Your Most Frequent Questions on the CFA Exams



It’s always around this time that I see an increase in questions from candidates. Six weeks to the exam and everyone is second-guessing their readiness to face that 6-hour marathon. I decided to use this post to review five of the most frequent questions I get and some previous posts to address them. Click through the text to be redirected to specific posts on the topics.

If you’ve been a regular follower of the blog, you might have seen some of the posts before but it might help to refresh on the ideas or suggestions. I’m always open to hearing your recommendations and thoughts so use the comment section below if you think I missed anything.

Five most common questions by candidates

Basic strategies for each of the exams is always a popular subject. The format for each exam varies a little and you need to go into the test knowing what to expect. Besides insight on the format, our basic strategies cover the relative point importance on the topic areas and strategies for studying.

Click on the links below for basic strategy on each exam. The posts were written ahead of the 2012 exam but the formats and strategy have not changed. There are a few changes to the actual curriculum but that won’t change how you approach the tests.

CFA Level 1 Basic Strategy
CFA Level 2 Basic Strategy
CFA Level 3 Basic Strategy

The intense quantity and complexity of formulas is always a sticking point for candidates, especially on the second exam. While the formulas on each exam vary, the way you study for them is consistent. One of the most popular posts on the blog explains the difference between active and passive learning. It may not be as easy as sitting back and reading through the material but actively working through problems and flashcards is the best way to learn the material.

Speaking of flashcards, a recent post on how (and why) to make your own flashcards offers good insight on remembering the formulas. Flashcards were a core resource when I was studying for the exams. They can be carried anywhere and you can use them when you’ve just got a couple of minutes free. Absolutely essential for learning the tough formulas and processes.

No matter what you are doing in life, there never seems to be enough time. Studying for the CFA exams is no different and time management is one of the top questions by candidates. Whether you are a full-time student or have a family and a 9-to-5 job, you’ll need to find ways to effectively use limited time.

Part of this comes from effective time management and moving your schedule around to find blocks of study time but another important idea is using your time responsibly and prioritizing.

The most exam specific question I get is how to approach the level 3 essay section. I loved the morning section when I took the third exam because it is the only group of questions where the Institute actually gives you the questions and answers to previous exams. The morning essays can be extremely easy points if you work through prior exams, or they can be a frustrating mess of lost confidence if you don’t.

We have worked through 14 prior essay questions going all the way back to the 2009 exam. The individual and institutional portfolio questions usually have similar formats across years so be sure to study those and how to approach them. The post linked here is our review of last year’s individual portfolio management question. Click on “Level III” at the top of the blog and scroll through to review the posts on the other essay questions.

Getting a job after earning the designation or even while you are studying is always a top concern for candidates. While I explain in one post that the designation will NOT get you a job by itself, it is an important step in your career as a professional. Instead of relying on the charter to get you a job, follow the advice in another post on how to stand out from the other applicants and get the job you really want.

Have a question about the exams? Send me an email or use the comment section below.

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

Do Not Let the CFA Level 2 Exam Surprise You



The pass rate for the CFA level 2 exam has only been lower than that of the first exam in three of the last 10 years. For many candidates, that is a welcome relief after a grueling introduction to the exams and it must mean that the second exam is easier. Right?

Wrong! And it catches a lot of candidates off guard.

While the CFA level 2 exam may indeed be easier for a few, most candidates find it incredibly difficult especially compared to the CFA level 1 exam. Which exam is the most difficult for you will obviously depend on your own abilities but you need to go into the second exam knowing exactly what you are facing.

Quantitative Monster

It is often said that the CFA level 1 curriculum is a mile wide and an inch deep because it covers a huge range of material but really only teaches to the basic ideas within each. The CFA level 2 material covers the same topics but seems to focus more on the detail within a few. While the range of material can still seem daunting, candidates usually agree that the level two curriculum is a mile deep and maybe a few feet wide (to paraphrase the saying).

This becomes a little clearer looking at the topic weights across the exams. While the first exam is more evenly spread out, the second exam is more focused in a couple of topics. In fact, Financial Reporting & Analysis and Equity Investments alone will account for between 35% to 55% of your entire score.

This is obvious enough to anyone preparing for the exam. What is not so obvious is the quantitative difficulty you will see on the exam. Those problem sets are a monster!

Given that nearly half of the exam could be from just two topic areas, I hope I don’t have to tell you where you should be spending your time. You absolutely must know the FRA and Equity material, especially the formulas.

We covered some of the most important formulas on last year’s exam in three posts (First, Second, Third) and linked here. Almost all will still be applicable to this year’s exam so feel free to look through the posts for hints on each.

There’s two things you can do to help get through the formulas.

  • First, you need to understand what is conceptually happening in the formula. Trying to understand the myriad of symbols is crazy. 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.
  • Secondly, you have to work these formulas through practice and repetition. One of the most popular posts here shows that active learning (engaging the material through practice and conversation) allows you to remember much more than passive learning. The best way to approach tough formulas is to put them on flash cards. We covered the importance of flash cards and why you should make your own set in the previous post.

Just because a higher percentage of candidates usually pass the second exam than the first doesn’t necessarily mean it is easier. Think of it this way, candidates are fully aware of the immense challenge presented by the exams after the first test and still less than half typically pass the second exam. That should give you an idea of difficulty on the CFA Level 2 exam.

The good news is that tens of thousands of candidates pass the exam every year and you can too. Focus on those formulas, especially in the high-point topic areas, and you will do well. Less than two months ahead of the CFA exams. Be ready.

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

Making Flashcards for CFA Success



Every year while I was studying for the CFA exams, I would see candidates at the mock exams and at study groups pulling out their shiny new flashcards. The cards were impressive, detailed with problems and answers and professionally done by prep providers. And every year I saw candidates continue to struggle with the concepts written on their cards because they did not understand them.

One of the best resources for CFA exam preparation is flash cards but not the ones prepared for you. For real exam success, follow the process below to make your own cards.

Your fourth-grade teacher had a secret

Remember getting in trouble in grade school and having to write repetitive sentences on the chalkboard? Ok, maybe many of you don’t but I got in trouble a lot and was perpetually doing math problems and grammar exercises out after class.

Years later, I realized getting in trouble so much actually helped me succeed academically. Writing out about a million math problems over the course of a couple of years virtually guaranteed that I could do those problems from memory years later. Our brains are wired to learn by repetition. Writing something repetitively makes new neural connections and commits information to memory.

And this is why those prepared flash cards will never be as great a resource as writing your own cards. Writing out a problem that covers a Learning Outcome Statement is a long way to memorizing the material.

Making your flashcards is pretty easy but there are a few things to remember. I would try to work through the curriculum once before composing any flash cards. On the second time through, you will have a better sense for the difficult topics and where you need more work. Putting flashcards together on the first read through the curriculum is going to eat up a lot of time on material that you would have gotten without the cards.

Writing your cards, do not simply write out an equation to solve. Cards should be like mini-exam questions with information on a specific scenario. Write out a short story with data that will be needed to solve a problem. You might even try putting in unnecessary information as will be done on the exams. Then on the reverse side of the card, work through the problem completely. Write out every step and every calculation. That will help you learn off your cards instead of constantly referring back to the curriculum if you are confused on how the solution came out.

