Study Groups | candidates probably making the same mistakes that you are making

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.
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CFA Results 2016 and How to Deal with a Fail

The time between taking the CFA exam and the release of results can be excruciating. The CFA Institute has released the date of June exam results July 26, 2016. Emails will start going out at 9am eastern standard but it may take several hours to receive your email.

How can you use the exam results to prepare for your next exam? How could you possibly deal with the results if you end up in one of the fail bands?

Decoding CFA Results 2016

Results will look like the graphic below with your percentage range in each topic within one of the three ranges. The graphic is actually from my Level 3 exam results but the format is the same for all three exams (I didn’t save my exam results for the Level I which seems a million years ago).

cfa exam resultsThe asterisks mark the range in which you scored. The CFA Institute does not release an exact score or a minimum passing score for the exam but you can still use your results for some useful information.

I scored greater than 70% in five of the eight topic areas on the item-set portion of the exam and between 51% to 70% in the remaining three topic areas. If these were results of a Level I exam, I would look closely at the three topic areas and their relative weight on the Level II exam.

For example, I know that Equity Investments is a very important part of the second exam and is worth between 15% and 25% of your total exam score. I might want to consider spending some time before my CFA Level II studies to review some of the Level I equity material to make sure I have a good base of understanding.

We published a basic strategy for the Level II CFA Exam which you might want to review.

How to deal with a CFA Exam Fail

Getting the email from the Institute saying you failed the exam is like getting punched in the gut. Your stomach sinks, you start to feel queasy and some even break down into tears.

You will hear all kinds of excuses and complaints about the designation and the CFA Institute after results are released. Some blame the questions, others try to make themselves feel better by saying that the designation doesn’t matter to their segment of the industry. These are all common coping mechanisms to deal with the results but you need to resist the urge. Your reasons behind taking the exam and the value of the designation have not changed and neither should your attitude.

Resist the urge to get mad at yourself or at the CFA Institute. Half or more of the candidates that take any given exam do not pass. The exams are tough and that is what makes the designation so valuable and will be a source of pride when you do pass.

Take an honest look at how you prepared for the exam and ask yourself where you could have improved your efforts. For most candidates, it is a matter of simply not devoting enough time to study the curriculum. Others may have done really well in a few topic areas but so poorly in core topics that it put them in a fail band. Either way, use the information in your exam results to see where you need to improve.

On the bright side, having taken the June exam means you are still able to register for the December exam and have a good chance at success. The Institute does not publish pass rates for repeat test takers but I have to believe that it is much higher than the general pass rates.

Not passing an exam is the worst thing to happen?

Contrary to what you may be thinking, it is not really too difficult telling friends, family and coworkers about the exam results. If not passing an exam is the worst thing to happen in your life, you are either very sheltered or not challenging yourself enough. Your friends and family understand that the CFA is important to you and will go out of their way to empathize.

If others in your office have taken the exam, they will know full well how difficult the test is and will not hold it against you. Unless you completely blew off studying, there are bound to be some topics in which you did well and can highlight your success in those areas. Take an honest approach and admit that you just have to work a little harder in the topics where you didn’t score as well.

What to tell the friends and family?

We published a post Exam Results, What to Tell the Friends and Family which you might want to review. Another helpful post is Exam Results Coming Soon, What if…?

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

Last updated: December 22, 2016 at 7:57 am

Best Songs, Movies and Activities to Recharge before the CFA Exam

Less than a week left to the exam and there’s little I can tell you that is going to change your test score. At this point, an old Louis Armstrong quote always comes to mind, “Man, if you have to ask…, you’ll never know.” By now in your studies, you’ve either got it or you don’t.

It doesn’t mean you can’t get a little more studying done this week. I always took the last week before the exam off from work to get another 40 hours of review before I closed the books, but that is what it should be, review. Just cementing the information in your memory before the big day.

Whether you are using the last week for one last cram-session or not, your brain probably feels like about three pounds of slush and you just can’t wait to get through Saturday. It’s always about this time that I needed to step back and recharge.

Watch – Listen – Or Just Do It!

There’s about a million and one things you can do to get your head back in the game this week. I am a big fan of music and always love a good motivational song. After three hours of studying, I need at least three minutes of rockin’ out to recharge. Some of my favorites for pushing myself just a little bit farther are:

Destiny’s Child, “Survivor”
Eminem, “Lose Yourself”
Europe, “The Final Countdown”
Katy Perry, “Roar”
Kelly Clarkson, “Stronger”
Queen, “We Will Rock You” and “We are the Champions”
Survivor, “Eye of the Tiger”
Twisted Sister, “We’re Not Gonna Take It”
Bon Jovi, “It’s My Life”
U2, “It’s a Beautiful Day”

Ok, so I am definitely showing my age with this list and there’s surely more than ten that could be listed. It was a close call between Twisted Sister and LMFAO, “Sexy and I Know It” for #10 but…hey, I’m a child of the 80s. If nothing else, maybe just reading through my list will help you to relax a little with a good laugh.

