How to Analyzing Peer Lending Opportunities

Peer lending and alternative finance offers a new world of opportunities for investment analysts but you need to know key criteria

While crowdfunding has dominated the media attention with stories like the Coolest Cooler and Oculus Rift, it’s peer lending that accounts for the majority of funding volumes. P2P loans on sites like Lending Club and Prosper reached $25 billion in 2015, 73% of the total alt-finance space.

We looked at the amazing growth in alternative finance and how it’s changing Wall Street in a prior post. With rates at historic lows and bonds paying next to nothing after inflation, peer lending investments are offering investors the chance to diversify their fixed-income portfolio and earn a higher return.

Even on the huge growth in peer lending, the $25 billion in loans is still a fraction of the total loan market. I studied just how big peer lending credit could become on my blog PeerFinance101 and found the current P2P market just 0.15% of the total $16.3 trillion loan market.

While institutional investors are already training their analysts to evaluate peer lending investments, the retail market may offer a huge opportunity to freelance analysts as well.

What is Peer Lending Investing?

Peer lending and P2P investing is really very similar to the traditional way loans have been originated and sold to investors. In the old model, a bank originates a loan and then sells its portfolio to a broker or investment firm. The broker then sells chunks of the package to investors according to different criteria like maturity and borrower risk.

P2P investing is the evolution of this model into the social space online. Borrowers apply for their business or personal loan on platforms like Lending Club. The platform checks the borrower’s credit, assigns a rating and an interest rate on the loan. Investors can then invest directly in the loan, usually from $25 and up on each loan. The platform collects monthly payments on the loan which include principal and interest and passes the money on to investors.

Peer loans are generally unsecured personal loans or small business loans and are quite a bit riskier compared to traditional fixed-income debt. Loans are usually offered on 3- to 5-year terms at a fixed rate. Borrowers pay a 5% origination fee and most sites charge investors a 1% annual fee.

Returns for investors have been very good, ranging from 5% to almost 10% for loans after accounting for defaults.

peer loan returns

Despite the fact that p2p loans are unsecured, average credit scores for most borrowers are actually pretty good. Lending Club and Prosper only loan to borrowers with credit scores of 680 or higher (prime loans) while some sites originate loans to borrowers with a 640 credit score or higher.

Institutional investors and even banks have started to invest heavily in peer loans as a way to diversify fixed-income portfolios and provide for higher returns. Banks have also found a way to remain active in the credit market without the heavy lending regulations imposed by the government. This institutional interest is creating demand for analysts that can rate and analyze personal loans and other p2p investments.

The size and dispersion in the retail market means the demand for analysts is still fairly new but growing as well. Since individual investors don’t typically have a large chunk of their portfolio in peer loans, fees to p2p analysts would not be very large to manage single accounts. This will change as more investors put money in peer lending and firms can build larger, dedicated departments of analysts.

How to Analyze Peer Lending Investments

There are no formal rating agencies for peer loans though each lending platform employs its own methodology for assigning a rating and an interest rate. This may change eventually as the market grows and investors look for a more consistent source for ratings.

The peer lending platforms make it fairly easy to pick loans for retail investors, offering dozens of criteria on which to search loans. Some of the criteria will not mean much in creating excess returns but there are some factors that tend to result in lower defaults and higher returns. I talked to a peer lending investor last year that has averaged a 12% return over the last six years and made $10,000 on his portfolio of loans.

Within my own portfolio, I like to focus on loans with the following criteria:

  • No credit inquiries in the last six months
  • Home Ownership
  • Debt to Income ratio of less than 20%
  • Income greater than $55,000 per year
  • Protected borrower occupation, someone working in education or public service is less likely to lose their job

The major peer lending platforms make all their loan data available so it would be relatively easy to create your own proprietary model for analysis, whether you built it yourself or outsourced the model. The model would allow you to pick certain criteria from the list and then back-test returns accordingly. You could then sell the model to investment firms or use it as a freelance analyst for peer lending investors.

It may take a few years of growth but the peer lending industry will eventually be a strong source of demand for financial analysts. Secondary markets where investors can buy and sell loans have just been launched, adding to the analysis need beyond the origination market. Learn how to analyze peer loans early to distinguish yourself in the market.

‘til next time, happy investing!
Joseph Hogue, CFA

How to Analyze Crowdfunding Opportunities

We started our look last week into how alternative finance is changing Wall Street and how CFA candidates can prepare to meet the need for a new kind of analyst. This week, we take a closer look at one side of the alternative finance theme. While peer lending brings in more money each year, equity crowdfunding is doubling the amount raised annually and could be ready to surge higher.

The Securities & Exchange Commission (SEC) finally approved rules last year that allow any investor to participate in equity crowdfunding. Until the rules go into effect in May, only accredited investors with more than $1 million in wealth can participate. Opening the door to non-accredited investors opens equity crowdfunding up to 58 million households in the United States alone.

analyzing equity crowdfunding cfaThat means the potential for billions more in small business funding to equity crowdfunding campaigns. Until now, the industry has placed it on the individual investors to do their own analysis. It’s assumed that accredited investors understand the risks and have advisors to help them analyze deals.

This won’t be the case when non-accredited investors enter the equity crowdfunding arena and we could see a surge in demand for analysts. Crowdfunding platforms may hire their own team of analysts to provide support while independent analyst firms will be created to serve the need of tens of millions of new investors.

What is Equity Crowdfunding?

It’s important to make the distinction here between rewards-based and equity crowdfunding. In rewards-based crowdfunding, business owners and social projects give away products or ‘rewards’ to supporters of the project. Donors receive these gifts but get no ownership in the company. In equity crowdfunding, business owners sell an ownership percentage in the company to investors much like they do in an initial public offering.

In fact, equity crowdfunding is simply offering shares publicly without going through an investment bank and the stock exchanges. Business owners complete a registration process with the SEC and provide proforma financial statements on the crowdfunding platforms, then reach out through the internet to attract investment directly from individual investors.

I’ve covered equity crowdfunding on my blog Crowd101 for some time and believe it could be the next big thing for investors. While investment risk is high, non-accredited investors have never had this kind of access to startup firms. Equity crowdfunding offers the potential for very attractive returns similar to venture capital and angel investing, previously only open to wealthy investors.

Consider Peter Thiel’s $500,000 investment in Facebook in 2004. By the time the company went public in 2012, the investment was worth $1.7 billion for an annualized 176% return over eight years!

Of course, not all early stage investments pay off nearly as well as Facebook or even at all. Research by Willamette University showed that more than half (55%) of angel investments end up returning less than the original investment while only about 10% produce returns of five-times the investment or higher.

The risk and return involved in equity crowdfunding has the potential to create a massive market for analysts, both traditional and home-based. The virtual nature and size of most equity crowdfunding deals may mean the industry lends itself better to freelance analysts that can work remotely. Besides the need for analysts on the investor side of the table, companies seeking equity crowdfunding will need help putting together proforma financial statements. Since these companies will be much smaller than typical venture cap targets, they’ll likely need to contract with freelance analysts to develop their statements rather than bring on full-time workers beyond their accounting staff.

How to Analyze Equity Crowdfunding Deals

Analyzing equity crowdfunding deals is very similar to venture capital and startup analysis. Companies are typically nano-cap or even smaller with less than $1 million in annual revenue.

Your biggest challenge as an analyst for equity crowdfunding deals will be to check management’s assumptions on the proforma income statement. Management will provide estimates for market growth and the amount of market share the company can achieve over the next three to five years.

  • How much competition is there for the product? How might existing competitors react to a new startup?
  • How fast does management think it can increase sales and market share each year? It might be fairly easy to enter the market but competitors may start fighting if the company takes more than a percent or two of share.
  • Are sales expectations realistic given general economic trends and industry growth?

Expense estimates will need to be carefully scrutinized, especially estimates for marketing costs. New companies will need to spend quite a bit on advertising and then increase costs relative to sales growth. Compared to established publicly-traded firms, startups may have higher Selling, General & Administrative costs because they haven’t yet reached efficiency and economies of scale.

Expenses for professional fees should closely analyzed. Startups with small management teams will need to hire out many professional tasks but it also lends itself to related-party transactions and fraud. Make sure management is not funneling money to friends or relatives through professional services when the same services could be provided more inexpensively in the market.

Keep an eye on management perks and travel expenses as well. Management should be compensated for its effort but should not be using the company as a piggy bank for a lavish lifestyle.

One of the biggest differences for equity analysts of later-stage companies is the accounting and analysis for net operating losses and the carry-forward of up to seven years. In my experience as a director of equity analysts, most are not well-prepared to handle the accounting for net losses. Make sure you understand how losses affect taxes and how the carry-forward works on financial statements.

Besides equity crowdfunding companies that will be smaller than those supported through venture capital deals, the companies’ management team may be less experienced and formalized. One of your tasks as an analyst will be to gauge management’s experience and ability to handle growth as projected on the proforma statement. Does management already have outside expertise through other investors that will be providing assistance or is management open to allowing an outside group to provide assistance?

One of the biggest benefits to venture or angel funding for a startup is this outside expertise. If a crowdfunding startup is not open to allowing this kind of assistance, it will need to prove its ability to meet projects otherwise.

There is also a social aspect to analyzing equity crowdfunding deals. Crowdfunding supporters and investors typically feel a higher level of buy-in with the companies they support and may provide a strong base of marketing and sales for the new venture.

  • How well has management used social media and how active is the company’s social network?
  • Did the company pre-launch its equity crowdfunding deal, evidenced by a high amount of funding in the first few days of the crowdfunding campaign?
  • What percentage of sales are projected to be local to the company and how active is it in the local community?

