CFA Level 3 CFA exam can be the most intimidating for some because of the essay questions.
This post wraps up our five-part series on the most common hurdles facing candidates for the CFA designation. The first reason was too much time spent studying about studying, posted here. The second reason, planning a schedule around life and burnout, is a big one for those of us with a family and a full-time job. The difference between active and passive studying, is probably the biggest hurdle to success for most candidates. Last we looked at the myriad of resources available to candidates and using the right ones.
Today’s hurdle could just as easily have been titled, “I’m an ethical person, so why study ethics?” While the material on Ethics and Professional Standards is not the only one neglected by candidates, it is probably the most avoided. Sure, you need to have a good understanding of the entire curriculum but a look at the topic weights provided by the Institute makes it clear that some topics are a source of some major points.
Ethics, the easiest and most difficult topic on the exams
Candidates have a big opportunity with the ethics section though it still presents a problem for most. The topic area is tested at each level and is worth at least 10% of your exam points. The opportunity comes in the fact that the topic is the only one that really does not change much as you progress. You’ll see a couple of additional sections but these are relatively secondary against the core Code and Standards, which do not change. For candidates that give the topic its due at level I, the next two levels are that much easier.
The problem with the ethics material is twofold. Some candidates consider themselves to be fairly ethical people and so think that the answers on the exam will be intuitive. They neglect the topic and end up failing on the exam. Other candidates read the material, to the point of memorizing the Code and Standards, but neglect to do practice problems.
There are two types of ethics questions on the exam, those with no answer and those that seem to have two correct answers. You absolutely must practice the ethics problems provided by the Institute at the end of the chapters. You’ll be surprised by the level of ambiguity in some of the problems and how minute details can make the difference between one answer versus another. Don’t let the first time you are surprised by this be at the exam.
You need to know Financial Reporting & Analysis for the CFA designations??? Who Knew?
If not of equal importance to the ethics material, I would put FRA a close second. Unfortunately, a lot of candidates avoid this section as well. The material, much of it focused on accounting issues, may not be as interesting for some. It can also get extremely complicated and detailed on the level II exam.
Anyone that works in the industry, whether a charter holder or not, will tell you that understanding the financial statements is of the highest priority. As an analyst, you will need to develop models and an expert knowledge of how the company is reporting its business and how it all flows together. Spending extra time on the material will not only help you pass the exams, it will make your life so much simpler further down the road.
Equity and Fixed Income: The fun parts that aren’t so much fun anymore
Many candidates start the path to the charter because the love analyzing investments, whether in the equity or fixed income market. When they realize that it is a little more than just calculating the price-earnings ratio for the stock everyone is talking about… it becomes less fun.
The two topics can get extremely formula-intensive and most candidates only have experience in one of them. Avoid the temptation of only studying the topic in which you currently work or in which you think you want to work. First, you’ll need the points from each section to pass the exam. Also important though is the fact that you never know how your career will unfold or when you might want to work in another asset class.
Each level has its own idiosyncrasies and no one topic area will get you through every exam. The four topic areas above are extremely important but you still shouldn’t neglect the other five topics. Other posts on the blog talk about specific strategies for each level and can help you further focus your study plans.
Are there any hurdles to passing the exams that I forgot? What tripped you up the most? Let me know if you have any questions about the last five posts.
‘til next time, happy studyin’
Joseph Hogue, CFA
Last updated: January 26, 2017 at 5:16 am
I get questions occasionally about the CFA exam and how the CFA Institute updates the exam to stay relevant in the industry.
One of the most common questions I get from new CFA candidates is if it is possible to take the December Level 1 exam and then sit for the Level 2 CFA exam the following June.
To which I reply, “Possible, of course. Recommended, maybe.”
CFA Level 1 Jobs – Probably one of the biggest questions on the candidate forums is finding a job after passing the exams or whether having the designation will help them get a job.
CFA Level 2 exam still draws from the same 18 study sessions seen in the level 1 exam but with different topic weights.
It’s the second week in June and I can hear crickets chirping in the background. Most CFA candidates are taking a well-deserved vacation from anything CFA-related and it will be several months before they start thinking about what’s next.
That makes this post all the more important for you few candidates that are reading it.