Don’t think your flash cards are a static learning tool. As you progress, you may want to put some aside that you’ve mastered or make more cards on other topics. After several runs through your cards, you may even try re-writing the ones that are still giving you problems for a little repetitive exercise.

Flash cards cannot be your only resource ahead of the exams but you certainly cannot neglect them. Not only will the cards help you focus on tough material and are a good source of repetitive-type learning, they are a great resource for time management. You can carry your cards with you and run through them anytime you have a couple of free minutes. Those extra few study sessions can add up to a lot of extra time every week.

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

CFA Level 3 Review, Behavioral Finance



Behavioral finance is always a tough topic for candidates because the material can be a little confusing and the sheer volume can be overwhelming. The topic really doesn’t have to take a lot of time though and can be some easy points.

Behavioral Finance and the CFA Essays

Behavioral finance is typically tested in the morning essay section of the exam and has been worth an average of 14 points over the last three years. While you need every point you can get, that is just 3.8% of your total exam score. You want to approach the section with the idea of getting the concepts and basic definitions without taking valuable study time from higher point topic areas.

The material is extremely definitional and lends itself really well to flash cards. If you can get the basic definitions of the concepts and vocabulary then you should be able to get the vast majority of the points on the exam. Take a look at the prior years’ exams to get an idea of how the behavioral questions are asked.

Make sure you understand the basic difference whenever a contrast is offered, i.e. the difference between traditional finance and behavioral finance.

The cognitive and emotional biases have shown up on the essays frequently so make sure you have a good understanding of these.

Understand the five belief perseverance biases, consequences and detection:

Conservatism –failure to incorporate new info after a view is established
Confirmation – selectively seeking information that confirms a prior view
Representativeness – tendency to make decisions based on stereotypes or patterns
Illusion of control – belief of ability to influence uncontrollable events
Hindsight – overestimate “ex-post” the accuracy of forecasts

Understand the four processing error biases, consequences and detection:

Anchoring and adjustment – similar to conservatism but is usually tested as an under reaction to new information rather than avoidance of new info or no reaction at all
Mental Accounting – often tested as investors dividing total assets into ‘buckets’ based on categories (i.e. leisure, necessities, emergency)
Framing – tendency to respond differently depending on the situation
Availability – tendency to overestimate the possibility of an outcome based on ease of which the outcome comes to mind (know the four sources of availability bias)

Types of emotional biases:

Loss aversion – includes house money effect and myopic loss aversion, tendency to treat investments differently depending on whether it is a loss or a gain
Overconfidence – tendency to overestimate own ability or knowledge
Self control – preference for present consumption (certainty) versus future (uncertainty)
Status quo – avoidance of change
Endowment bias – emotional attachment to an asset or investment
Regret aversion – avoidance of decision due to fear of regret

The difference between a lot of these biases seem relatively minor and semantic but they often appear in the exam. Besides the basic definition and consequence, understand the slight difference between similar biases so you can distinguish them in a question. This is really where practice on some of the past essays comes in handy, to see how the Institute frames questions.

The material is extensive but you really do not need to memorize every detail. The Finquiz Study Guide has 32 pages of notes on Behavioral Finance for Study Session 3 and can better help to explain the topic. Again, my advice for the topic area is to get the basic idea and concepts and then move on to higher point topics. Even if you only get 60% of the points by just taking a quick look at the section, you’ve only missed 1.5% of the total exam.

I haven’t heard much from Level I or II candidates on which topics they want covered on the blog. Let me know if any particular study session or LOS is giving you problems and we will try to hit it in one of the blog postings.

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

Your Nine Week Study Plan to Pass the CFA Exams



Just two months are left to study for the 2014 CFA exam and most of you are probably wondering where the time went. Even starting early, an impending sense of dread always came over me about this time of year when I was taking the exams. Whether you have 300 hours or just 30 hours under your belt by now, these last two months are the time you need to focus your time and make sure you’re ready for June 7th.

From Quantity to Quality

Most of us are die-hard numbers people so it easier to put things in quantitative terms. We talk about 300 hours or 70% needed to pass. While this may be convenient, it isn’t necessarily the only way to prepare for the exam.

All the time spent studying won’t help you if you are not comfortable with the material going into the exam. Candidates get so focused on scoring high enough to pass the exams that they forget the reason for the exams in the first place, to master the material. Instead of placing some arbitrary amount of time on study, focus on trying to be able to explain the material in your own words and how it applies to analysis and asset management.

Where your time counts

We’ve talked a lot about core topics to the exams but they are even more important as the exam draws near.  While you can’t afford to neglect any part of the curriculum, there are some topic areas that will make or break your score.

Ethics, Financial Reporting & Analysis, Equity Investments and Fixed Income account for a strong share of the points across all three exams. The four topics may account for between a third and 80% of your exam score. Beyond that, you will need a strong concept of the material in the four topics to be able to understand more detailed material in later exams.

Getting max points in these core topics means a lot of wiggle room across the other six topics.

cfa topic weights

 

 

 

 

 

 

 

 

 

 

An important note here is that if you are going to be spending a lot of time on these four topics, you need to do it with different resources. Reading the same thing over and over again is just going to lead to burnout.

Resources for the finish line

When I talk about different resources, I mean ways to study the curriculum whether different media or different sources. These might include the curriculum, condensed study notes, flash cards, question banks, videos or your own personal notes.

  • Using different resources helps avoid burnout by not repeating the exact same material.
  • Using different resources also helps to find the one with which you learn best.
  • Different resources can help provide different perspectives on the material.

Reviewing two study sessions a week

Covering two study sessions a week means you can cover nearly every topic and still have a week left for an intensive review. There are two ways to approach this, you can either cover 16 separate study sessions or you can cover some of the core topics multiple times. It really depends on how comfortable you are with some of the secondary topics and how well you know the core topics.

I always liked alternating study sessions when I did my two per week reviews. Using Ethics and FRA as an example, a week might look something like:

Sunday: Read through condensed notes for the Ethics material and spend an hour on practice problems

Monday: Read through condensed notes for FRA and spend an hour on practice problems

Tuesday: Review each LOS for Ethics, highlighting key concepts and re-reading the sections in which I haven’t quite mastered

Wednesday: Review each LOS for FRA, highlighting key concepts and re-reading the sections in which I haven’t quite mastered

Thursday: Review flash cards for Ethics and spend two hours on practice problems

Friday: Review flash cards for FRA and spend two hours on practice problems

It’s a pretty intense schedule but can be flexible for the number of days and hours you have available. Alternating study sessions helped me avoid burnout trying to cram consecutive days on one topic. Notice I also use different resources through the week so I am getting different perspectives on the material. Practice problems are an extremely effective resource at this point so I tried to include them nearly every day.

Do this up to the last week and then do an intensive review of the curriculum as a review. Plan on giving yourself a day or two to relax before the exam and plan your test day.

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

2013 Level 3 Essay Question #1 Review



Passing the Level III CFA exam is all about the essay questions. You know what to expect on the afternoon vignette section and the curriculum is more or less consistently difficult in both the morning and afternoon sessions. The only unknown variable is three hours of application and writing.

Do not underestimate the physical challenge of the morning essays. Who really writes things out by pencil or pen anymore? You need to condition the muscles in your hand to be able to write non-stop.