The equity crowdfunding space is still evolving and we are likely to see more campaigns for debt (peer lending) and royalty share of profits before the equity-side of the space really takes off. We’ll cover analysis of peer lending and the opportunities for p2p analysts next week.

Joseph Hogue, CFA

How Crowdfunding and P2P Lending will Change Wall Street

Crowdfunding and peer lending are quickly becoming mainstream finance and could change the CFA and Wall Street forever

Small business community Manta ran a survey last year and found that 67% of business owners felt they didn’t have enough small business funding choices. Worse still, more than two-thirds (69%) felt the funding environment had not improved or was worse over the last year.

There’s no mystery why funding for small- and medium-size enterprises (SMEs) has dried up. Regulatory requirements around Basel III and Dodd-Frank have increased lending costs and capital requirements for traditional lenders. Because of costs to make small business loans which are considered riskier, it costs just as much to make million dollar loans as it does to make a $50,000 loan.

It’s destroyed the profit motive to make loans of under $250,000 and left many business owners with no options. A 2014 survey by the Federal Reserve found that less than half of small business loan applications are approved.

Alternative Finance Becomes Mainstream

Enter crowdfunding and peer lending as alternative funding sources. The social finance phenomenon has been growing for years but banks are just starting to take notice. The group surpassed $30 billion in funding last year, topping venture capital funding for the first time, and has doubled each year since 2012.

crowdfunding-2016-estimateThe demand for peer loans has surged and accounts for over 70% of funding. There is actually surprisingly little different between peer lending online and the traditional bank approach. Instead of bundling and selling off their loan book to borrowers, banks have been cut out of the picture by p2p platforms like Lending Club that connects borrowers directly with investors.

Beyond the increased regulatory costs on traditional financing, peer lending platforms have another competitive advantage over banks. According to Foundation Capital, branch office costs account for more than 30% of a bank’s total operational spending and there’s a physical limit to the number of applications that loan officers can review. By reducing the physical overhead costs, peer lenders can generate cost advantages of 4% in loan origination compared to the old model of finance.

The crowdfunding industry may be a smaller part of the financial revolution but could see even stronger growth over the coming years. The Securities & Exchange Commission (SEC) finally approved regulations to allow non-accredited investors to participate in equity crowdfunding, a move that will open up crowdfunding investment to more than 58 million households in the United States alone.

The crowdfunding model has bifurcated into two worlds. In rewards-based crowdfunding, businesses and social causes raise money and give out products or services in exchange for donations. Supporters receive no ownership stake in the business.

In equity crowdfunding, business owners sell an ownership share in the company to investors. The process is similar to issuing public shares except businesses go straight to the public instead of through an investment bank.

There’s an oft-overlooked benefit to crowdfunding, both equity- and rewards-based. Supporters and investors feel a strong level of buy-in with the businesses because they feel like they helped make projects possible. Crowdfunding offers a huge opportunity for small business owners in social marketing and customer loyalty.

How Alternative Finance will Change Wall Street and the CFA

The investment opportunity in peer lending and crowdfunding hasn’t come soon enough for investors. Even as the Fed tries to end its historic low-rate program, interest rates remain stubbornly low. The yield on A-rated corporate debt is just 2.17% for the five-year maturity. Legendary investor Jack Bogle recently forecast annual returns of just 6% for stocks and 3% for bonds over the next decade.

Compare that abysmal outlook to returns of over 8.4% for loans issued on the Lending Club platform between 2013 and 2014, after adjusting for defaults. Crowdfunding returns are similar to those found in venture capital and other early-stage investments.

peer loan returnsThe lack of a liquid secondary market for peer loans and the fairly small size of the crowdfunding market means there hasn’t been much of a demand for analysts in the space. This will surely change over the coming years as the market expands and equity crowdfunding opens to the investing public.

The problem is that traditionally trained analysts may not be ready for the idiosyncracies of the alternative finance market. Within peer lending, analysts will need to integrate human factors into credit models as well as estimate a liquidity premium for the market. Analyzing crowdfunding deals will be similar to analysis of venture capital deals but will also need to include other social factors.

Here at Finquiz, we want to lead this monumental shift in finance. Over the next month, we will be posting several articles examining how to analyze investments in peer lending and crowdfunding. We’ll look at the CFA curriculum and how it can help candidates prepare for the coming wave of demand for alt-finance analysts. We’ll also look at what you can do to prepare for opportunities in this new analyst market.

Joseph Hogue, CFA

The 5 Biggest Mistakes CFA Candidates Will Make in 2016

I’ve been writing about CFA exam preparation since the beginning of 2012 and was a candidate myself for three years to 2011. One thing I’ve learned about CFA candidates and preparing for the exam is that there are a few major mistakes that almost everyone makes.

Call them the five points to failure, the fatal five or any number of other names but these mistakes account for why less than half of the candidates pass the CFA exams each year. Making sure you don’t commit these five mistakes won’t guarantee you pass the June exam but it will definitely put you ahead of the pack.

Avoid these five biggest mistakes and you’ll be well on your way to passing the 2016 CFA exams in June.

Starting your CFA Study Plan Too Late

This is the most obvious mistake CFA candidates make but also one of the worst. I know, everyone has other responsibilities and it doesn’t make sense to start studying for the CFA months before you think is necessary.

You’ve heard of the 300 hours that most candidates report studying for the exam but you’ve always done well in school and figure you can do it in less, maybe 250 hours. Wrong! Those other candidates aren’t the average student you find in your classes. They’re over-achieving Type-A personalities that have also done well in school. Don’t underestimate the exams or the time it takes to study.

So 300 hours divided by 15 or 20 hours a week means about 17 weeks or about four months of studying. Starting your study schedule in February sounds about right and that’s what many candidates do. The problem is that ‘life’ gets in the way. Things come up and candidates miss their target for weekly study time. Before they know it, it’s already April and they are only a third the way through their study plan.

Start studying for the CFA exams with 25 weeks left to the exam and make a plan that gets you all the way through the material a few times with two or three weeks left to spare. This is going to do two things to help you pass:

  • Give you enough time to cover the material multiple times, a necessity for really remembering something
  • Give you enough time that you can miss a couple of days and not have to worry about falling behind

Avoiding Tough Topics

This is a big one on the CFA Level II exam but affects candidates on all three exams. The CFA curriculum is tough enough but some of the sections just seem impossible…and boring! I never really drank much coffee until I started trying to learn derivatives pricing in the CFA curriculum.

You may not even realize you’re doing it but almost everyone avoids studying a topic or two. Whether something takes you away from studying or you just study another topic instead, avoiding the topics we don’t like happens to everyone.

Stick to your study schedule over the first month or two, doing all the readings and reviewing each one with condensed study notes. Don’t skip any sections or topic areas. Consciously think about your study time and how much time you are spending on each subject.

When you start changing your schedule according to need, take regular question bank tests to gauge your mastery of each topic. Let your score on the tests guide your study time, not whether you’re tired of the topic or not.

Thinking the Next Level is the Same as the Last

Ever wonder why only 43% of Level II candidates pass the exam? With only about 39% of Level 1 candidates passing, you would think that only the best and brightest make it through and should have a better than 50/50 chance at passing the second exam.

The problem is that too many candidates are surprised by the CFA exam every year, no matter which level they are taking. Many candidates study for an exam with the same plan that got them through the previous level. It worked last year, why not this year as well?

Each level is difficult in its own way. The first exam is a mile wide but only an inch deep, you need to understand a vast amount of concepts but really don’t need too much detail in anything. The second exam is a quantitative monster with more formulas than you’ve ever seen. The final CFA exam is a time-consuming nightmare with essays that can go on for pages.

Learn the specific study strategy for each CFA exam and don’t be surprised in June.

Avoiding Practice Problems

This one is a lot like avoiding a specific topic area but I see candidates do it across all topics. One of our first posts on the blog was the difference between active and passive learning and it remains one of the best pieces of advice on the blog.

I know how much easier it is to just sit back and read through the curriculum rather than getting out a pen and paper to work practice problems. You just don’t remember things as well when you’ve only read them. Studies show that we only remember about 10% of what we read but can retain up to 90% of what we say and do.

Force yourself to love practice problems because they are going to be your best chance at passing the CFA exams. I challenge you to do 1,440 practice problems before the next CFA exam. That’s about eight full-length tests and more than 50% above the number of problems the average successful candidate is doing.

Click through to see how to get the most from your CFA mock and practice exams

Too Much Meta-Studying

Ok, so this one is going to come back to haunt me but candidates do way too much meta-studying. Meta-studying is studying about studying and about the exams. This includes reading forum posts on the LinkedIn group, talking to other candidates about how to pass and yes even reading this blog.

I’m not saying you shouldn’t spend time learning how to study and how to approach the exams. Knowing the structure of the exams and the tricks I’ve picked up over almost seven years will definitely help you pass.

But don’t use your study time to learn about studying. Have an hour a week that you use to answer any test questions, visit the blog or refine your study plan. After that hour, spend the rest of your time actually studying the CFA curriculum and mastering the material.

Passing the CFA exams doesn’t have to be difficult. Put in your time and avoid the biggest mistakes made by candidates. Putting together your study plan with these five mistakes in mind will drastically improve your chances and put you on the path to success.