In fact, this post may be one of the most important you read during your time as a CFA candidate or as you progress through your professional career as an asset manager.
Frankie Goes to the CFA
If I were to tell you that now is the time to really start taking advantage of the opportunity to reach out to the CFA network or to develop your professional skills, most of you would think me a sadist. At minimum, you’d probably quote a little from Frankie Goes to Hollywood with, “Relax, Don’t do it!”
And you deserve a little rest and relaxation. You’ve been through a third of one of the most difficult professional designations and you’re probably feeling a bit more than tired.
Take a couple of weeks to reconnect with friends and family. Maybe even take an actual vacation (unless you spent your vacation time on an awesome CFA study vacation).
Then get back to work…and don’t take a few months to do it! Taking advantage of the next six months can make the difference between having a good career and having a great career.
First, you’ve got about six months before the rest of your CFA candidate peers even start thinking about their next exam. The industry is an extremely competitive one and you need to set yourself up as something different, a true asset to your employer. Unless you’re a genius or have some kind of natural gift, the way you do this is by working just a little harder than the next guy.
The second reason you need to take advantage of the post-exam lull in your responsibilities is to get into the frame of mind as a real professional. If you’ve got a full-time job then you probably realize this already but many people take summer breaks or other extended-time vacations for granted. Real professionals don’t get weeks off around the holiday or months off during the summer. I’m not saying you shouldn’t enjoy your college years or should become a workaholic, but you need to get it in your head that professional development is continuous and never-ending.
How to Use your Next Few Months before the next CFA Season
It doesn’t mean you have to pick up the curriculum to the next level of the CFA exams just yet. Six months of studying is generally all most need for the exams so you can wait until January if you like.
There are other ways you can use this time though, some of which could actually be a lot of fun.
- Don’t pass up the opportunity to get involved in your local CFA society. Most societies plan monthly or regular social events and offer a great way to start networking for your career.
- Read through some of the published research from the CFA Research Foundation or even better, submit a research proposal and get your work published.
- There are more than 200 books listed on the CFA Institute website, many worth continuing education credits. Read through special topics that will give you an insight and advantage over peers, or just read a few for interest.
- The CFA curriculum is an excellent academic program but it lacks some of the real practical experience you’ll need in the industry. Take a cash flow or valuation modeling course and learn how to put together your own model in excel.
None of these tasks take a seriously long time and can be pretty enjoyable if you put your mind to it. Being a professional doesn’t mean foregoing everything else in life but it does mean putting challenges in front of yourself even outside your normal schedule.
Put together a healthy mix of projects to keep your mind sharp and keep developing your skills.
‘til next time, happy studyin’
Joseph Hogue, CFA
Any kind of independent study program is tough but studying for the CFA exams is even more difficult. You are going to be spending upwards of 300 hours studying for your exam over the next four months. A lot of the material is academic or theoretical and it will be very easy to let your mind wander.
Distractions come in all shapes and sizes and it is hard to say really how much time is wasted needlessly. Consider this, if you are studying for 18 weeks and spend a total of 300 hours then you are studying for about 17 hours a week. That is about six days a week at three hours each day. If you let yourself get distracted and it costs you just 20 minutes each study session, you will have wasted more than 100 minutes a week and nearly 40 hours total over the 18 weeks!
Don’t Sweat the Little Things
There are really two types of distractions when studying for the CFA exams. Short-term annoyances that take your mind off the material or put you on a digression, and the bigger distractions that deal with real decisions and sacrifices.
The smaller distractions are usually fairly easy to counter with a change to your studying or making a rule for yourself. The real distractions, the things that really matter in your life but that need to take a back seat while studying, are harder to confront.
If you are as passionate about finance as I am then you always want to know what is happening in the markets and in the financial press. This is a great hunger to have when you are working and integrating news into your analysis, it’s not so great when you are trying to stay focused on the exams. If you are reading from the curriculum then this problem can be limited by keeping away from the internet or a television. Sometimes you have to be at the computer to work a question bank or other digital materials.
If you find yourself surfing around the internet while you are supposed to be studying, there are some applications that might help. The website HackmyStudy shows several applications or temporary changes to your computer that will block certain sites from your browser or disallow the internet all together.