I really like movies for relaxing as well but they’re a little harder. When I think of a motivational movie, I want a climactic ending that makes me want to jump up and do something. A lot of great movies just do not have the ending. Others are just too darn long and still others can leave you shell shocked. Try sitting through all 169 minutes of Saving Private Ryan and not thinking long about life afterwards. Anyway, some of my favorite ‘sit back and relax’ movies:

Back to the Future (1985)
Rocky (1976)
Wreck-It Ralph (2012)
Star Wars (1977)
Spiderman (2002)

Again, unless you’re in your 30s or older, you’re probably scratching your head just a little. I originally wrote out nine of my favorites but figured five movies in your last week of studying is probably way too much time in front of the television anyway. Wait until after the exam to sit back with a Star Wars movie marathon (ok, at least the original trilogy).

The die-hard overachievers out there will complain if I don’t add exercise and other activities to the list of stress-relievers. Going out for a jog or a work-out can be a great way to clear your mind and recharge. I wouldn’t be running too many marathons unless you’re used to that kind of thing, but a good 30 minute workout can do wonders.

After six months of studying, you’re probably asking yourself, “What’s a hobby?” As long as you can complete it in a couple of hours or less, a lot of candidates like to return to the past-times that always made them happy. The idea is to pick something that you can enjoy for an hour or less and then get back to the CFA.

Whatever you do to recharge, get to it and get back to studying. Just five days left.

Good luck on Saturday,
Joseph Hogue, CFA


The Three Funniest CFA Stories I Have Ever Heard

In all the stress and excitement of the CFA exam for more than 100,000 candidates, there are bound to be stories of the strange, funny and horrific. Whether it’s a personal experience or happened to another candidate, the stories can help you prepare or just blow off a little steam during a long day of studying.

I’ve heard a fair share of horror stories from candidates, from getting lost on the way to the exam to realizing they were studying the wrong material. This close to the exam, I won’t scare you with these but will relay a couple of the funniest anecdotes I’ve picked up over the years.

One of the most common stories I get is of problems getting to the exam site. The first comes from my home town of Des Moines, Iowa and a candidate that was taking the 2011 exam. The candidate arrived bright and early at the convention center downtown, more than an hour early and ready to ace the exam. The only problem was that he had remembered that the prior year’s exam was held at the convention center but had not bothered to check his admission ticket. An hour left to the exam start and the candidate was getting a little anxious. No one else had shown up for the exam!

Checking his exam ticket, the candidate saw that the exam location had changed to a casino convention center on the outskirts of town. He jumped in his care and floored it to get to the exam in time. Fortunately, the new site was only about a 20 minute drive from the old location and the candidate was able to get there with half an hour to spare.

Cell phones have become so common that everyone has heard of one going off during an exam. The proctors are supposed to collect cellphones before the test or to tell candidates to leave them with the rest of their personal items outside the room. This wasn’t the case at the exam in Mumbai a few years ago. According to one candidate, a cell phone beeped about an hour into the exam. It was fairly loud but only beeped twice so the proctors were not able to see from where it came.

Two proctors closed in on the general area from which they heard the beeps but no one said anything. It seemed the candidate would get away because everyone went back to their exams and the phone didn’t beep again. Then, just about 40 minutes later, the phone beeps again. Now the two proctors had stayed close to where they heard the first beeps but again could not tell exactly from where the sound was coming. They moved closer to where they thought the sound was, closing in on their prey. It was like an intense game of hide-and-seek. Fortunately for the candidate, the phone did not beep again and nothing ever came of the incident.

The last story is one of extreme preparedness from a candidate in Chicago. The candidate writes, “I thought it hilarious when the candidate next to me started laying out all of her resources for the exam. We were taking the Level III exam so she had both pens and pencils, and oh man did she have a few. I counted two packs of six pencils, 12 in all, and 20 blue ink pens. The candidate also had two calculators, an extra battery, a small pencil sharpener, a small eraser (even though each pencil had an eraser), a screwdriver for the calculator, a set of earplugs and a small watch. It looked like she was setting up a small convenience store! To my surprise, she actually used five of the pencils, not so much that she needed to because it looks like they were only used until they needed sharpening.”