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

Using the CFA to Transition to Finance from another Industry

Our post last week about famous CFA charterholders and their career paths to success was hugely popular but I got an email from one candidate that I wasn’t able to answer. The article highlighted five famous charterholders, all having started early in life in finance. The candidate wanted to know if I had heard of any famous CFA charterholders that had started later in life or had transitioned into finance from another industry.

I’ve got to admit, I couldn’t find any super-success stories within the industry that started later in life. I know they’re out there but just couldn’t find any examples.

Confused by the search, I started researching ways people have transitioned into asset management from other industries and how the path to success might look.

How to Use the CFA to Transition into Finance

Starting a new career in a different industry isn’t easy. Older workers have a family to support and can’t usually take a big pay cut to start at the bottom of the corporate ladder in another field. Besides the cut in pay and benefits, jumping into a new industry means finding the time to learn your new trade.

Getting a job in asset management from another industry can be even more difficult. New analysts are expected to put in extremely long hours at times and sacrifice their personal lives to the job, something that older workers may not be willing to do.

But it is possible to break into finance from another industry and have an extremely successful career no matter what the age you start. Some areas of asset management even aggressively recruit from other industries.

  • Progress through the CFA curriculum is a good start. Passing the exams shows employers two things. First, you’re dedicated enough to put in the work necessary to learn new skills. It also tells potential employers that you have a good base of understanding in the topic areas tested on the exams.
  • You have to find something from your old career that works in your favor. For many, this means a strong insight into the other industry to be used in analyzing companies. It’s especially useful in technical fields like technology and pharmaceuticals where an analyst may need to understand product specifications. Try preparing an equity report of a company in your previous industry to show you have a deep understanding of the business.
  • Make sure you understand what you really want and where you want to go. This is necessary for any job candidate but especially so for older workers. It might look like you’re indecisive if you try to transition into yet another industry after finance, so you need to make sure this is where you want to be. Talk with some CFA charterholders at a local society networking event and get to know the industry before you make the leap.
  • You might try freelancing in the industry before making the full-time transition. There are opportunities available to do analyst projects like equity reports on sites like Freelancer and Upwork. You’ll have to show some previous work to prove your skills so put together a few reports beforehand. Showing that you have what it takes to be a self-starter will go a long way to convincing potential employers.
  • Besides as a way to understand the industry, you’ll want to talk to CFA charterholders in your local society to network. Society members want to help each other and you’ll get a lot of great advice on how to land a new job.
  • Above all, be ready to take advice and understand that you know nothing about this new industry. You might be a leader in your old industry but will need to work your way up in your new job. Be humble and take advice where it’s offered.

Don’t give up and be ready to face rejection. You’re not a traditional job candidate so you’ll have to break through any misconceptions that employers may have about older candidates. With each rejection, focus on addressing any weaknesses uncovered and move on to the next opportunity.

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

FinQuiz 2016 CFA Level I/II/III Question Bank – Benefits

Download (PDF, 694KB)

5 Famous CFA Charterholders: How they Did It

The global diversity and success of CFA charterholders always surprises me. I’ve written a few times on the blog how the finance industry benefits from having a charter that does not favor the rich or the connected but promotes people for their hard work and skills.

Looking at the profiles and stories behind some of the most famous CFA charterholders has not only been a motivation exercise for me in the past but also a guide for my own career path. Check out these five success stories below of famous CFA charterholders and see if you can find any similarities.

5 Famous CFA Charterholders

Bill Miller, CFA is the former Chairman and Chief Investment Officer of Legg Mason Capital Management and possibly one of the few asset managers to consistently outperform the market. His Legg Mason Value Trust Fund beat the S&P 500 after-fees for 15 consecutive years to 2005.

He graduated with honors in economics from Washington and Lee University and served in the military before getting his doctorate from Johns Hopkins University. He worked in corporate finance as a treasurer for a manufacturing company before joining Legg Mason and has held the CFA charter since 1986.

Ranji H. Nagaswami, CFA was the Chief Investment Advisor to Mayor Bloomberg in New York City and directed the investment policy for New York’s $120 billion Pension and Investments office. She is a senior advisor to Corsair Capital, a private equity firm, and has worked in asset management for AllianceBernstein and UBS Asset Management.

She started as a quantitative analyst for UBS before heading up the U.S. Fixed Income division. In 2015, she was named as one of India’s top 20 successful women in business and arts.

She earned her Bachelor of Commerce from Bombay University in 1984 before completing an MBA from Yale and receiving the CFA designation. She is a member of the Yale University Investments Committee and the CFA Institute Asset Manager Code of Conduct Advisory Panel.

Bernardo Hernandez Gonzalez, CFA is a Spanish technology entrepreneur, founding several companies and has worked at Google and Yahoo. As founder and president of StepOne, he started the first Computer Science talent exchange program between Spain and Silicon Valley.

After working as an investment analyst and manager for Fidelity, BBVA and Putnam Investments, he started idealista.com and built it into one of the leading real estate portals in Spain. He founded and managed several other companies before joining Google in 2005 and worked as head of Flikr at Yahoo until 2015.

He graduated from ICADE, Pontifical University of Comillas in Madrid and earned his Masters in Finance from Boston College. He has held the CFA designation since 2002.

Tan Chin Hwee, CFA is the founding partner in Asia for hedge fund Apollo Global Management. He began his career in 1995 trading Asian equities and fixed-income for the Keppel Corporation before working on the credit portfolio at the Development Bank of Singapore and at various hedge funds.

He graduated with an accounting degree from Nanyang Technological University in Singapore and received his MBA from the Yale School of Management. He is the President of the CFA Society of Singapore and is active on several non-profit boards.

Just 44 years old, Tan has been on several lists of young managers to watch and has a great story. He wasn’t always the best academic student but made up for it in hard work and guts. He provides insight into his success in this story of how he got started.

Abby Joseph Cohen, CFA is a partner and senior U.S. investment strategist at Goldman Sachs, helping to lead the firm’s Global Markets Institute. The daughter of polish immigrants, she graduated with degrees in economics and computer sciences from Cornell University and completed her M.S. in economics from George Washington University.

She started her career as an economist for the Federal Reserve Board and has worked for T. Rowe Price and Drexel Burnham Lambert in economics research and investing roles. She’s held the CFA designation since 1980. She’s most famous for predicting the bull market of the ‘90s and was named one of the 30 most powerful women in America 2001.

Looking through the profiles, it’s striking how dissimilar the paths have been for these famous CFA charterholders. Some have worked traditional career paths, starting as analysts and working up to portfolio manager and directors. Others have struck out on their own at an early age. The one bonding characteristic is their hard work and willingness to take risks to further their careers.

Look for more detail on these or other success stories and plan how their experience can be applied to your own goals.

‘til next time, make your own path,
Joseph Hogue, CFA

Books to Read when You’re Not Studying for the CFA

Studying for the December CFA exam is over and most candidates haven’t yet started studying for the June exams. What does a motivated CFA candidate do to pass the time when there’s nothing to study?

Sure, you could take a month or two off before ramping up your June CFA schedule. It sounds nice but I was never able to just sit around and do nothing. If you’re like me, you’re constantly looking for new opportunities to learn and for self-improvement.

One of the best ways to use your newfound free time is through checking a few books off your reading list. I always tried reading one or two books completely unrelated to the CFA curriculum or finance during my end-of-year downtime but also found time to fit in a couple of books related to my professional goals.

Check out the book ideas below to keep your skills fresh and get ahead of the pack while you’re waiting for the next CFA study season.

Books Related to the CFA Curriculum

I always tried fitting in at least one educational book during the month or two between CFA study plans. These are books that examine different parts of the curriculum but may go into a little more detail or help explain a topic from a different perspective.

The examples below are all written by contributors to the CFA curriculum so you know they are going to stick closely to the same methods and process. This is important because you don’t want to learn something that might be significantly different from what is taught in the curriculum. You can form your own methods and techniques after passing the CFA exams, until then try to stick as closely to the curriculum as possible.

All the books below are available on Amazon. You may have to look for an older edition to get a better price.

Equity Asset Valuation Workbook; Jerald Pinto, Elaine Henry, Thomas Robinson, John Stowe

There are a couple different workbooks available as companion pieces to other books. You might be able to find the textbook at your local library so you’ll only have to buy the workbook. The CFA curriculum is mostly academic and I’ve said a few times that candidates need to supplement their study with some practical application.

Asian Financial Statement Analysis: Detecting Financial Irregularities; Chin Hwee Tan, Thomas R Robinson, Howard Schilit

This has been a big topic over the last few years, especially around some high-profile cases of fraud on Chinese shares. Being able to spot irregularities isn’t yet a common skill and could help make you an asset to potential employers.

The Complete CFO Handbook: From Accounting to Accountability; Frank Fabozzi, Pamela Peterson Drake, Ralph Polimeni

This one is a little expensive but looks interesting. If you’re interested in corporate finance as a career path rather than strictly asset management, it might be something to check out.

Managing a Corporate Bond Portfolio; Leland Crabbe, Frank Fabozzi

Much of the CFA curriculum is based around asset management for individuals. The institutional portfolio management section on the Level 3 exam doesn’t go into much detail on actually managing a portfolio. This one might be an interesting supplement to the curriculum’s material on fixed-income and portfolio management.

Books to Read for Fun

Even when I wasn’t studying for the CFA curriculum or reading curriculum-related textbooks, I would often look for books related to financial topics. These books can still be powerful learning guides while also entertaining and letting you take your mind off the curriculum for a second.

The Ascent of Money: A Financial History of the World; Niall Ferguson

I love reading about history and reading about financial or economic history is a double-bonus. Niall Ferguson is one of the most recognized names in financial history and the book puts a lot of today’s financial concepts into perspective.