Fortunately, the CFA Institute is uncharacteristically generous to level III candidates and supplies copies of the actual essay questions and the guideline answers for the last three years’ exams. The single best advice I can offer to level III candidates is download and practice those exams. Work through each exam at least twice.

The exams are available on the Institute’s website here.

We’ve covered a general review of the Private Wealth Management topic area last year and not much has changed in the curriculum. Click here for a review of the topic and how to approach it. You absolutely must know how to work through the two types of return questions and apply the constraints of the IPS. Remember TUTLL!

2013 Level III Exam, Question #1 Individual Wealth Management

Between the first two questions last year, the individual wealth management topic accounted for nearly 10% of your entire exam score (35 points of 360). Besides the technical importance, starting off the day by doing well on the first couple of questions will give you a huge confidence boost and sets you up for success.

Hit this section hard and master it!

Last year’s first question covers the Voorts and their needs in retirement. Some candidates like to read the questions first then the vignette. I always liked reading through the vignette first and underlining important information. Try it both ways in practice to see which you prefer for the exam.

A)    This is a single-period return calculation (as opposed to the other type of question you might see, a multi-period return calculation. Be ready for both). Notice almost every questions says, “Show your calculations.” You can get partial credit if you show your calculations even if your final answer is wrong. Don’t forget!

The guideline answer is a pretty standard format. List out the living expenses with an inflation adjustment and reduce it by any guaranteed income like pension payments. Taxes and inflation are two of the biggest hurdles in these. Make sure you note where you need to incorporate taxes and inflation into the given data.

After you know how much is needed from portfolio assets, you need to list out all investable assets to find the portfolio size. After that it is a fairly easy calculation of cash needs divided by the portfolio value. Note, this will give you a real return requirement (without inflation) so you need to adjust upwards.

B)   Part B is fairly easy. Understand which factors go into ability and which factors affect willingness to assume risk. Remembering this, you can quickly scan the vignette for specific details when you see either word. Notice the guideline answers lists five possible answers but the question ask for only two. Do not waste your time listing every possible answer! The grader will only check the first two.

Typically portfolio size to needed cash is a strong factor in ability. Even if higher risk led to a decrease in portfolio value, they could still probably meet their needs. Age is also a common topic with younger people having the ability to return to work.

C)   The liquidity requirement is basically done in the return calculation above but I guarantee a lot of candidates forgot to include the cash reserve. Liquidity is not necessarily only the money you plan to spend but what you need set aside.

D)   This ‘choose the most appropriate portfolio’ is fairly common and easy points. A few pieces of information are key: goal return, preference for risk and the risk-adjusted return.

Given the goal return of 3.5% means a return of 8.57% on a nominal pre-tax basis ((3.5% +2.5%/(1- 0.7)). Only portfolios X and Z meet this preference.

The Voorts do not want the portfolio to decline by 10%. Only Portfolio Y and Z meet this requirement.

Only portfolio Z meets both reasons.

With a little preparation, that is 20 easy points, nearly 6% of the entire exam in the bag. Be ready for these essay questions and they will be no problem.

We reviewed multiple essay questions from previous years on the blog last year. Click here for the review of Question #1 in the 2011 exam and scroll through for other essay questions.

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

Max Points on Ethics and the Standards



If you’ve been reading the blog for any length of time, you are probably tired of me repeating the importance of the ethics topic area on the exams. If you are new to the blog…get used to it because the material is integral to your success.

Over the three years, the Ethics and Standards (including miscellaneous material included) is worth about 12% of your entire CFA preparation. Beyond the points associated, the Institute has explicitly noted that your score on this portion of the exam will determine a pass/fail if your score is close to the minimum passing score. It’s the tie-breaker!

The biggest hurdle for candidates is realizing that while they may be ethical people, they still need to put in the study time to learn how to react in specific situations. The test developers are masters at dreaming up difficult scenarios where a rational person would consider two of the answers as correct. The only way to learn how to answer these questions is by practicing the examples at the end of the chapters and through question banks.

Fortunately, the material in the topic is virtually the same through each level (except for a few readings on additional topics on which you may or may not see questions). This means that hard work spent in level I will pay off over the next two years as well.

Professional Conduct Program (PCP)

There are a few key points that you need to remember of the PCP. Understand that information can come from four sources: self-disclosure, written complaints, media/public, or the exam proctors. Only members and candidates are subject to the PCP and the Code or Standards. Note that a charterholder supervisor is responsible under the PCP/Code for actions of non-charterholder subordinates.

Remember the basic process to an inquiry as well:

1)    Inquiry assigned to staff who collects information and determines one of three outcomes

  1. No sanction required
  2. Cautionary letter
  3. Inquiry escalates to next level

2)    The member can accept or contest this outcome and request the issue go to a panel

SPAMED: Components of the Code

While the acronym SPAMED makes it easier to remember the components, it is really the details within the code and standards that you will need to understand to answer exam questions.

  • Subordinate personal interests
  • Promote the integrity of and uphold rules governing capital markets
  • Act with integrity, competence, diligence and respect
  • Maintain and improve professional competence
  • Exercise reasonable care and independent judgment
  • Demonstrate ethical practice and professionalism

I’ve copied my own notes on the standards below. Three pages is about as condensed as you can make the material. These are the bird’s eye-view of the important concepts within each standard.

Standard I- Professionalism

**Strict law rule- the standards say to follow the most strict interpretation between either local laws or the code/standards. This applies to all jurisdictions to which you are responsible. A classic example is doing business in one country but living in another. You are probably under both jurisdictions so must follow ‘most strict’ laws in either of the two (or the code/standards).

Know or should have Known- must not knowingly violate or assist someone else in violating laws or code. A big part here (and with supervisor duties) is if you should have known, given your responsibilities.

*NOT required to inform police unless explicitly required by law. Procedure is to inform supervisor, compliance and to disassociate from activities.

Independence & Objectivity

* Firms/analysts should pay their own expenses whenever possible and disclose when they have accepted any form of compensation. This includes when there is not a violation but may be a perception of a violation. Token gifts are acceptable but the Institute does not explicitly define or give a dollar amount on ‘Token’ so questions

* Issuer Paid research should be on a fee-only basis and not tied to rating. Issuer paid research must be disclosed.

* You need to understand and tell the difference between informational firewalls, quiet (blackout) periods, and restricted lists.

Misrepresentation

You can NEVER guarantee a return unless the investment is explicitly guaranteed by an institution (and the institution has the means to back up losses, i.e. U.S. Government).

All informational sources must be directly credited (not just- “leading analysts” or “experts”).

Misconduct

* Even if something is legal (drinking) members/candidates must not engage in the activity if it could lead to a loss of confidence in the employee, employer, profession or the Institute. Having a ‘high tolerance’ for alcohol does not cover the fact that the perception of misconduct may occur.

* Bankruptcy or civil disobedience is ok as long as it is not from fraudulent conduct.

Standard II- Integrity of Capital Markets

Material non-public Information- This is a big one for the industry and the Institute

* know the Mosaic theory and how it is interpreted. Combination of material PUBLIC information with non-material non-public information is ok to trade on.

* members/candidates must not use or cause others to use material non-public information. “Material” is anything that an investor would want to know or could affect the asset price.