We’ll get a post out on preparing for exam day next week. You’ve got another couple of weeks so start wrapping up your plans and getting those last few points. Good luck.

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

Free Cash Flows and the Level II CFA Exam

I’ve had quite a few questions on the Free Cash Flow material for the level 2 CFA exam so thought I would put together a post on the topic. Free cash flow is an extremely important measurement and you will need it extensively in the equity section of the exams as well as in your professional career. It represents the cash available to either equity investors or all capital providers after all working capital and fixed capital needs have been reduced.

Free Cash Flow to the Firm (FCFF) is the cash flow available to all capital providers (debt and equity) and equals:

Net income + Net noncash Charges (depreciation and amortization) – Investment in working capital – Investment in Fixed capital + after tax interest expense

FCFF is discounted at the weighted average cost of capital (WACC) since it is the after-tax cash flow to all suppliers of capital.

Free Cash Flow to Equity (FCFE) is the cash flow available to common shareholders and equals:

Net income + Net noncash Charges (depreciation and amortization) – Investment in working capital – Investment in Fixed +/- net borrowing

  • Notice that FCFE is FCFF except without adding back interest expense and taking net borrowing into account.
  • Understand how to arrive at FCFE or FCFF with CFO
  • FCFF = CFO + INT (1-t) – invest fixed capital
  • FCFE= CFO – invest fixed capital +/- net borrowing +/- net change in preferred shares

FCFE is discounted at the required rate of return for equity since it is the cash flow only to equity shareholders. Using the WACC for FCFE will overestimate equity value since the weighted average cost will be lower than the cost of equity.

FCFE is a more direct way to value equity, so preferred but FCFF may be preferred when the company has a volatile capital structure or is highly leveraged.

The most difficult part in FCF calculations, for me, was the adjustments to net income to arrive at FCFF. Remember: depreciation, amortization, restructuring expenses, losses on fixed asset sales, deferred tax liabilities, after-tax interest expenses and preferred stock dividends are all added back to net income. Any gains on the sale of fixed assets, the amortization of long-term bond premiums, deferred tax assets, and investments in FC and WC are all subtracted from net income.

It’s a pain but you absolutely have to understand and be able to calculate all the approaches of FCF estimation: net income, net cash flow, EBIT, EBITDA, and FCFE from FCFF. Start with the calculation from net income to get a good feel for the adjustments and what is being built into FCF, this should make the other equations more intuitive. Not only will practicing these formulas help get you points on the exam but they also help with a better understanding of the Statement of Cash Flows and how funding works for a company.

FCF models for valuation are most appropriate when the company does not pay a dividend and/or when the investor has a controlling share or influence in the company. FCF models may not be as appropriate for fast-growing companies with high capital expenditures and negative free cash flows.

As always, try to first understand the basic concept of what FCF means and what is happening in the formulas. Understand what non-cash items and capital expenditures are on the Statement of Cash Flows and why they added or subtracted to arrive at free cash flow. Understanding the accounting in terms of why things are adjusted instead of just numbers and symbols will go a long way to your success on the exams and as an analyst.

As with all topics, you need to understand the major difference between important concepts (i.e. FCFE versus FCFF) and when it is most appropriate to use each. Also understand the advantages, disadvantages and assumptions within the models. Understanding these conceptual ideas will get you a lot of the points even if your memory on the formulas fails you.

Less than a month to the exam, let me know if you have any questions and good luck.

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

Last updated: July 18, 2016 at 16:26 pm

Turning the last week before the CFA exam into big points

We’re coming down to the wire with just five weeks left to the June CFA exams. Hopefully you are almost through with your study plan. You should be through the curriculum at least once and have started taking practice exams. If you are not scoring around 70% or better on test bank and practice problems, you may need to kick your schedule into a higher gear.

I always took the last week before the exam off from work and swear by it to get those last few points to put you into a passing score. Whether you go to an intensive boot camp program or just stay close to home to study, the week can be a huge help in wrapping up your studying.

Is this really a vacation?

For me, that last week of study was always pretty enjoyable. Was it as nice as spending the week with an Emperor’s Package at Caesar’s Palace in Las Vegas…umm, not even close but it was a break from my day-to-day as an economist.

My own schedule would start each day with a three-hour test bank exam using the topic weights from the exam. The results from these mini-exams are extremely valuable in planning where you need more studying. If you are scoring under 70% in any of the high-value topics, this is where you need to spend your time.