The Intelligent Investor: The Definitive Book on Value Investing; Benjamin Graham, Jason Zweig

If you are going to be working with retail investors, this is almost required reading. Even if you use a different investing methodology for your clients, it’s a good idea to know what’s in the book because there’s a good chance your clients will ask about it.

Liar’s Poker; Michael Lewis

I enjoyed some of Michael Lewis’ earlier books like this one but he’s taken a more populist perspective in newer works. Liar’s Poker is an interesting view of the old school trading desk and doesn’t degenerate too much into the ‘Wall Street is evil’ perspective you get from some of Lewis’ newer books.

The links to Amazon don’t mean you have to buy the books online. Look around the internet to get some recommendations that suit your tastes and check out your local library to see if you can borrow the titles. Reading a little every day is a great way to relax between CFA study seasons and can help you expand your professional horizons at the same time.

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

Most Popular FinQuiz Blog Posts of 2015

Around this time of year, we love to look back at the posts that have helped CFA candidates the most and the ones most popular with candidates. Some articles are perennial favorites with candidates and a must read if you want to pass the exams. Other posts might not have gotten as much attention but carry some extremely valuable information and need to be highlighted.

The Finquiz CFA Blog had another record year in 2015. Nearly 280,000 candidates and potential candidates read 427,420 posts from January through November. That’s almost 1,300 pages a day of information helping candidates to pass the three CFA exams.

We’re proud to be able to bring this resource to candidates and will continue to get you the best information for CFA exam success for years to come. Check out the most popular posts of 2015 and of all-time below and get ready for a successful 2016!

Top Finquiz CFA Posts of 2015

2016 Level 1 CFA Curriculum Changes – The articles outlining the CFA curriculum changes for the following year are always the most popular and some of the most important information of the year. The CFA curriculum doesn’t change much from year to year but it’s must-know information if you’re going to pass the exam.

The changes to the 2016 CFA curriculum were relatively light this year compared to the changes last year. No topic weights were changed in the exams so that was a big relief. One reading was added to the CFA Level 1 exam and quite a few LOS were modified or changed. If you’re taking the Level 1 exam in June, especially if you’re retaking the exam, this may be the most important post you read all year.

2016 Level 2 CFA Curriculum Changes – The final study session of the CFA Level 2 curriculum (Portfolio Management) was changed for 2016, making it a must-read topic for next year. Click through to the article and download the changes to the curriculum along with Learning Outcome Statements for review.

2016 Level 3 CFA Curriculum Changes – Two readings were removed and one was added to the 2016 CFA curriculum so make sure you’re up-to-date if you want to pass the final level of the designation.

Top 9 Formulas for the CFA Level 1 Exam – New CFA candidates always get information overload when they first see the CFA curriculum, especially when it comes to formulas. The books are massive and mastering the entire curriculum seems impossible. Focus on the most important material first like these nine critical formulas and you’ll be well on your way to passing the exam.

2015 CFA Study Schedule – We updated our CFA study schedule this year given the changes in CFA topic weights across the three exams. The post includes a great daily blueprint for your study schedule as well as how to use some of the new resources available through technology. Of course, using condensed CFA study notes to complement the curriculum is still a core part of the schedule to save time and get the most critical information.

Top Finquiz CFA Posts of All Time

These next posts have stood the test of time and are some of the most popular on the blog. They cover some of the most common questions we get from CFA candidates and how to really make your study time productive.

The Passing Score on the CFA Exams and How to Use It (2013) – Even though the CFA Institute doesn’t release the minimum passing score (MPS) for the CFA exams, that doesn’t mean there isn’t some very important information you can use. Learn what has been said about the passing score and how to use the information to plan your study schedule.

The #1 Reason Candidates do not Pass the CFA Exams (2012) – This is one of my favorite articles. It covers one of the biggest hurdles for CFA candidates and three ways to overcome it. It’s a short post but one that every candidate should read before beginning their CFA study plan.

How to Pass the CFA Level 2 Exam (2012) – The Level 2 CFA exam is likely the most difficult of the three exams. A few candidates will tell you the first exam was difficult for how the massive amount of material surprises new candidates or that the third CFA exam was most difficult for its essay section. Most candidates agree though that the Level 2 exam is a quantitative monster. You will get into the most minute detail of financial statements and be expected to master a mountain of formulas.

I Passed the CFA Level 1 Exam, Why don’t I Have a Job? (2013) – Using the CFA exams and designation to get a job is one of the most frequent questions we get. Passing the exams will not get you a job but you can use your CFA progress to get your foot in the door. Check out the post to see how to use the CFA to land your dream job and how to get ahead.

There were quite a few great articles that didn’t make the cut. Check out the menu on the right of popular posts and make sure to use the search box above for any questions you have. The Finquiz CFA blog features more than 328 posts on passing the CFA exams and how to get the most from the CFA designation. Don’t miss your chance to get out in front of the rest and jumpstart your career!

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

Staying Focused on your CFA Schedule without Burning Out

It’s a big week for Level 1 CFA Candidates. Saturday is the big day and many of you will be using this last week for an intensive review of the curriculum.

Studying for eight to 12 hours a day can get you those last few points you need to pass but you’ll need to use your time effectively and avoid burning out. You’ve spent the last few months studying the curriculum and it can be easy to zone out if you stare at it for too much time before taking a break.

The MIT Center for Academic Excellence recommends planning your schedule around one-hour blocks with 50 minutes of studying and a ten minute break. This helps you stay focused without zoning out and getting tired during those long days of studying for the CFA exam.

But there’s more to managing your time than just planning for your ten minute breaks. Make sure you avoid the biggest risks in your hourly breaks and plan activities that will help you succeed.

Avoid these Study Break Nightmares

There are two problems that come up when CFA candidates try to take a break from studying

  • Too many breaks go into overtime. You plan on stopping for just 10 minutes but then find yourself an hour later still not back on your study schedule.
  • Some activities affect your studying well after you’ve returned to the curriculum. It might seem like it’s only taken 10 minutes but the after-effects last for hours.

Avoid these bad study break ideas:

  • Don’t turn on the television thinking you are going to watch just ten minutes of TV. You’ll end up watching an entire movie and wasting the whole day.
  • Anything online is going to be a recipe for disaster. This includes checking email, news, the stock market and just about anything else on the World Wide Web. There are two problems with getting online for your study breaks. First, there is just too much temptation to go over your break time. You’ll also carry the distraction back with you to your studying. You’ll find yourself thinking about where the market is going or an important email instead of thinking about the CFA curriculum.
  • Don’t check in on CFA-related websites or study groups during your break. That’s not really a break from studying for the CFA exam. You need something that is unrelated and that will take your mind off the curriculum for a moment to relax.
  • Don’t start any conversations during your study break. You might not be able to wrap it up within the allotted time and any messages you leave might be returned when you’re trying to study.

Ideally, you want to take short breaks every hour or two that can take your mind off studying but that won’t keep you from getting off track.

Avoid foods as a CFA study distraction. Catching a snack every hour or two could mean some serious kilograms put on over the last week before the exam. Besides the extra weight, it’s too easy to be tempted to cook a bigger meal than you planned. You’ll spend valuable study time cooking and a big meal could make you drowsy when you finally get back to studying.

Instead, schedule regular meals around the day. Avoid foods high in fat that will sit in your stomach, making you feel sluggish, and don’t overeat.

Stretching or light exercise is a great way to use your study breaks. Do some quick calisthenics in the study room or stretch for about 10 minutes. It will improve circulation and wake you up. The idea isn’t to exercise vigorously but just to get a quick pickup. You’ll love the energy but won’t generally be tempted to extend the break for more than scheduled.

While you generally don’t want to do too much snacking or cooking during your study breaks, having a cup of tea can be a great alternative. It won’t take more than a few minutes to prepare your tea and another five or six minutes to drink. A cup of green tea will refocus your brain and improve your memory without hopping you up on too much caffeine.

If your study area is a disaster area, take a few minutes to organize your things and tidy up a little. Putting everything in its place can help you stay focused and can lead to less distractions while you’re studying. We’re not talking about taking an hour to deep clean the house, just a few minutes to pick up some stuff and make your study area more professional.

Whatever you decide to do for your regular study breaks, don’t do it every time you break. You’ll take upwards of ten breaks a day. Try exercising during every break and you’re going to start getting extremely tired. Doing the same thing each break will also get boring and won’t be much of a break at all.

Plan out your study schedule with effective breaks and use this last week for all that its worth.

‘til next time, good luck!
Joseph Hogue, CFA

A Last Week CFA Schedule and Checklist for Success

There’s just two weeks before the December CFA exam and there’s finally some light at the end of the tunnel. For a lot of CFA Level 1 candidates, the intensity of studying for the CFA exams is something entirely different.

You’ve come a very long way but resist the temptation to glide easily to the test. Using your last week wisely can mean the difference between passing on to the second exam or having to repeat your efforts in June.

Your Last Week CFA Study Plan

Long-time readers of the blog will know I’m a big believer in an intensive study schedule the final week before the exam. Not only can making the CFA exam your job that last week score you a lot of points it can actually be a lot of fun as well.

Think I’m exaggerating that your last week studying for the CFA exam can be fun?

Take next week off from work and commit to an intense study schedule around the CFA curriculum. I always stayed home during the week but I know a lot of candidates that have traveled somewhere for the week as well. Staying in another city not only makes the week more enjoyable but it also gets you away from all the distractions you’ll face at home.