* Company conference calls or meetings are NOT public release and any material information divulged should be immediately made public (and cannot be traded on until made public)

Market Manipulation-

Any actions with INTENT to distort price or volume is against standards. Understand the “pump and dump” and “liquidity priming” scenarios

Standard III- Duties to Clients

Benefit of clients always comes before employer (whose benefit is before employee)

Understand responsibilities for ‘best execution’ and that ultimate beneficiary (i.e. pension holder) is your client, not necessarily the institution hiring your firm

Fair Dealing

* All clients must be treated fairly and equally

Different service levels are ok, but must be available to everyone and disclosed

Allocations should be on a pro-rated policy (but only to those portfolios where suitable)

The method of client communication seems to be important. Example: you can’t send snail mail to some while directly calling others because this gives the called clients an unfair advantage. You can however use the same initial distribution method (email everyone) then start calling clients without violating standards.

Suitability

You must understand client’s risk/return objectives and constraints to determine suitability. Investments may be risky in isolation, but suitable given total portfolio.

Performance Presentation

Just remember FACT: Fair, Accurate, Complete (and timely)

Confidentiality

Only release client information if: required by law, illegal activities, or explicit client permission

Standard IV- Duties to Employers

Loyalty

Remember benefit should be to (in order): client, employer, then yourself

* Must NOT take any records, files, or property from employer when leaving. You can reconstruct client information, but only from memory

* You can make preparations for another job (before leaving employer) but only on your own time and it must not conflict with employer until after you have formally left their employment.

Additional Compensation

*** Written Consent (not verbal!) must be obtained from ALL parties (employer and third parties) prior to accepting additional compensation that could create a conflict with employer

Responsibilities of Supervisors

This is a confusing one for many candidates because a lot falls under the ‘should have known’ category. **Understand that supervisors should have policies in place that help prevent or detect violations

*Inform IN WRITING if the company has an insufficient compliance system and decline your supervisory position if the company fails to improve compliance.

* Even if employees are not members/candidates, a charterholder supervisor is responsible under the Code and Standards for their actions.

Standard V- Investment Analysis, Recommendations, and Actions

Diligence and Reasonable Basis

* a big part of this is relying on second or third-party information ONLY if you can confirm the validity and reliability of their research

- You do not need to disassociate from a recommendation (of which you do not agree) made in a group if the recommendation has a reasonable basis but you should document your disagreement.

Communication with Clients and Prospective Clients

* big issue here is distinguishing between FACT and OPINION in analysis.

* communications must include basic factors and processes used in investment analysis/selection. This does not mean a lengthy discussion but a general statement on how investments are selected.

Record Retention

Keep all records on analysis/recommendates for SEVEN (7) years

Records are property of employer so it is their responsibility to keep them if you leave

Standard VI- Conflicts of Interest

* Important that disclosures are made for actual and POTENTIAL conflicts

-Disclose any material ownership. The Institute does not put a dollar amount but it is usually fairly obvious. Ownership is personal or anyone living in same household (but not family living outside of household).

Priority of Transactions

- Again, priority is for: Client, Employer, then self (beneficial ownership)

“Family” or beneficial ownership is only those residing with you. Other family, not living with you, should be treated same as other clients

- Oversubscribed IPO should be pro-rated to clients first

Referral Fees

Any compensation or benefit must be disclosed (must include nature of benefit)

- Issue here is usually when there is obvious connection between yourself and who you are referring. Example: you are referring services offered by other departments at your company

Standard VII- Responsibilities of members and candidates

This always seemed the catch-all for stuff not covered by other standards.

* Focus seems to be on candidate obligation to the standards (don’t cheat on the exams)

- Members can disagree with Institute and express differing opinions but must not do something that compromises reputation of the Institute or the designation

Reference to the Institute, designation, and program

- Designation (CFA) can only be attached to a person, not a company

- You must pay dues and sign annual standards compliance to use designation

As mentioned, you can read through and memorize the material for the code and standards but it may still not help as much as working through practice problems. You really need to work through specific scenarios to see how these standards are applied. Give the curriculum a read and then focus on key points like the ones noted above. Then spend your time working through questions to get a good feel for it.

Ten weeks to the exam. Almost there just stay focused and you’ll make it.

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

The CFA versus an MBA, an answer to the unsolvable question



An article from CNBC’s Stephanie Landsman hit the net recently comparing the CFA designation with an MBA in a time-honored assessment that just won’t die. With less than three months to the June exams, the last thing candidates need to be asking themselves is an unsolvable question.

I say unsolvable because it is not whether the CFA designation is better than an MBA, the question should be whether the CFA designation is better for YOU than an MBA.

If you have to ask, you’ll never know

The question whether you should pursue the CFA designation or an MBA is one that should be asked before you begin either process and with the conviction to see it through to the end. While the two may seem to lead to comparable careers, they are in fact extremely different and you need to make a clear and definitive choice.

A study by Georgetown University shows that unemployment for recent business grads is still relatively high at 7.6% while finance grads were not much better off with a 5.9% unemployment rate. In the frustratingly sluggish jobs rebound, a post-grad education that doesn’t suit your job search may do more harm than good.

While you can specialize in certain fields, the MBA is a general business designation. If your goal is to be a c-suite superstar then you will probably need an MBA somewhere along the way. Granted, there are plenty of people in corporate finance or other areas of the corporate world with the CFA designation but the curriculum really isn’t designed to manage a company or a corporate division.

Perhaps some of the confusion comes from the title, chartered financial analyst. The CFA curriculum will not prepare you to be a corporate financial analyst. In fact, a role in corporate finance may not even be approved for the required work experience to be awarded the charter. The CFA curriculum is an investment analysis and asset manager education. If you have a passion for the art of the deal and forming asset valuations, then the designation may be right for you.

Studying for the CFA designation takes an immense amount of work and dedication. With only about half the candidates passing their exam in any given year, you need to be fully committed to the profession of investment analysis and asset management. Without this focus, you will always be second guessing your motivation and it will make passing the exams nearly impossible.

I don’t say this to discourage anyone from pursuing the designation or an MBA. Some people, whether they enjoy learning or just love the punishment, do pursue both. The question is a valid one but one that only you can answer and must not let it be a distraction after you’ve come to a decision.

Just 11 weeks to the June exam. Right about now you are probably deep in the curriculum and feeling a little overwhelmed. Stay strong. Have some coffee, go for a jog, whatever you do to refocus because the finish line is coming up. I know you can do it.

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

The Internet and Three other Reasons Why You Don’t Have Time to Study



There are just 13 weeks left to the CFA exam and candidates everywhere are getting frantic. Sometimes no matter how early you start or how well you plan out your studies, there just doesn’t seem to be enough time. How many times have you gotten to the end of the week and realized there was no way you were going to get through as much material as you hoped?

Now, another question, how many times have you checked the news, email or stock quotes while you were studying?

While the title of this post claims five reasons why you don’t seem to have enough study time, it really comes down to one – distractions. If you study like I did when I was a candidate, probably spend about half the time devoted to studying as you think you do. The rest of your ‘study schedule’ is filled with digressions and meaningless tasks as a way to procrastinate.

With that in mind, on to the four biggest problems to your study schedule and how you can solve them.

