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

Here we are more than a month after the CFA results and the elation hasn’t worn off for those that passed. Nor has the disappointment gotten any better for the candidates that did not make the cut.
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CFA Level 1 Jobs – How to get the perfect job

It’s a jungle out there! I get emails every week from candidates that continue frustrated in their job search, even after passing one or more levels of the CFA exam.
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CFA Level 1 – Download Free Formula Sheet – PDF

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

I just had to smile.
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CFA Level 2 Exam – How hard ?

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

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CFA Curriculum Warning: Do Not Neglect

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

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

And many of them are still candidates.

Do Not Neglect the Official CFA Curriculum!

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

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

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

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

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

CFA Study Guides

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

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

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

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

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

CFA Level 3- Five points to enjoy the exam

CFA Level 3 experience

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

CFA Level 3 – It’s all about the Essays

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

CFA Level 3 – Essay questions topics

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CFA Level 3 – Work requirements

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

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

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

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

Last updated: October 7, 2016 at 3:34 am

CFA Level 2 – Read questions or vignette first?

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

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

CFA Level 2 Format and Basic Strategy:

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

CFA Level 2 practice exams

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

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

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

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

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

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

CFA Level 2 Topic Weight Differences on the Exam

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

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

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

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

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

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

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

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

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

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

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

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

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

Read detailed tips on passing CFA Level 2 here.

Happy studying
Joseph Hogue, CFA

Last updated: October 7, 2016 at 3:34 am

CFA Retabulation ?

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

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

CFA retabulation worth it?

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

Understanding CFA Exam Results

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

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

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

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

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

Should you Request a CFA Retabulation?

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

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

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

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

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

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

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

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

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

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

When to start studying for CFA ?

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

When to Start studying for CFA Exam ?

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

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

Is it too late to begin studying for CFA Exam ?

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

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

How Much is Enough for CFA Exam ?

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

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

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

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

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

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


Last updated: December 22, 2016 at 7:41 am


CFA Level 3 Examination Tips

On CFA Level 3 exam, a candidate has two sessions, one comprising of 10 item-set questions (afternoon session) and the other comprising of 9-15 essay questions (morning session). The afternoon session is quite similar to CFA Level 2 exam and therefore, should be handled in the same manner as the CFA level 2 questions. However, the format of the morning session is unique to this level. The morning session constitutes 9-15 essay questions, with each composed of 1-5 sub-parts. Following are some tips for preparing and attempting CFA Level 3 examination.

Preparation for CFA Level 3 Exam

  • Most candidates believe that CFA Level 3 exam is easy and much less demanding than CFA Level 2 exam. They, therefore, take their preparations slow and easy. This is a grave misconception! Start early and spend at least 10-12 hours a week studying FinQuiz curriculum notes.
  • In item sets, a student is provided with three options, one of which is correct. However, in essay questions, the student has to come up with the exact correct answer himself. Hence, it is imperative that you know, and are able to retain and recall, every important concept, formula and relationship.
  • Analyze and identify the areas having a higher probability of being tested as essay questions. Examples of such areas would include behavioral finance, individual IPS, institutional IPS, fixed income and equity.
  • Portfolio management is an area that carries the largest weight. Make sure you know this area inside out and can attempt questions presented from every angle and perspective.

Reading the material for CFA Level 3 Exam

While reading the material to prepare for such questions, use the following tips:

  • After understanding a concept, try to memorize all important points related to it. A helpful way of doing this would be to box the important details while reading. You can also number the points by underlining them and writing superscripts 1, 2, 3 and so on for every topic. This way it will be easier to learn and retain the points.
  • Reviewing the material as you progress is especially essential for essay questions. Have a proper review plan in place and follow it religiously.
  • Know how one topic relates with the other. Flowcharts and similar graphical depictions can help in understanding relationships and are effective means of retention. FinQuiz Smart Summaries are excellent source for this.

Practice for CFA Level 3 Exam

  • A great deal of practice will not only help familiarize you with the format of such questions, but will also illustrate how to approach them.
  • Remember to review each practice test carefully after attempting it and determine what information was required and how it is graded. Analyze your mistakes and weaknesses. You would notice that, sometimes, you missed out on writing needed information even though you knew it and instead, wrote something that was not required. As you practice further, you will get better at attempting such questions.
  • The only way to avoid leaving points during the final exam is to do practice essay questions under a time constraint over and over and over again.  There is no substitute for intense essay practice.

Attempting CFA Level 3 Exam

  • When attempting essay questions read the question first and then read the case. Try to keep in mind what is needed when you are going through the vignette.
  • Apply your time management skills for this exam. Go through the exam once and answer the questions that come easy to you first. This will prevent you from failing to answer all the questions.
  • Answer questions by focusing on key words in the vignette. If you don’t know the complete solution, answer with what you know since CFA Institute grants partial marks.
  • Don’t miss easy points by assuming that they must be something the examiner would know. Remember, every point is important.
  • Answer each sub-part using clear, precise and relevant statements. Remember, your answers are your only communication with the examiner—try to tell him/her that you know what you are talking about. Be as relevant as possible; writing unnecessary details will leave a bad impression on the examiner and will be a waste of your precious time.
  • An appropriate format of attempting essay questions is to use bullet points.
  • Space your words and sentences so that they are easy to read.
  • Do not write lengthy answers; try to be as concise and accurate as possible and explain the answer in just a few lines or so. Knowing how answers are graded will illustrate how objective you have to be when answering; writing long, unnecessary stories will give you no extra points.
  • When answering numerical questions, start by writing the data and the formula. Show your calculations and write the final answer prominently. Remember, there are marks for each important step of the calculation.
  • No matter how poorly you have done in the morning session, don’t lose hope. The afternoon session carries equal weightage and is as critical to passing the exam as is the morning session. Try to relax during the mid-break and focus on the item sets in the afternoon. For many candidates, the afternoon session scores have been central to passing the exam.

You should review yesterday’s post CFA Level 3 – How to Pass as well.

Last updated: August 3, 2016 at 3:48 am

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

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

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

CFA Level 3 Contents, Format and Basic Strategy:

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

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

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

CFA Level 3 and time management

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

CFA Level 3 – Topic Weight Differences on the Exam

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

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

CFA Level 3 Exam and last three years’ essay exams

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

CFA Level 3 – Which questions to be answered first?

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

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

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

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

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

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

Focus of CFA Level 3 exam

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

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

happy studying
Joseph Hogue, CFA

Last updated: December 22, 2016 at 8:06 am

CFA Level 3