Plan on studying between 10 and 12 hours a day from Sunday through Thursday. This can still leave you plenty of time to relax and take in a few sites around town. I wouldn’t plan on traveling too far from home and your test site, only as far as you can drive in a few hours. That way, you can spend Friday getting back home and relaxing before Saturday’s exam.

If you do stay home for the last week before the CFA exam, try studying in a private location. Reserve a study room at the library and turn off your cellphone. You might want to disable internet browsing if you are studying the CFA curriculum or notes on a tablet, just so you aren’t tempted to waste time.

Set a strict schedule for each day’s studying. Try reviewing at least two study sessions and working as many practice problems as possible. Do at least one full-length practice exam at the beginning of the week to find your problem topics and where you might need to focus.

Make sure you formally limit non-CFA study activities in your schedule. It may seem like only a few minutes but those constant bathroom breaks, walks to stretch out, snack breaks and checking your email can really add up.

Your Last Week CFA Materials Checklist

I usually leave this last-minute CFA checklist for a separate post. I wanted to include it here to give you more time to work on this administration and logistics-type problems this week so you can focus only on studying next week.

Put together your exam-day preparation kit now so you won’t be scrambling to find things just before the Saturday exam. Get a clear plastic bag to hold everything and store it in a safe place where you will be able to find it.

  • Passport identification
  • Your printed admission ticket – I usually printed two just to be safe
  • An approved calculator
  • An extra calculator battery and a small screwdriver – if you want to avoid having to change out your calculator battery, just take an extra calculator instead
  • At least three pencils
  • An eraser and a pencil sharpener
  • Ear plugs
  • Wristwatch

The CFA Institute Program Policy page has all the resource links you need to confirm what you can take to the exam. You will need to visit the page to print out your admission ticket.

You should know where your exam center is located but check out the CFA Institute December Test Center Locations for any updates. If you do not live nearby, it is a good idea to talk to someone that lives near the exam site to ask if there is any road construction or other potential travel problems. If you live more than a few hours from the exam site, you may want to consider staying in a nearby hotel the night before to avoid any problems and get a good night’s rest.

The Institute has published a brief schedule of the CFA Exam Day with recommendations on when to arrive and what to expect. The policy on leaving the exam room after completing one of the sessions has been changed. You are no longer allowed to leave the room after you finish. Everyone will wait to be dismissed together. You are still allowed to leave briefly to go to the restroom but must return to the exam room.

Making sure you get to the exam center and have the right materials isn’t really complicated but there is always one or two candidates that forget something or arrive too late. Prepare your materials and CFA exam day schedule well in advance to take the stress out of these little things. Arriving at the testing location rested and ready will go a long way in giving you the confidence you need to pass the exam.

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

Freelance Analyst Jobs for CFA Candidates

I got a lot of comments and emails about last week’s idea of freelancing as a way to find your passion and succeed as an analyst. I have been freelancing for more than five years and have done it full-time since 2013. Besides making extra money, it can be a great way to build your skill set before you land that dream job.

I thought I would share my story of how I got started as well as some tips for CFA candidates looking into the possibility of freelancing as an investment analyst.

Freelancing Opportunities for CFA Candidates

Freelancing is nothing more than working for yourself, finding small projects where you can and not being held to any single employer. There are two great benefits to freelancing for CFA candidates.

  • The obvious benefit is extra money. You can charge by the project or by the hour with hourly rates ranging from $25 to several thousand dollars an hour for highly qualified CFA charterholders or candidates.
  • You can use freelancing to gain practical experience while you are studying for the CFA exams. Employers want to see that you can apply what the CFA curriculum teaches you before they take a chance to extend a full-time position. I have gotten full-time job offers from people for whom I did freelance work.

There are risks and headaches to freelancing as well. You won’t make much to start and will have to do a lot of work just to get your first clients. You may even have to do some free analysis just to show people what you can do. One of my first projects was a report on the affect of market integration in Latin America. It wasn’t a paid project but something I wanted to do to show my ability as an analyst. It took several weeks to complete but ended up getting me an invite to speak as a panel expert at a Bloomberg conference in New York.

Occasionally you may also run into clients that refuse to pay or have to be reminded several times. This is extremely frustrating, especially if you’ve already delivered the work. Contracts outlining the payment terms help but are not really enforceable unless you want to spend a lot of money on legal fees. It’s rare that this happens but can turn you off freelancing when it does.

Despite the risks and occasional frustration, freelancing is a great option for CFA candidates. It can be fairly easy to get started but you’ll need to make sure you hit the important points.

How to Start Freelancing as an Investment Analyst

Freelancing as an investment analyst is pretty much the same as any freelancing strategy but it’s the job that appeals most to CFA candidates. The truth is that your freelancing business will probably grow to offering other services like white paper reports, content writing and consulting. Of course, the first thing to do if you are already employed is to get written permission to freelance from your employer.

You first need some practical skills. The CFA curriculum is great for understanding how the markets work and some of the tools you’ll use as an analyst but there isn’t much practical exercise in the curriculum. I started with a few financial statement modeling courses and small writing jobs to hone my skills. If you are not a proficient writer, you will need to put in some practice. Even if you are doing almost all your work in an Excel model, you still need to be able to explain the model and potential outcomes in a report. Holding the CFA charter or candidacy will help get your foot in the door, being able to write well will get you the job.

You will also need a basic website to present yourself as well as highlight some of your previous work. The site does not have to be expensive but should be professional-looking. You can launch a website for as little as $5 a month for hosting and just use basic WordPress themes.

Your freelancing business should be doing something you enjoy. You are probably not going to make much money at first so it helps to enjoy the work and be able to see future benefits.

Getting your first jobs will be difficult unless you already have some work experience to present. Make sure it is permissible to present your previous work from employers before posting it on your website. A few websites like Seeking Alpha will allow you to post short analysis and may even pay you to do it. Take some time to read through other articles to see how to put something together and publish. You may also want to reach out to other freelancers and offer to help with their projects. You’ll learn a lot in just a few short months and will have a portfolio of projects to present.

You might try posting for projects on the freelancer websites like Upwork and Freelancer but I have never seen much from these. In more than five years, I have only gotten four projects from these types of sites. Your best bet is reaching out to contacts to let them know you are freelancing and asking if they will refer your name to anyone in need of help.

After a while, people will start coming to you from your website and referrals. Make sure you only promise work that you can complete and deadlines that you can meet. The first job for a client is nice but you will only succeed if you can keep clients coming back for more work. Do well enough and you may find that you continue freelancing even after you pass the CFA exams.

‘til next time, happy freelancing!
Joseph Hogue, CFA

How to Find your Hustle and be a Success

I know a lot of you are just starting your careers and getting your first jobs. I thought I would share an experience that changed my life and that might save you from the misery that plagues so many people.

I get a lot of questions about how to be successful. Some readers are looking to do well at work while others just want to achieve financial independence and retire early. I can relate because I asked the same questions for many years.

The response isn’t what most people are expecting. Instead of hearing how to work less and achieve more, the real secret may actually be in working more.

How the Hustle Changed my Life

Like so many people, I started my professional career in my 20s and hated every minute of it. I had three jobs before I was 32 and felt like I was trapped in the rat race. They were good jobs, all professional positions in finance, but I spent half the time thinking of what I was going to do on the weekend.

I understood that I needed something different. I couldn’t spend the next 30 years of my life hating my job.

Earning the CFA charter in 2011 was a start. It opened up my opportunities but I still didn’t know how to find the job I wanted and how to be successful.

My wife and I knew we wanted to move back to Colombia from the United States and decided to make a plan shortly after I passed the CFA exams. I started freelancing, writing investment analysis for financial advisors and institutional investors. It was tough balancing a side job with my 9-to-5 job but I knew that once we moved, we would have to depend on my freelancing income.

I worked an extra 20 or 30 hours a week on my side job to build it as quickly as possible. By the time we moved back to Colombia in 2013, I was ready with regular clients and a steady income.

But in freelancing and working for yourself, if you’re not hustling then you’re not making any money. I determined to work even harder.

That was just over two years ago. Recently, a blogger friend posted a question on Facebook asking why I hustled. I didn’t have an immediate answer.

While I started hustling out of necessity, working around the clock to support my family and get ready for our move, it wasn’t about the money anymore. I have more than enough clients and we don’t worry about money.

After thinking about it, I realized that I still hustle because I love the challenge. The hustle is a part of my life and I have never been happier. I realized that the secret to being successful and happy with your job is not working less but finding something that you love and working more.

How to find your Hustle

Are you hustling? If you aren’t working everyday like your job and your financial security depends on it, you’re missing out on a huge opportunity. You will never be as successful or as happy as you can be.

I found my hustle by breaking into freelancing but you can find yours at your traditional 9-to-5 job. It can be harder because people are not always rewarded for their hard work in a traditional job. You might have to deal with senior workers that benefit from your work simply because they have been around longer. Work hard enough though and your reward will come.

If you don’t feel like your hustle is at your current job, you first need to decide where your passion is in work. Having a hustle has to start with a passion or you’ll just burn out from the stress. Finding what you enjoy doing and making it a career will help you get through the tough days without giving up.

If you haven’t considered freelancing, check out how to freelance and some websites that connect freelancers with clients. Starting a freelance side job, you’ll work harder than you ever have but you will develop a real expertise. You’ll love the sense of pride from being great at your job and you’ll start to enjoy the challenge of working harder.