  • Disable your internet connection and unplug the television

This was the biggest distraction for me. Most of my studying was through study notes and question banks, available on my computer. It was just too easy to click over to news, blog sites, email or a hundred other things whenever the inclination hit. You start off justifying this as, “Oh, I have studied for an hour and I need a short break,” but you end up spending way more time surfing the net than originally intended. Worse yet, you end up taking these ‘study breaks’ more frequently.

The television is just as bad. Do you study with the TV on? I did occasionally and rarely met my study goals when I did. The material in the CFA curriculum can be extremely complex and detailed. Do you really think you can master the curriculum and still follow what is happening on that episode of 24? Your eyes are drawn to movement, it is just how we are wired and any kind of peripheral movement is going to distract you.

  • Turn off your cell phone

Unless you are on-call for your job or expecting to hear from the lottery commission that you won $10 million dollars, you really need to turn off the cell phone. With text messages, internet and phone calls (yes, phones are still actually used for talking as well) these things easily take the number two spot for biggest distraction. You can tell yourself that you won’t answer your texts and set it on silent all you want but the temptation is still going to be there. You’ll peak once and then will be drawn into 30 minutes of ridiculous emoticons and chatting.

  • Do something nice for the family, and yourself

My respect goes out to all the candidates with kids. It’s tough and you’re probably just going to have to resolve not to sleep for the next three years. If you are studying at home, then you are not really studying. You are trying to study between tying shoe-laces, cooking lunch, kissing boo-boos and resolving fights over who is kicking whom.

Once a week, offer a fun day at the water park/mall/museum/fill-in-the-blank. It may cost a little more but your time is money and you are just wasting time if you think you can study while there are three other people demanding your attention. Juggling family and studying for the CFA is one of the most difficult problems for many. Put it in perspective, it is only 4-5 months a year for three years.

  • Start a diet

This was another tough one for me. Not being on a diet but the constant temptation to break from studying to go get a snack. It doesn’t matter that you are not hungry and like other distractions, that small snack becomes a 30-minute or more digression and you don’t know where the time went.

The easiest answer to distractions is to go somewhere private to study. Most libraries usually have private study rooms though it may be difficult to reserve one for more than a couple of hours. Besides having to spend the travel time to get to the library, or another private location, is that it just isn’t always possible to go somewhere else to study.

When you can’t get out of the house to study, remember the major sources of distractions and do everything you can to avoid them.

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

CFA Study vs. Family



The title above is the title from a recent forum post on the LinkedIn group. While the underlying subject of juggling a personal life and family with the CFA exams is a constant topic, I thought the title was interesting and brought back memories of managing my own social life with exam preparation.

I thought the forum title was interesting because it is how many candidates feel about studying for the exams and…well, everything else. It seems that preparing for that 6-hour monster in June puts you at odds with everything else; your family, your friends, anything you previously enjoyed.

It’s tough to get in the necessary study time, for everyone but even more so for those with families. I was married while studying for the exams but was able to finish before we had any kids. The problem is, when you start to think of studying for the exams as, “this and nothing else,” you set yourself up for questioning whether it is worth it and end up postponing the designation.

Studying for the CFA exams shouldn’t be a this-or-that scenario but just needs to be integrated into your daily routine. Hundreds of thousands of candidates have done it and you can as well.

It is just a matter of making time where there was none before,

  • Lunchtime study – This doesn’t necessarily have to be cloistering yourself off to some remote part of the building and avoiding co-workers. A quick run through your flash cards while talking to co-workers can be a little less intrusive and still help you get some extra points.
  • Travel time – If there is any way you can take public transportation to and from work, this can be a huge boost to your study time. Sure, it may be a little inconvenient but shifting that hour or two of studying each day to the bus or train means more time with your family.
  • No rest for the wicked – This is the most common I hear but it has its limits. I concentrate better at night so it was no problem for me to stay up until midnight or later and study while others slept. You can get buy on five or six hours of sleep but don’t try to do it immediately. Try studying just a half hour more per night an increase it gradually so you don’t crash at work.
  • More efficient study – While the average time candidates take to study for the exam is 300 hours, it can be done on less but you need to spend your time where it counts the most. You will not be able to get through the curriculum multiple times. Spend more time on condensed study notes and working practice problems. For the first two levels, devote the majority of your time on the topic areas where you will see the most points.
  • Start earlier – I am still amazed that many of the same candidates that question how to juggle life with exam prep are the same ones that do not start studying until February or later. Three hundred hours divided by 26 weeks is a lot easier to handle than when it is crammed into 12 weeks or fewer. In fact, there is nothing that says you need to wait for the new curriculum to come out before you begin studying. Borrow the previous year’s curriculum from a local candidate and start working through it in July or August. Starting 40 weeks before the exam means you only have to study about 7.5 hours a week. That’s doable for even the busiest schedules.

It will be tough but will also be worth it. Not only will you be able to use one of the most respected and professional designations in the industry but you will also be able to say that you were able to complete something that few others could.

Families are forever, the CFA exams are only three years. Stay strong and push through it.

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

The Number One Rule to Break While Studying for the CFA Exams



Answering weekly emails I get from candidates, common themes tend to come up frequently. Candidates always want to know how the upcoming year is different from the last, what score they need and if passing the exams will get them a job.

Another common theme is rules they should follow for passing the exams. Everyone loves lists and being able to check off a couple of rules to help pass the exams is something everyone would appreciate.

We’ve covered lots of lists here on the blog, things to do and what to look for but there is one rule you might just want to break. It’s not my rule but it is one commonly held by many candidates.

The rule is that you should use the official CFA curriculum as the core to your studying for the exams.

I have advised candidates to read the curriculum and always tried to get through the books myself. The exams come directly from the curriculum so it stands to reason that the books should be your best bet for a passing score.

But the reality is that your time is just too precious and reading through the curriculum enough to commit the material to memory just takes too long. Candidates feel like the curriculum is the sacred text of the Institute and that memorizing every word will ensure them a passing score. I have seen too many candidates get burned out or not even make it through the curriculum once, and subsequently fail the exam.

I am not just saying this because Finquiz sells condensed study notes and I agree that you still need to use the official curriculum, just not as your core material and probably not in the way you were expecting.

Condensed study notes, by their definition, are going to leave some details out. The idea is that you can still master the LOS without all the examples and explanations but this will not be the case for every section of the material. To make up for this short-coming, you still need to use the curriculum.

While most candidates start with the curriculum and then study the condensed notes, I propose a different plan. Start with the study notes. Work through the study guides, working problem sets to make sure you understand the material.

Then read through the curriculum. Having already picked up the core concepts, you should be able to read at a faster speed. This will help you read through for any stray questions you might still have but will take much less time than if you had tried reading the curriculum first.

You might even try working through the study notes twice before going through the curriculum, depending on how quickly you can work through the condensed notes. Notice that you still need to work through practice problems and this more time-efficient method does not mean you can wait until March to start studying.

You still need to put in your 300 hours, this method will just allow you to go through the entire curriculum multiple times. Most people learn best by repetition and it is said that you need to repeat a task approximately seven times to commit it to long-term memory. You may not have time to go through the material seven times, but focusing your time on condensed study materials is a good way to get through the content faster and more efficiently.

Have another commonly-held rule that you should break? Email me or use the comment section below.

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

Top 3 Myths about the Claritas Investment Certificate



The Claritas Investment Certificate is less than a year old and the rumor mill is already operating at full strength. Many of the grapevine assumptions follow pretty closely with those that candidates hold for the CFA exams as well.