Don’t feel like you have to cover the entire curriculum over the week. Review flash cards and notes in less important topics or in the areas where you are scoring well. I always tried covering a couple of study sessions completely each day and maybe hitting the important points in another one or two study sessions.

Spending 8 -10 hours a day studying means you’re probably going to need to mix it up with different resources to keep from getting bored. Spend some time reviewing flash cards and end-of-chapter questions to take the monotony off of just reading all day.

Three options for your last week vacation

You’ve got three options when planning your last week study plan if you decide to take the week off of work. If you stay home, you really do need to get out of the house to study. Go to the library or another quiet place where you can limit distractions. If you stay home, you are going to be tempted by the television, food and a number of time-killers. Turn off your cell phone and fight the urge to check your email while you are out. This week is still work, it’s just not your normal work but you need to set a 9-5 schedule and follow it. Avoid the temptation to stay out late with friends and pushing your morning study to later in the day.

My favorite plan comes from a friend in Chicago. He would plan a trip, usually to San Diego, for the week. Mornings would start early with a quick run on the beach and studying by 8am. His day still included at least 8-10 hours of studying but it would be done at the beach or the park. You may even ask the hotel to remove the television from the room. The trips gave him a real opportunity to relax but still devote some serious time to getting exam points. It also gets you away from your usual distractions and can re-energize your studying with new surroundings.

You also have the option of going to an intensive boot camp study program like the one offered by Creighton University. These are usually three or four days of intensive lecture on the curriculum. They can be a new perspective on the material and some great advice on how to approach the exam.

Take the Friday before the exam off from studying. You’ve put in the work and deserve a break. Spend the day relaxing and making sure you have your materials to take to the test center. If you are not familiar with where the test center is located, I would spend a little time looking online for routes to the test. Even better, connect with a candidate that lives near the test center for directions and possible road closures in town.

The end is in sight, stay focused.

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

Donald Sterling and the CFA as the Great Equalizer

Last week reminded me of an often overlooked benefit of the CFA exams and the designation itself.

First we saw the blowup by Donald Sterling, owner of the Los Angeles Clippers, in a taped conversation with his mistress. I won’t repeat the racist remarks by Mr. Sterling that led to his lifetime ban from the NBA and will mean the forced sell of the Clippers basketball team. The tirade still shows the amount of prejudice and unwarranted hate that many harbor for another simply because of their race, religion or sexual orientation.

Income inequality seemed to be a theme in the news last week as well. Whether it was universal or just related to other things I was looking at on the internet, I was struck by the number of studies and news reports I saw about income disparity around the world. The gap between the richest and poorest earners seems to be widening and its not only in the United States or other developed countries. I read studies on Latin America, China and for income inequality in Africa and they all seem to point to a widening gap.

Lady Justice and the CFA

It all reminded me of a benefit to the CFA program that most overlook and one of the things I respect most of the program and its charterholders. Like Lady Justice, standing blindfolded to judge right and wrong, the CFA program does not care if you were born with a trust fund or if all you have are the people you trust.

The fact that you pull up to the exam center in a shiny new Jaguar F-Type convertible or ride up on a donkey matters little to your score on the test. In fact, the Institute spent nearly $4 million in the twelve-months to August 2013 on needs- and merit-based scholarships to the program. While some of the wealthiest people in our industry hold the charter, i.e. Bill Gross and Mario Gabelli, it is not because they were able to buy the designation. They had to work for it just like everyone else.

The CFA exam is the same wherever you take it, from Afghanistan to Zimbabwe. There are 137 CFA societies in 59 countries and charterholders in every corner of the map. Growth of candidate enrollment in Asia and Africa has been running in the double-digits for several years as growth in the United States and Europe slows. The curriculum does not care about the color of your skin or the ethnicity you claim.

With all those prayers of passing the exams, organized religion may owe a debt of gratitude to the CFA program but the program itself doesn’t care if you pray to one God or many. It doesn’t care if you spend your Sundays reading a religious book or the five books covering the curriculum.

The CFA charter is the great equalizer in our industry. I am not saying that no one in the industry harbors the same prejudices and faults that are found in the general population but the designation is a standard that we can all reach to as just and fair. Earning the designation is a badge of your hard work and professionalism, something that people will notice immediately when they meet you. It is the scale by which all are judged not by the strength of their pocketbook but by the strength of their studying.

Less than five weeks to the exams. We are coming up to the point for which you’ve worked so hard these last couple of months. Stay strong and study hard.

‘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

Last updated: July 18, 2016 at 16:10 pm

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.


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”).


* 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.


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)


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

Standard IV- Duties to Employers


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

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