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

The Best Part of the CFA Charter and You Don’t Even Need to Pass the Exams

As a CFA charterholder of more than four years, I can tell you about the benefits of having those three little letters after your name. I’ve gotten my foot in the door to jobs that wouldn’t have been available and have found that I can charge more for my freelance services.

But it turns out, there’s another benefit to the CFA program and you don’t even need to pass the exams to take advantage. This benefit will help you open doors as well. It will connect you with all the right people and will help you shape your career.

I’m talking about connecting with the CFA community through the resources on the CFA Institute website.

We’ve covered some of the great resources on the CFA Institute’s website before. Earlier this year, we ran a five-part series on landing your dream job from networking to interviews. I’ve talked about how to fill the void after studying for the CFA exams by becoming more active in your local CFA society.

But there’s still some great resources and benefits I wanted to highlight, especially for the new readers that might not have seen the older posts. Check out the CFA resources below to network, keep informed on the industry and even make a name for yourself.

Again, best of all, your CFA candidate login gets you access to all of them. You don’t need to pass the exams to start benefitting.

CFA Institute Blogs

The CFA Institute Blogs are a relatively new resource on the website with posts dating back a few years. There are nine linked blogs though a few have been discontinued.

The most active blogs are the Enterprising Investor and Inside Investing. New posts are published on a daily basis and anyone can submit an article for publication. Not only are the blogs a great resource for staying up-to-date on market issues but could turn out to be an excellent way to distinguish yourself.

Check out the posts on one of the blogs to get a feel for the kind of issues discussed and how your expertise might fit in on the blog. Depending on your experience, you might need to research a particular topic to build enough expert knowledge to add something but it is easily doable.

Consider approaching a local CFA charterholder to team up for an article. They can provide the direction and you can do the research. Getting published on one of the CFA Institute blogs and building your expertise in a subject area is sure to get noticed by employers.

CFA Local Societies

I am a big supporter of the local CFA societies and sat on the board of directors to the Iowa society when I lived in the States. Besides the obvious benefits of networking with the people that direct the financial community, going to society events is just plain fun!

Check out a few of your local society’s events. Don’t worry about ‘networking’ at first, just talk to people and have fun. Going into the events without a motive other than just to talk to people and enjoying yourself will help lessen the stress of an unfamiliar room.

Remember, you aren’t restricted to only participating with your local society. Use the societies strategically to guide your career where you want it to go. If you want to end up in a particular city or at a particular firm, try contacting people in that city or with that firm.

CFA Institute Insights & Learning

The CFA Insights & Learning site is the main page for some great continuing education material.

My favorite section is Research & Financial Tools with topic-specific calculators, spreadsheet models, questionnaires and data sets for just about any need. The section is a great resource for data sets that has saved me a lot of time.

The Institute provides some excellent content for your clients in the For Investors section. This is material you can share with clients and other investors to help them understand the financial markets and basic investing principles.

The area also hosts the CFA Institute’s initiative on the Future of Finance, a long-term global effort to shape a trustworthy, forward-thinking financial industry that serves society. This project is on the forefront of the industry and will be a huge issue for years to come. It could be one area where you can make a name for yourself.

CFA Career Resources

Probably the most popular resource with candidates is the CFA Career Resources section with its resource library of presentations and the JobLine platform. The resource library hosts webinars, articles and presentations on everything from skills development to networking for that dream job. There are currently 2,623 jobs listed across five regions and by 175 employers on the CFA Institute’s JobLine.

It’s easy to let time slip away between study seasons for the CFA exams. You finish up the June exam and don’t even want to think about the curriculum or anything with CFA in its name. Pretty soon, it’s January and you have to start studying for the next exam. You’ve let a great opportunity pass by without taking advantage.

You’ve still got two months before you need to start thinking about your next CFA exam. Use those months to take advantage of all the CFA Institute has to offer and some of the resources available. If you haven’t attended a local CFA society event, make it a goal to attend at least one before the end of the year. If you’ve attended some of the events, make it a goal to start getting involved by volunteering. You won’t regret it and you will open up doors you didn’t even know where there.

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

How NOT to be Surprised by the CFA Exams!

Less than half the candidates taking the CFA exams each year pass. It’s a statistic most of you know but never ceases to amaze me. How can an exam be so difficult that less than half pass each year?

You could blame the CFA Institute for making it so difficult and adjusting the minimum passing score but the fact that no one with an average of 70% has ever failed takes some of the blame off the Institute’s shoulders. Having to answer about two-thirds of the questions correctly doesn’t seem like too much to ask for a professional exam.

What if it’s something else? What if candidates just aren’t prepared for the exams? Spending upwards of 300 hours doesn’t seem like a lack of preparation to me so maybe candidates just aren’t preparing correctly for the CFA exams.

Each exam can be surprising for its own reason. This specific challenge in each exam catches candidates off guard and leads to a ridiculously-high rate of failure.

Learn what to expect on each CFA exam and how to study for it, and you’ll be better prepared than half the candidates already.

CFA Level 1 Exam: Information Overload

The first thing that surprises candidates on the CFA level 1 exam is the sheer amount of information they are expected to remember. Through undergraduate studies, most of you have been responsible for textbooks of information but you haven’t had to master all the material for one mammoth-size exam.

The CFA Institute doesn’t feed you the information in manageable chunks and then ask you focused questions every couple of weeks. The Institute turns on the firehose and drowns you in knowledge of which you’re supposed to drink every last drop.

Maybe the firehose analogy is a little extreme but it seems that way at times.

The trick to passing the CFA level 1 exam is that you don’t need to know every excruciating detail within the curriculum. Much more important is the basic ideas and concepts around each study session. Understanding the qualitative ideas in the curriculum is much more important than being an expert in one topic. This means reviewing every study session and getting a basic understanding across the entire curriculum.

Understanding the main ideas will help you immediately eliminate at least one potential answer for each question and should help you pick out the most appropriate answer.

It also helps to use multiple resources when studying for the CFA level 1 exam. Getting the curriculum from several different perspectives, i.e. official text, study notes, videos, flash cards and practice problems, helps to build repetition and memory.

CFA Level 2 Exam: A Quantitative Monster

After figuring out that the first exam is all about basics and qualitative information, the CFA Institute throws you a curve ball with the CFA level 2 exam.

The second CFA exam is all about formulas and quantitative detail!

While the CFA level 2 exam includes the same topic areas as the first exam, the topic weights clearly show a focus on three subjects. Financial Reporting & Analysis, Equity Investments and Fixed Income will account for up to 65% of your exam score and a large chunk of that is in quantitative calculations.

Top it off with the fact that you have a different format in the vignette questions, having to read through a story and then answer a set of questions.

Avoid being surprised by the quantitative material on the second exam through understanding the conceptual reasoning in the formulas and repetition.

Try memorizing every formula on the CFA level 2 exam and you could end up in an asylum for the criminally-insane. There are just too many letters, abbreviations and craziness. If WACC = (Vd/(Vd +Vce))rd (1-t) + (Vce/(Vd+Vce))rce) doesn’t make you go cross-eyed you are a stronger person than I am. Think about it intuitively and it makes sense.

The overall cost of a firm’s funding capital is the cost and proportion of equity and debt. The percentage of each funding type relative to the total is multiplied by its cost. Debt is tax advantaged, so you need the after-tax cost.

Understanding the conceptual reasoning behind each formula will help you recall it on the exam and you won’t drown in a sea of math.

The second trick really is no trick at all. You just have to work those practice problems over and over again. Use flash cards to write out the especially-difficult problems so you can review them several times a day until you’ve got it down. Work the end-of-chapter questions for each study session and use a question bank of problems if you’ve got one available.

CFA Level 3 Exam: Essays are a Physical, Emotional and Intellectual Challenge

Most CFA candidates understand that the essay section will be difficult but few realize how difficult it’s going to be until they’re half way through the morning session and sweating through their shirt.

The three-hour morning section of the CFA level 3 exam is a physical, emotional and intellectual challenge for which few really prepare well. It isn’t about just understanding the material, it’s about being able to construct your own answer and being physically able to write for three-hours straight.

There is really no better resource than the old exams provided by the CFA Institute. The Institute releases the last three years’ worth of morning essay questions on its website along with guideline answers.

  • Don’t just review these past morning sections, actively work them as if you were sitting for the exam. If you haven’t prepared the muscles in your hand to write for three hours when you arrive at the exam, you are going to regret it.
  • Learn how to bullet-point your responses to include all the relevant information. This will save you a ton of time on the exam. See how it’s done in the guideline responses.
  • When you’re writing out your answers on old exams, practice writing out your thought pattern. The CFA Institute awards partial credit for the essay portion but you have to demonstrate a certain point within the answer. Writing out your reasoning makes it more likely that you’ll hit on a few of those points and get the highest score possible.

Passing the CFA exams means being prepared for each exam and not being caught off guard by differences on each. Ask other candidates what surprised them most and understand how to study for each exam.

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

Will I Pass the CFA Exam: A CFA Studying Checklist

As much as we cover strategies and studying here on the Finquiz blog, one of the most difficult questions a candidate faces is, “How do I know if I’m ready to pass the CFA exam?” You can practically quarantine yourself away for months, studying every formula and note in the curriculum, and still the question will nag you.

Go into the exam shaken and worried that you’ll end up in one of the fail bands and you’ll have a harder time remembering the material. Without being able to know if you’ll pass the CFA exam, it’s difficult to find the confidence to not be worried.

It’s an ironic dilemma.

To that end, I’ve put together a checklist for passing the CFA Exam. Plan your CFA studies out to check off each point on the list and you can go into the exam with the confidence of your success.