  • Obtaining the certificate will get me a job in the industry

This is probably the most common misconception for CFA candidates as well, that passing either the exams or getting the certificate will guarantee a job in investment management. While the CFA charter is well-respected and the Claritas Certificate is building its brand, neither are a sure-shot at landing your dream job. They will make you competitive and may get you an interview where you wouldn’t have otherwise but you’ll still need to work for the job.

Probably the most overlooked advantage of the charter or the certificate when job-hunting is the networking advantage. Though the exams are self-study, there is also a tremendous social network established around local societies. Talk to your local society to see if Claritas candidates can attend a networking event.

  • I need the Claritas Investment Certificate to begin studying for the CFA charter

I have mixed feelings on this one. I personally know several people that have used the Claritas curriculum as a start to their studies for the CFA charter. The Claritas curriculum is more generalized and starts a little slower than the CFA curriculum so it may help those with absolutely no experience in finance or investments. You will see a lot of information in the Level 1 exam that was in the Claritas program, so it is not time wasted but you may not need it either.

Passing the Claritas exam is not a prerequisite for the CFA exams and you may not need it to begin studying for the charter. At approximately 100 hours of studying, it is not an overly demanding exam but that is still 100 hours that you could be studying for the CFA Level 1 exam. If you want to eventually sit for the CFA exams, go to your local library for a copy of the Level 1 curriculum. If the material is completely foreign and you are not able to pick up the concepts, then you may want to start with Claritas.

  • You only need a 70% to pass the exam

Passing scores are annually a huge topic on the CFA forums and already have a few posts on the Claritas forums. The actual passing score is set by a standard setting process and changes regularly. The score needed to pass any of the exams is not released by the Institute but we do know that no one with a score of 70% or above has ever failed.

So just shoot for 70%, right? Well, yeah if you want to be the person in their career that barely squeaked by their professional exams. Besides that, professional development is a life-long process and those that think it ends after an exam or two will quickly find themselves downsized. Study until you master the curriculum then move on to new curriculum and new challenges.

Those seem to be the big 3 myths for the exam but there are bound to be more. Use the comment section below for other myths you’ve heard.

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

5 Things I Wish I Knew about the CFA Level III Exam



We’ve already covered the top five things you should know about the CFA Level I and Level II Exams, along with the exams in general. After the Level II exam, I enjoyed the final exam of the series though it presents its own challenges. If you approach it wisely, following these five points, the Level III exam can be just as enjoyable when you take it.

  • It’s all about the Essays

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

Most of the topic areas are fair game for essay questions. The first two questions will always be on individual and institutional wealth management so being ready for those two topics can give you a huge confidence boost for the rest of the test. Corporate Finance, Financial Reporting, Quantitative Methods and Alternative Investments are the least likely to show up as essay questions but will be in the afternoon section. I covered the essay section in more detail in a prior post linked here.

  • The only exam with prior year’s available

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

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

  • Don’t get overconfident

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

You have put in too much work to get lazy now. While the pass rate on the Level III exam, 49% in 2013, is higher than that of the other exams it is still incredibly difficult. Think about it, every CFA Level III candidate has had the perseverance and has put in the effort to pass the other two exams but less than half will make it through the exam this year.

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

  • Harder to ‘game’ the topic areas

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

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

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

  • Do not wait until you pass the exam to start thinking about the charter

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

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

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

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

5 Things I Wish I Knew about the CFA Level II Exam



We’ve already covered the top five things you should know about the CFA Level I Exam and about the exams in general. The Level II Exam is, in mine and many other candidates, the most difficult level of the three CFA exams and it might be hard to narrow it down to just five things.

  • Don’t Underestimates the Exam

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

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

  • It’s all about the Detail

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

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

  • Practice the vignette structure

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

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

  • Don’t buy your flashcards

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

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

  • You are not alone

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

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

Half of passing the exams is studying more effectively and not being surprised on that first Saturday in June. Knowing and avoiding some of the biggest mistakes candidates make will put you well ahead and help to get you through to the next exam. We will cover the five most important tips for the CFA Level III exam next week.

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

5 Things I Wish I Knew about the CFA Level I Exam



Last week, I listed out the things I wish I knew before each level of the CFA exams. For the most part, these were the general ideas that relate well across all three levels. This week, I am reminiscing back to those bygone days of the Level I CFA exam.

I remember it well, o.k. probably because it was only five years ago. So naïve and full of mistakes, mistakes that hopefully you will not have to make.

  • It’s Not like College

I may be wrong and it just may be my cynical side but most public education seemed to me more about getting grades than learning. You showed up, took the tests and that was it. And the tests really were not that difficult. School was fairly easy, even up to my bachelor’s programs. Sure there were some tough spots when I would put off a semester project but a couple of late nights and it would be easy again.

That’s not the CFA exams and most people get this rude awakening in Level I. If you are going to remember enough to answer 240 questions in six hours, you will need to do more than just open the books. You are going to need to do some detailed learning. While the first exam does not require the synthesis required in the Level III CFA exam, you will need a solid understanding of the material. Take it seriously and put in the time.

  • You Might Not be as Ethical as You Thought

Ethics is probably the topic that catches the most candidates off-guard in the CFA Level I exam. You do not lie, cheat or steal so you assume that you can pass the topic area with relatively little studying. How hard can the questions be, right?

Then you get to the exam and find out how masterful the exam writers are at making a seemingly easy topic complicated and subjective. Of the three possible answers on the exam, there are usually two that sound like a legitimate solution. It gets even worse when one of the possible answers is, “no violation.”

Do not neglect the Ethics portion of the exam, especially since your score on the topic will determine a pass or fail if you are close to the passing score overall. Go through the practice problems at the end of the chapter several times. This will help you understand the Institute’s way of thinking about these ethical dilemmas.

  • Financial Statements are Your New Religion

The material on Financial Statements and Reporting is the single most important, points-wise, on the Level I CFA exam. It is also in the top two or three most important in the second exam. For many, the material on the first exam is fairly basic, just a review of the financial statements and some common ratios. They skim through the material, skipping the more difficult detail, and move on to other topics.

Financial statements are the heart of what you will be doing as an analyst. Spend all the time you can on this topic. Not only is the topic absolutely key to passing the exams, and you absolutely must have a strong understanding to handle the detailed material in the Level II exam, but you will need all the material daily in your professional career. You might get away without using much from some of the other topics on a daily basis but you will always need to know how to read and analyze a financial statement.

Learn it early or you’ll find yourself continuously coming back to review.

  • No Substitute for Practice Problems

O.k. this one is applicable to all three exams but it catches most by surprise in the first exam. Most of us are fairly intelligent and, until the CFA exams, have been able to get by easily by just reading through textbooks or listening to a lecture.

This will not work for the CFA exams. There is just too much information that you need to remember to have a superficial understanding. The practice problems serve two purposes. Most importantly, they drill the information deep enough into your memory that you can reproduce it on the exam. Only through actively thinking about the curriculum are you going to remember all that information. Just read through it and half of it is going to go in one ear and out the other.

Practice problems also help you physically and mentally prepare for the exams. Six-hours of sitting there scraping your brain for information can be extremely tiring. If you have not exercised your brain and body to do this kind of thing for consecutive hours, you will be surprised and disappointed.

