incorrect answers and make sure the correct answers were from an understanding of the material and not simply a lucky guess.

Practice Exams for CFA

Mock Exams need to be a part of your study program so you are not surprised by the six-hour testing marathon in June. Many candidates handle their studying exclusively in short, one-hour chunks then do poorly on the exam because they are not prepared for the level of mental fatigue. Further, mock exams force you to answer problems across the curriculum instead of only looking at specific sections. Facing a test of the entire curriculum is much different than looking at each section immediately after reading over the topic area, make sure you are prepared.

Too many candidates rely solely on the official CFA curriculum without taking advantage of other available media and resources. Besides offering different approaches and advantages specific to each media, using different resources are about the best way possible of avoiding burnout while studying for the CFA exams. Look through the free examples that many third-party providers offer or ask other candidates which provider they used. The incremental costs to using a few products are well worth the expense to avoid having to retake the exam.

‘til next time, happy studyin’
Joseph Hogue, CFA

Last updated: August 1, 2016 at 5:13 am

Five Reasons CFA Candidates Fail the CFA Exams (Part 3)

We’ve covered two of the top five reasons candidates fail in the previous weeks’ posts. I was going to finish the series up with this one but could not wait. I figured there are candidates studying for the December exam now and they need to read this before it’s too late to get back on track.

Frequent readers of the blog will recognize this common hurdle that candidates face. It is a problem all students face. Worst of all, it is not something you can overcome once and not worry about it again. You have to continuously watch for it to keep yourself on course.

The number one reason candidates do not pass the CFA exams is the difference between active and passive learning.

Passive learning is those activities where you do not participate but really just absorb the material through sensory perception. This includes reading, listening to a lecture or watching a video. Studies have shown that students remember only about 10% to 30% of the material through passive study.

Active learning, by contrast, is those activities where you engage the material in an interactive manner. This includes discussion, presentation and problem solving. Students are able to remember up to 90% of the material when they use active studying as part of their routine.

Just Reading the CFA Curriculum isn’t Going to Make It

Now that you know the difference, you are probably saying, “Oh crap, I am doing nothing but passive learning!” Don’t be too hard on yourself. Most school systems are built around passive learning (listening to lectures and reading textbooks) and students only grudgingly engage in active learning.

For me, it was only with the realization that the CFA exams were nowhere near as easy as most of my college curriculum and that passive learning was not going to cut it that I made the commitment to active learning. Its not the easier route, but would you rather spend a hundred hours reading to remember 10 hours of material (people typically remember about 10% of what they read) or would you rather work practice problems for about 11 hours to remember the same 10 hours worth of material?

Practice, Practice and yet more Practice for CFA Exam

1) Practice problems are the most obvious form of active learning. Make sure you do all the end-of-chapter questions and ‘blue-box’ examples in the CFA curriculum. These are going to be the most closely related to actual exam questions and are pretty close to the same level of difficulty.

The FinQuiz test bank includes almost 5,000 questions created directly from the curriculum and more than 500 item sets. It is a great supplement to the textbook questions and will help avoid boredom from doing the same questions multiple times.

Study groups for CFA Exam

2) Study groups are a good way to discuss and think about the material, but make sure you are efficiently spending your time on the curriculum and not talking about unrelated things that happened over the week. Flash cards are a good resource to use for study groups. You learn first by developing your own set of cards, then learn by working through other group member’s cards as well.

Level III candidates absolutely MUST work old essay questions.

3)  The Institute releases the last three years’ essay questions with guideline answers. We worked through about 12 of these before the exam this year and are available on the blog. Do not let the essay section surprise you. It can be extremely easy or extremely difficult.

I first wrote about active versus passive learning in a post earlier but thought I would include it in this ‘top 5’ list because it trips up so many candidates. Click here for more information on active learning and how it can help you remember 90% of what you study.

‘Til next time, happy studyin’
Joseph Hogue, CFA

Last updated: July 28, 2016 at 4:02 am

And you thought practicing FinQuiz Mocks was tough! - Copyrights

And you thought practicing FinQuiz Mocks was tough! – Copyrights

2017 CFA Level 3 Changes: CFA Curriculum Updates

Miss these CFA level 3 changes in the 2017 curriculum and risk missing out on those important few points that could get you a passing score

The CFA Institute has published its curriculum changes for the 2017 exams. The CFA level 3 changes for 2017 are very limited, really only posing new material over the same learning outcome statements (LOS).

You can download a PDF copy of the CFA level 2 changes for the 2017 curriculum by clicking through this link. The curriculum changes are available in a combined document or individually for each of the 18 study sessions.

The CFA level 3 changes for 2017 are pretty minor compared to previous years. One reading has been removed and one reading added to Private Wealth Management in study session five.

A new reading (Risk Management for individuals) has replaced the old Reading No. 12 (Lifetime Financial Advice: Human Capital, Asset Allocation and Insurance) in Study Session Five (Private Wealth Management).

There are almost no other material changes to the CFA level 3 2017 curriculum.

Download (PDF, Unknown)

As with the prior two exams, passing the Ethics material is about working end-of-chapter questions to get a feel for how the CFA Institute wants you to think about the issues. My own experience with the Ethics portion on the Level 3 exam was that it seemed relatively easy. I’m not sure if it’s because I had already worked the topic in the two prior exams or if the Institute figures you must know the material by the time you reach the third exam.

As always, success on the CFA Level 3 exam revolves around your preparedness for the morning essay section of the exam. We covered the importance of practicing the essay questions released by the CFA Institute in a prior post along with working some of the exam questions. It looks like this is going to be the case for the 2017 CFA level 3 exam as well. We’ll cover more essay questions in the lead-up to the exam next year.

‘til next time, happy studying
Team FinQuiz

Read to rule the world - Copyrights FinQuiz

Read to rule the world – Copyrights FinQuiz