Checklist for Passing the CFA Exam

First off, this isn’t a scientifically-developed checklist. The CFA Institute hasn’t provided any data or guarantees to prove the points. It’s just my experience of what makes a candidate successful after three years of taking the exams myself and another 3+ years of writing exam prep.

I’ve spent more years studying the curriculum than most. I’ve talked to more candidates than I can count about their experience. I can confidently say, if you have done the points below, you have a great chance of passing the CFA exam and you can be confident of your success.

I have read the official CFA curriculum at least once all the way through

There’s really no substitute for the official curriculum. On an exam where more than half the candidates fail and just a few points could make the difference, do you really want to put all your faith in condensed study notes?

The curriculum is extremely long and can get boring at times but you need every detail. I would recommend you read through it at least once and then review once more just to be sure.

I have read through the official CFA curriculum once again or through condensed notes once or twice

Part of the ‘secret’ to passing the CFA exams is just plain repetition. There’s an immense amount of material that you need to remember over the six-hour test. Studies show that you need to see something about seven times in order to commit it to memory. It might not be possible to read through the official curriculum that many times in your limited time but you can easily cover the material a few more times through condensed study guides.

Besides reading through the curriculum and reviewing it through notes a few times, you’ll want to build repetition through practice problems and other resources.

I have worked at least 120 practice problems for each study session

The CFA level 1 exam consists of 240 questions, split between morning and afternoon sessions. Working 120 practice problems for each of the 18 study sessions means over 2,000 problems and a full three-hour session practiced in each.

You won’t be able to get all the practice problems from the end-of-chapter sections of the curriculum. This is where question banks and study guides come in handy. You can refer to questions in older versions of the curriculum, usually available at the library or through members of the local CFA society, but you have to make sure they aren’t outdated.

I created flash cards with the most difficult problems – most of which I now know

This one serves a couple of purposes. It measures your use of different resources for mastering the CFA curriculum. Using different resources beyond just reading helps to keep your studying from becoming boring and gives you another way to look at the content. It’s one more repetition closer to the seven or so you’ll need to remember the material.

Being able to easily work problems you once found difficult is also a sign of progression and learning. Constantly progressing through your mastery of the CFA curriculum is more important than you might think. Besides understanding more of the material, you’ll become more confident from the regular reinforcement in the fact that you are learning more.

I have kept close to my original study schedule or if I lost some time, I made it up within the next week

This one is more a test of your commitment. Too many CFA candidates allow themselves to deviate from their schedule, promising to make up the time but never getting around to it. It becomes easier to skip studying all-together.

I have taken at least three mock exams and measured my results in each

How can you have any idea of how well you’ll do on the CFA exam if you don’t replicate the experience with a mock exam? Not only will it test your knowledge of the material but will also test your endurance to sit through the two 3-hour sessions.

Make sure you track your results for each mock exam, overall and for each topic area. Besides studying the material, it will help uncover any weak spots you may need to hit again.

Being able to say you’ve done everything on the list doesn’t guarantee you a passing score on the CFA exam but it does demonstrate your commitment to the process and a good review of the content. Remember, the idea isn’t just to check off that you’ve completed one of the points but to have the confidence that you’ve done what it takes. It’s not the end of the world if you’ve stumbled in a few of the points and can’t quite check them off, just try to get as much study time in from here to exam day.

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

What to do after Failing the CFA Exam

So you got the bad news that you failed the CFA exam last June and you’re feeling pretty low. Even though you’ve got plenty of company with between 47% and 58% of candidates failing one of the CFA exam levels, it still feels like a personal defeat.

First of all, don’t stress out over a CFA exam fail. Over a 20- or 30-year career, one year doesn’t make much difference at all. Having to repeat the material may even make you a better professional by really cementing the curriculum in your mind.

The most important thing is that you learn something from the experience and understand how you can avoid it in the future. I talked with five candidates that failed the CFA exam in June, three that failed the CFA level 2 exam and two that failed the third exam. Each candidate had something different to share and a different strategy for passing the CFA 2016 exam.

Check out their story and relate it to your own and your chances of passing your next CFA exam will improve significantly.

Why did you fail the CFA Exam?

Take a moment and evaluate your CFA study plan. What band did you appear in for the exam results? The ten bands are approximately equal score so each is likely between 3% and 5%, meaning the band 9 and 10 candidates missed passing by only a few questions.

For many candidates, it is just a matter of time spent studying. The average passing candidate spends around 300 hours studying for the exam. That’s just over ten hours a week on a six-month schedule, but try to cram it into three or four months and your commitment increases to 20 hours a week or more. A lot of candidates plan on putting in 15 or more hours a week studying and decide to wait until February to start but then have something come up that takes their time away.

That’s what happened to James from Portland. He started studying in late February and thought he would have plenty of time. He got a job offer in March and was working more hours than he expected through June. Besides James’ story, I hear the problem from a lot of candidates. Between heavy workflow around the end of the quarter and other life events, you never really know how much time you’ll have to study. That’s why you need to start as early as possible, even in December, to give yourself plenty of time.

The CFA level 3 essay section catches some candidates by surprise. Arnav of Mumbai told me that he was extremely confident of his knowledge of the material but just couldn’t write fast enough on the essay section. His hand started hurting after a couple of hours and he ran out of time before he could finish.

You absolutely must practice the essay section for the level 3 exam. Besides learning how to write down your thoughts quickly, you need to train your mind and muscles to be able to do it for three hours. It can be really tiring for candidates that don’t practice. The CFA Institute makes this as easy as possible by publishing the actual morning section exams along with guideline answers. You can sit down and take the essay questions just as if you were sitting for the exam.

We’ve covered a lot of the old CFA essay exam questions on the blog. Click through to this post on How to Pass the CFA Level 3 Essay Section for strategy and links to individual essay questions.

What could you have done differently to pass the CFA Exam?

I know a lot of CFA candidates that neglect doing practice problems, something that tripped up Jennifer of Miami. She told me that she meant to work the problems but it was just so much easier to read the material and not do the work.

Working practice problems can be a pain sometimes but they are absolutely critical. Not only is it an active learning technique, proven to help you retain information, but it also keeps you from zoning out as you read the material.

Paul from New York fell into the trap of having too many distractions during his study routine. I am guilty of this one as well. When I was studying for the first CFA exam, I would often study in front of the TV. I would be distracted often and would spend much of my study time just focusing back in on where I was in the book. Beyond the TV distraction, a lot of other things in the home are going to distract you from really focusing on the material. That’s why it’s always better to find a quiet place outside the home, maybe at the library, to do your studying.

Koki of Tokyo thought he would pass the exam by just reading through the curriculum once and working the practice problems. Many candidates believe that because they did well in school, always remembering things for the test, then they will do equally well remembering the CFA material for the exam. The CFA curriculum is an incredible amount of material and you have to remember it all in one six-hour sitting. It’s entirely different than having to remember a few weeks worth of lectures for a college exam.

Studies show that you need to review something between five and seven times to commit it to memory. Besides reading through the curriculum and working practice problems, you should consider other ways to review such as flash cards, study guides and talking your way through it. Finquiz Notes are designed to be used with the official curriculum so you can review and highlight important information while you are studying. The more times you can cover the material, the more likely you’ll be to remember it on the exam.

Taking an honest look at what happened on your CFA exam is the first step to passing the next exam. Check out these five stories from candidates and reevaluate your own study plans. With a little work, you’ll be well on your way to earning the charter.

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

Why I Sacrificed Three Years of My Life and am Glad I did!

The CFA exams are tough! No doubt about it. To pass the exams, you’re basically saying that you’re willing to work a part-time job for six months of each of the next three years…and you’re going to pay someone to do it.

I did it and about 165,000 candidates make the decision every year. After making the decision, many candidates constantly fight with the question of whether it’s all worth it. Only half the people pass their exam in any given year.

Despite all the time and sacrifice, I would do it all again and am glad I took the time for one of the most difficult professional challenges in finance.

The Best Textbooks You’ll Ever Read

Like all candidates, I sat through my undergraduate work and wondered if there was anything more boring than a college textbook. I studied for two degrees, Finance and Communications Studies, and even the analytical material in the finance texts usually seemed completely academic and impractical. Don’t just theorize about the capital markets, help me see how it actually works and fits together!

The CFA curriculum is some of the best textbooks you’ll read, written by actual market participants as well as a few academics. It won’t teach you everything you need to know about a specific job but the breadth of information will get you through just about any topic in asset management. No one really knows where their career will take them but the CFA curriculum gives you a good start in a lot of different fields.

As a CFA candidate, you’ll work harder than you ever did in any undergraduate course. I pretty much breezed through my undergraduate studies. I did the reading and went to class and was able to easily pass the exams without really trying too hard. The CFA exams are different. It’s an immense amount of material and you need to remember it all for the six-hour marathon exam. This kind of challenge forces you to be a professional and to really put the effort into the curriculum.

Surround Yourself with Success

Not only are the CFA exams worth it in themselves, for the challenge and information, but having the charter has opened a lot of doors for me. I have been able to open my own freelance consultancy and have had many clients hire me on the basis of having the charter. I don’t guarantee any special insight or performance as a matter of holding the charter but it does command a high level of respect from a lot of people in the financial market.

Through society and CFA Institute events, I’m able to network and partner with some of the best minds in the business. The Institute keeps a great flow of materials for professional development on its website and I’ve seen several new ideas pop up there before they became commonly accepted rules within the larger financial community.