  • A Mile Wide and an Inch Deep

When I finally got to the level I exam, I was surprised that the questions did not go as far into the detail as I was expecting but the breadth of material was amazing. This is a tough one because I cannot tell you not to worry much about the details, you’ll need a strong base in the material to understand the Level II curriculum, but the first exam seemed to only test a basic understanding of the material.

If I knew that while I was studying, I probably would have used the study guides more rather than the curriculum. These are not going to go into the detail to the extent that is in the official curriculum, but they will help you cover all the material multiple times.

Hope this helps you on your Level I CFA exam. Let me know if you Level II and Level III candidates have any other tips. Next week, we’ll look at the five most important study ideas for the Level II exam.

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

5 Things I Wish I Knew Before Starting Each Level of the CFA Exams



One of the most difficult aspects of the CFA exams is that you are basically on your own. Sure there are study groups but these are composed of candidates in the same exam level and probably making the same mistakes that you are making. You’ll get some support from your local society (if you ask!), but for the most part it’s a self-study course and you will need to learn how to approach the exams just as much as learning the material.

While each exam is different, there are some commonalities in studying for all three. Over the three years, I learned the hard way how to best use my time and what was just a waste of time. Sometimes, I had to learn it over again on the following exam. Hopefully, this list will help you not repeat the same mistakes I made.

  • Study smarter, not harder

I would start every exam trying to get through at least two readings of the official curriculum. While the curriculum is the first and last word on the exams, trying to get through that much material twice is a recipe for burnout. I would invariably start my second time through and could not keep my eyes open or concentrate through more than a few pages. You need to work through the curriculum at least once but there are more efficient uses of your time after that. Study guides are typically a fifth the length while getting across at least 90% of the information. Flash cards and problem sets are another way to use your time more efficiently than wading through thousands of pages of text.

  • More problem sets, less reading

This one is related to the first but applies to study guides as well. It is too easy to sit back with a book and read instead of actively working those problems. I was as guilty as anyone on this, thinking that I would absorb the material just by reading. If you want to be able to work the problems on the exam, the single best method you will find is working the practice problems from the curriculum or from test banks.

  • I will not get some subjects and that’s ok, learn it early

Most of us are Type-A personalities, control-oriented and motivated. We want to plan everything out and have a hard time progressing without having completed every previous task. This was a problem for me in some of the derivatives material (i.e. swaps). I would spend hours practicing and studying relatively minor stuff when I should have just gotten the basic idea and spent more time on the higher value topics. You cannot afford to neglect any single topic, but you also cannot afford to spend all your time on topics that carry relatively fewer points. Make sure you understand the parties involved, how different drivers (i.e. changes in rates) affect the contract and then move on to other subjects.

  • Don’t study at home

Unless it takes you an hour to get to somewhere you can study privately, resist the urge to only study at home. You might still study at home by filling in gaps of ten or twenty minutes by looking over notes or flash cards, but your core study schedule should be somewhere else. There are just too many distractions at home and your time will not be spent efficiently. The library was usually the best study site for me. It had just enough background noise but privacy to simulate the testing environment.

  • After the exam, let it go!

This won’t help you on the exam but it can help save your sanity afterwards. Do everything you can to prepare for the test and have the confidence to relax after it’s over. Those precious few months after the exam are for getting back into your social life and spending time with your family, not worrying about whether you passed or failed.

Next week, we’ll look at things I wish I knew before the level I CFA exam.

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

A CFA Blog! How long has this been here?



Now that you are firmly focused on studying and passing the CFA exam in June, let me digress and ruin your concentration. Sorry, I just came across the CFA blog managed by the Institute and was so impressed that I wanted to bring it to your attention.

Where have I been?
In our hectic daily routines, it can be tough to find new sources of information. It certainly doesn’t help that there are more than 350 million registered domains, an increase from virtual nonexistence only two decades ago. I have 11 sites bookmarked to my navigation panel (Federal Reserve FRED, Bloomberg, Morningstar, along with email accounts and a few other finance sites) and probably only use a handful of others on a daily basis.

I am plastered to my screen between eight and ten hours a day, sometimes including weekends, and just do not have time to hunt around the web for great new sources of information. I generally try to keep up with things the CFA Institute is doing, especially the newer ideas but this obviously wasn’t the case with the new blog.

I have to give credit to Josh Armstrong, CFA for posting one of the Institute’s blog posts on the forum group. I regularly read the Financial Analysts Journal and other publications sent out by the Institute, along with other research posted on the Institute’s site. When I found the blog site, the material was familiar but offered an ease of reading that was great.

Across the blog’s navigation bar is six categories of posts along with nine other categories from the CFA topic areas and a link for About Us and Authors. Clicking on each category will take you to posts specific to it but the site does not include a dated directory so finding a specific post can be a little difficult. It is also nearly impossible (or at least impossible without loosing your sanity) to find the original posting date of the site since you have to scroll down and click, ‘older posts’ continuously.

The posts run the gamut of research, polls, book reviews and advice. Twenty-eight posts were written in December, pretty impressive considering most people are more focused on their holiday weight gain than on financial writing during the month.

As blog posts, the content comes across as more conversational and easier to read than some of the Institute’s other publications. While this may not be as welcome to some of the hard-core researchers out there, I enjoyed being able to make it through an article without taking a master’s level course in stats. Posts include links to other publications and other helpful sites.

If you can find a couple of hours in your busy weekly schedule of work and study to visit the blog, your time will be well-rewarded. The blog does a good job of highlighting important material from the Institute’s site as well as some new stuff. You probably won’t read all of it but it will offer a quick way to keep up-to-date on some important ideas in the industry. I have bookmarked the site and will probably go back at least a couple of times a week.

Always on the lookout of good sites for market information and data. Any ideas?

Ok, digression over. Back to studyin’
Joseph Hogue, CFA

Your 2014 CFA Study Plan



This is it! January is upon us and I can hear the pencils sharpening in preparation for the 2014 CFA exams. Ok, probably not pencils but I hear the laptops whirring to life and we’ve just five short months left to test day.

We won’t be posting a weekly review of the study sessions like we did last year but most are still relevant for this year’s exam. The study session reviews covered each topic over 18 weeks starting in January and starting with the ethics material.

Make sure you check our post on changes to the Learning Outcome Statements (LOS) for each exam so you can focus on the material that could appear on this year’s exams. We posted the changes to the CFA Level I and Level III exam in August and the changes to the CFA Level II exam in September.

22 Weeks of Good Fun Studyin’

You might be tempted to give yourself another couple of weeks vacation and start studying with a nice round number like twenty weeks, but you’ll need every hour if you are going to pass one of the hardest professional exams out there. Spending about 300 hours over 22 weeks means you’ll still have to dedicate between 13 and 14 hours a week.

I get a lot of questions each year about how to study the curriculum to prepare for the exams. My best answer is…yes, study! It’s not quite the answer expected but the simplest answer could also be the best. We’ve gone through different methods of studying here on the blog, looked at the difference between active and passive studying and talked about the topic weights on the exams. The most overlooked tip though is that candidates need to worry less about how to study and get to studying. Studying the curriculum does not mean putting a plan together that gets you through the material once before exam day, you need to be prepared and that means committing the material to long-term memory.

Committing the material to long-term memory means reviewing it multiple times and in multiple forms. Since we still want to finish early enough to review the more important topics and focus on mock exams, you’ll need to start as soon as possible. The plan below isn’t complicated but it is intense. It’ll be tough but you’ll review the material enough times that it will be seared into your brain well after the test has come and gone.

The plan begins each week with reading the curriculum for the next study session (1-18) and completing all the blue-box and end-of-chapter questions.

The following week, you read the curriculum for a new study session and review the previous study session through the use of condensed study notes. Beyond reviewing the study guide for the previous session, you need to do some testbank practice problems to reinforce the material.

In the third week, review the individual LOS for the study session and write up flash cards for the concepts that you still haven’t mastered. After 20 weeks, you will have reviewed each study session three weeks each and done several rounds of practice problems. Reading the curriculum for a new study session each week will take the majority of your time but try to fit in the reviews and problems as well.

Starting in week 18, try to complete two full-size practice exams each week. Whether formal mock exams or just a 120 questions from test banks, try to do these in the approximate percentages for each topic area. This should give you a good idea of the topic areas in which you need more work.

By week 21, you are going to be tired of anything CFA-related and will deserve a break. You won’t have the luxury of completely relaxing but just review your flash cards for an hour each day.

Your final week is an intensive review. Take the week off from work if you can and treat studying like it was your full-time occupation. Eight hours a day should give you enough time to review two study sessions a day and work a full-length exam.

By now, the practice exams are only partially to clue you in on your weak points but also help to get you into the mental preparedness of handling a six-hour exam. Complete them as you would the actual exam, in two 3-hour segments and in a relatively quite setting.

Go over the curriculum that many times and I have no doubt you will go into the exam fully confident in your mastery of the material. Make sure you follow our last minute checklist for preparing for the exam, available by clicking here.

And good luck on the exam, it’ll be here before you know it.

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

Top 5 CFA Exam Posts from 2013



As we wind up another year on the blog, I thought I would run through the most popular posts over the last twelve months. Most popular does not necessarily mean best or most useful, I’ll need your help in finding those. I would like to think that the most popular are such because they were passed around and read frequently, a result of them being useful as well.

While the three posts describing LOS changes to each exam were all very well read, I’ve excluded them from the list. It doesn’t do us much good to review what LOS changes were made last year but we’ll get the list of next year’s changes out soon.

February 8th Are you ready for the June CFA exam, have you started yet?

I did a quick poll on LinkedIn to see where candidates were at in their study schedule. As of early February, 16% of candidates had finished at least 60% of the curriculum while 56% had not seen more than 20% of the material. It was an informal poll and there were questions unanswered but there were some lessons to be learned. Don’t count on being able to skim through the material once and do well on the exam, most brains just don’t work like that. Most need to see something several times before it is committed to long-term memory.

December 2ndThe passing score on the CFA exams and how to use it

The actual score or percentage needed to pass the exams is never released but it remains a popular topic for candidates. We know that no candidate has ever failed with a score of 70% or above, so that has always served as a good target. We also know that nearly half of all candidates fail their exam in any given year, which can help to gauge your own progress anecdotally against the rest of the herd.

The 70% target also offers a sober reminder that the exams are more than just a set of multiple-choice questions or essays, it is a gauge of your professional knowledge. Would you trust someone that scored less than two-thirds on their professional exams to handle your money?

January 4thThe Tortoise and the Hare study plan for the CFA exams

I’m always amazed how late some candidates choose to start studying for the exam. While I prefer a slow-and-steady approach to studying, I recognize that some work better under pressure and prefer a later start. In this post, I present two study plans – one for the tortoise and one for the hare.

Even the tortoise study plan, with 20 weeks and 15 hours per week, may be too demanding and I normally started much earlier than this. Still, I think it provides a realistic goal of one study session per week and two weeks of review.

The hare’s study plan is only for those that can clear their schedule completely and devote 30 hours a week over the last nine weeks before the exams. This would be nearly impossible for most candidates but maybe just the right amount of pressure for some.

May 17thAre the actual exam questions easier or harder than mock exams or practice problems

As important as the practice problems are to passing the exam, I am not surprised that this post was widely read. Doing hours of practice problems is probably not your preferred choice of study method but it is probably the best way to spend your time. It helps to gauge your understanding of the curriculum and gets you ready to handle the 6-hour marathon that is the CFA exam.

Whether the practice problems or mocks are easier or harder than the actual exams, you need to do enough of them to build a confidence interval around your score. This allows you to guide your studying until your interval range encompasses that all-important 70% score.

May 28thI’ve passed the CFA Level 1, why don’t I have a job

Using the designation to get a job is easily the most popular forum topic, so it’s given that this would be the most popular post of the year. Whether you’ve already got a job and are looking to move up or you think the exams will get your foot in the door, it can be equally frustrating when it doesn’t all fall into place.

I can tell you that the CFA designation and the knowledge you will gain from the curriculum will help you succeed in the industry. It is one of the strongest and most respected bodies of knowledge in the industry and your perseverance does count for something. I can also tell you that you will still have to fight for the job you want. Use the same perseverance and hard work you put into the curriculum to get your foot in the door and you will not be disappointed.

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

Remembering more of what you study for the CFA Exams



One of our most popular posts, and probably in the top ten of most important, covered the difference between active- and passive-learning. Available by clicking here, the post separates different studying methods and shows candidates how to remember the majority of what they study. While no method is fool-proof, people typically remember up to 90% of what they study when using active-learning methods.

As a quick recap, though I urge you to read the original post, active learning is any method in which the student takes a participatory approach. This includes doing problems and discussing the material. Passive learning involves non-participatory studying like reading or watching a lecture. Studies show that students are more engaged and remember more when they learn by active methods.

Making passive-learning more active
The problem is that passive learning methods, reading especially, are the primary sources of learning for most candidates. Let’s face it, we would all rather sit down and casually read through the curriculum than grind through hours of practice problems. Preferences aside, you have to read through the material before you can do those practice problems anyway.

So how do you bridge the gap between passive and active learning? You still need to hit those practice problems but there are several ways that you can make passive-learning methods more active.

  • Making notes while reading is the most often used but underappreciated study method. Noting important ideas in the margins of the text not only highlights material for your subsequent reviews it also keeps you from falling into reader’s trance. Reader’s trance (also common in driving or other repetitive tasks) is where you perform the task without even thinking and end up pages ahead without remembering what you read. By stopping to take notes, you avoid zoning out.
  • After each section or chapter, take the time to explain the material in your own words. This works best if you can explain it to someone else but that isn’t always possible or time-efficient. If you cannot explain it to yourself then you will probably not be able to recall it on the exam.
  • While listening to a lecturer or to recorded material, take notes and do not be afraid to ask questions. If you do not understand what the lecturer is saying, there is a good chance that another in the class also needs clarification.
  • While watching videos, take notes and pause the video regularly to do a practice problem relevant to the section.

The more methods you can incorporate into your studying, the better you will learn. Seeing the material will most likely remain your primary mode but try to hear it and say it as well. Joining a study group can go a long way to making the learning experience more active. Just remember to keep the group organized and stay on task so you use your time efficiently.

Use the comment section below to share your favorite active- or passive-learning exercises and how you manage a balance between the two.

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