There are a lot of you, candidates, that will be reading this while questioning whether to start or to continue studying for the CFA exams. I certainly faced my own ups and downs over the three years of studying. It is a lot of time spent with your nose in the books when you could be spending it with friends and family. Some people may even tell you that it doesn’t matter and they did fine without the charter.

Earning the CFA charter isn’t a golden ticket and it doesn’t mean the work is over once you’ve gotten your charter. It does mean a lot of things though and I’m glad I pushed on through. I think you will be just as glad you made it. Stay strong and keep studying.

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

Boys enjoying beautiful yellow sun and green grass. Copyrights FinQuiz.com

Boys enjoying beautiful yellow sun and green grass. Copyrights FinQuiz.com

CFA Exam Changes 2016 – LOS and CFA Curriculum Changes

The CFA Institute revised a lot of the exam curriculum for 2016 and may emphasize these changes on the exams

The CFA Institute has released the 2016 CFA exam curriculum and the changes from last year’s material range from immaterial to must-read. Make sure you know which study sessions and learning outcome statements (LOS) were changed and how it could affect your studying.

New candidates to a specific level may not feel that curriculum changes are important. They didn’t read the previous year’s curriculum for that exam level so why should changes matter?

CFA curriculum changes are important because they highlight the thinking of the CFA Institute. The LOS and readings were changed for a reason and that reason may mean a higher likelihood of the material appearing as a question on the exam.

We published our update to the CFA curriculum changes for each level in separate posts last week. Make sure you click through and check out content changes for your exam level.

Click here for the CFA Level 1 2016 Changes
Click here for the CFA Level 2 2016 Changes
Click here for the CFA Level 3 2016 Changes

What the CFA Institute Changed on the CFA 2016 Exams

The 11th edition of the Standards of Practice Handbook was just released in 2014 and changes hit the exam last year. This means that the Ethical & Professional Standards topic area was largely unchanged in the 2016 CFA curriculum. Two readings are dropped and one added to the CFA level 3 curriculum but the LOS have remained largely the same.

The CFA level 1 curriculum saw the most changes this year with one new reading and a change to about half the LOS. There are 29 new LOS with 23 changed LOS and eight removed from the curriculum. Study session 7 and 9 (FRA) see the most LOS changes. The introduction to risk management (study session 12) has been moved from the level 2 exam and it looks like the Institute wants to start emphasizing the material earlier in the curriculum.

Level 2 CFA candidates will want to pay attention to the changes in the Portfolio Management topic area with three new readings out of four. Besides the new readings and new LOS, I would bet that these changes carry over to some fairly big changes to the topic area in the level 3 exam next year.

How to Study for CFA 2016 Curriculum Changes

The CFA Institute does not say whether it favors CFA exam curriculum changes for item sets on the exams but you should be ready for the new LOS and readings to appear. While a wording change in an LOS might not be significant, changing a reading is a big step.

Changing a reading in the CFA curriculum may mean that the Institute wants to emphasize a change in the market regarding that topic. In this case, it would be intuitive that they would want to test candidates on the material to make sure they are up-to-date with market forces.

Changing a reading in the curriculum may also mean that the Institute wants to clarify the topic or provide a more easily understood perspective. In this case, whether this year or next, you would think the Institute would want to test the changes in the content to compare against previous exam results.

Either way, you can bet that many of the LOS from new readings will make it on to the 2016 CFA exams.

Perhaps as important as some of the changes is the fact that the institute did not change the CFA exam topic weights. The CFA Institute changed many of the topic weights on the 2015 exam, balancing out the weights a little more evenly. Traditionally important topics saw their weight decrease while other topics picked up a few points. This meant that you could no longer focus your study time on just a few topic areas to get maximum points.

The table below shows the topic weights for the 2016 CFA exams. Financial Reporting and Analysis, Equity, Fixed Income and Ethics still carry the most weight across all three exams but other topics will contribute significantly to your total score.

2016 CFA Exam Topic Weights

2016 CFA Exam Topic Weights

After reading through the curriculum, working practice problems as you go, make sure you actively test your understanding in each topic area. You should be aiming for at least 70% in all topic areas and try for 80%+ in the core topic areas.

Don’t forget to check out the CFA 2016 curriculum changes for your test level linked at the beginning of the post. You can download a pdf copy of the CFA exam changes on the Institute’s website by clicking here and scrolling down to your exam level.

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

Soothing City - Copyrights FinQuiz.com

Soothing City – Copyrights FinQuiz.com

Working More December Exam CFA Ethics Questions

Last week, we talked about the importance of the Ethics & Standards topic area across all three CFA exams. Its importance in the CFA level 1 exam is heightened by the fact that new candidates may not know what they are up against within the topic.

Reading through the Code & Standards can seem obvious and many CFA candidates believe their moral compass will guide them to the most obvious answer on the exam. When they get to the exam, they’re surprised by the level of ambiguity in the questions and cannot decide between two seemingly correct and ethical answers.

We started working through a few ethics questions last week but will continue this week with five more. It is extremely important that you study these questions and the ones in the curriculum to learn how the CFA Institute asks questions within the Ethics topic and how it expects you to answer.

CFA Ethics Question #1

Roberts is in charge of a group of analysts at BB&T, only some of which are CFA charterholders or candidates. For a large project, he is delegating some of his supervisory duties to one of the analysts to lead the group. What are his responsibilities under the Code and Standards if he delegates tasks to the group.

A. His responsibilities under the Code and Standards apply to conduct of those with CFA designations but not to those that are not subject to the code. For those employees, only legal obligations apply.
B. He is no longer responsible for the group’s conduct because he delegated supervisory duties. That person is now responsible.
C. He is still responsible for all the analysts’ conduct under the Code and Standards.

Answer: C

Under Standard IV, Responsibilities of Supervisors, someone bound by the Code and Standards may delegate supervisory responsibilities but is still accountable for all actions of subordinates. Further, a supervisor is responsible to the Code and Standards for all actions whether their subordinates are bound by the Standards or not.

CFA Ethics Question #2

Babbitt & Coolidge Investments (B&C) has been hired to manage a follow-on issuance of shares for Argon Tech. The brokerage unit of B&C has a sell recommendation on Argon Tech but some fundamentals have improved and a review of the analysis is due. The head of the investment banking division has asked the reviewing analyst to look at the new information and upgrade the shares to buy. According to the Standards, what may the brokerage unit do?

A. Increase the recommendation but only to a hold since it is still a conservative recommendation
B. Place the company on a restricted list and only offer factual information in the report
C. Assign a new analyst that is willing to take the new information into account and assign a buy rating

Answer: B

Under Standard I, Independence and Objectivity, the firm should discontinue issuing recommendations on the stock to avoid the appearance of a conflict. Analysts must refuse any requests to change recommendations even if the change is only to a slightly higher recommendation. Changing the analyst assigned to the stock does not eliminate the conflict of interest.

CFA Ethics Question #3

Tye is an analyst for Buckmaster & Walters and is about to make a new recommendation. According to the Standards, which actions will help ensure fair treatment of brokerage clients?

A. Inform everyone in advance that a recommendation is about to be made so everyone can be ready
B. Since institutional clients need more time to review for suitability under their plans, they should receive the information before individual accounts
C. Time between the decision and dissemination of the recommendation should be reduced

Answer: C

The question deals with Standard III, Fair Dealing. Answer A may allow the recommendation to be leaked out since more people know about the coming release. Firms should limit the number of people that know a new recommendation release is eminent. Answer B is a clear violation as it discriminates between clients by size and assets. Reducing the time between the decision and dissemination of the recommendation helps to avoid it being leaked ahead of the release.

CFA Ethics Question #4

Portfolio Manager Jacob has done very well and one of his clients wants to keep the manager motivated. The client promises to compensate Jacob, above what the firm is paying him, if he can continue to beat the index each year. Jacob is a CFA charterholder and should:

A. Turn down the extra compensation because it could create a conflict with performance on other accounts
B. Turn down the extra compensation because it could lead him to unethical behavior by incentivizing the outperformance
C. Get written permission from his employer prior to accepting the agreement for extra compensation

Answer: C

Standard IV, additional compensation arrangements, does not prohibit compensation beyond that made by an employee’s firm. The employee is still bound by the Code and Standards to not let the additional compensation interfere with fair dealing among accounts and other ethical behavior but may accept additional compensation if it is disclosed and approval is granted in writing by the firm.

CFA Ethics Question #5

Redbeard, an advisor and CFA charterholder, recommends his client invests in U.S. Treasury bonds. The client accepts the advice based on two statements made by Redbeard.

I) The default risk on U.S. Treasuries is effectively zero since the bonds are backed by the U.S. government
II) Based on the historical return to U.S. Treasuries over the last twenty years, you are guaranteed to earn at least 5% over the next several years.

Did Redbeard violate the CFA Code and Standards with either statement?

A. Neither statement is a violation
B. Only statement I is a violation of the Code and Standards
C. Only statement II is a violation of the Code and Standards

Answer: C

Standard I, misrepresentation, requires that all those bound by the Code and Standards separate fact from opinion. The first statement is a fact given the government’s backing of the bonds. The second statement is an opinion based on historical performance and what the advisor thinks will happen in the future. Guarantees of future returns must not be made unless they are contractual within the investment.

Did any of these Code and Standards questions stump you? For the ones you missed, make sure you go back through the question and really understand the CFA Institute’s way of thinking. Don’t forget to review those questions where you guessed correctly. Working as many ethics questions from the curriculum is critical to learning how to answer the questions on the exams. We’ll cover a few more next week before moving on to other topics for the December CFA exam.

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