While CFA-related blogs can be a great resource for your exam prep, especially this one, they can also be a huge distraction while you are studying. There are really two problems here. First, the forums and blogs can be a distraction while you are studying. You might be tempted to check on a post to which you replied or to look for an explanation to a learning outcome statement. The problem is that once you are there, it is easy to look around for hours and never get back to studying.
The second problem with CFA-related blogs is called meta-studying. This is studying about studying and the exams in general. You are meta-studying right now by learning about distractions to studying, a little ironic but anyway. Obviously you need to know about the exams and learning how to efficiently prepare can save you a lot of time later, but there is a limit. I have talked to candidates that were so unsure about the exams that they spent all their time reading blogs and hanging out on the forums and very little time actually studying for the tests. Spend an hour a week checking in on the CFA blogs and forums and then get back to real studying.
Noise can be another minor distraction that ends up costing you a lot of time. It breaks your attention and you end up having to review stuff you previously read just to get back into your flow. The best way to handle noise distractions is to find your own private place to study. It might be a pain to go to the local library instead of studying at home but you will save a ton of time by avoiding multiple distractions. Some libraries may even offer private study rooms where you can close the door and won’t be bothered by the general public.
Food was a big distraction for me while studying for the exams. Not because I have any kind of an eating problem but because it is an easy excuse to take a break. You are doing well studying and suddenly the idea pops into your head, “hey, I think I’ll go get a snack.” Even if your intention is to get the snack and eat while studying, you’ve still distracted yourself and lost at least 15 minutes. Those little breaks add up if they happen every time you study. Take a five minute break every hour to stretch and relax, then get back to work. Every few hours, I would suggest taking a longer 15-minute break to refresh yourself. Other than those two scheduled breaks, make a commitment not to stop for anything.
Spend 15 minutes thinking about the minor distractions that waste your time. Don’t spend too long, it could be a distraction in itself. Then make a solid commitment or do what you need to avoid letting those distractions break your attention while studying.
The “distraction” of friends and family is the big one you have to deal with while studying for the CFA exams. I use the quotation marks because those closest to you are not really a distraction but you do need to learn how to juggle the exams with your social life. I wrote a post last year that offered five tips for finding more time without sacrificing too much of your family life.
- Lunchtime and other quick breaks – Study for the exams when you have short breaks throughout the day like at lunch or while waiting for something. Flash cards are a great resource because you can carry them around and use them even when you’ve got just a few minutes to spare.
- Travel time – If you have the opportunity to take public transportation, it can provide a solid hour of study time while you let someone else do the driving.
- Learn to be a night owl – You may just have to learn to sleep less for the next couple of months. I love sleep but cut back to about five or six hours a night while studying for the exams. That extra two hours a night studying after everyone else has gone to bed may be all you need.
Whether you are dealing with little distractions or big ones, take a quick look at how much time you lose while studying and commit to saving that time. It’s a tough four months ahead of you but the right focus will get you to the exam with all the confidence you need and it will all be worth it.
Good luck candidates. Now get back to studying!
‘til next time, happy studyin’
Joseph Hogue, CFA
Congratulations to all the candidates that sat for the CFA Level 1 exam last Saturday. As I wrote in last week’s post, you’ve already shown your worth in the perseverance and dedication to professionalism and I welcome you to our group of CFA candidates and charterholders.
Many of you are now looking to the next step, the CFA Level 2 exam in June and wishing you had enough time to relax and reconnect with friends and loved ones.
There are advantages and disadvantages to jumping right back into the curriculum and you might just decide that you have more time to relax than you thought.
Sitting for the June exam after December’s Test
As December candidates, you’ve got a pretty unique opportunity to finish up the CFA exams earlier. Trying to think back on my own experience, I had not decided to pursue the designation until November so really didn’t have the option. If you’ll have the experience requirement fulfilled by late 2016 then you could potentially shave six months time off the process compared to peers.
Reasons to take the June exam after a December exam
- A lot of the CFA Level 2 curriculum builds heavily off of concepts learned in the level 1 curriculum. In fact, many of the sections in the curriculum start off with optional refresher pages to remind you. Going straight into studying for the second exam helps to avoid losing any of that information in a year’s worth of partying and working (ok, partying for the younger candidates, working for the old timers).
- The level 2 curriculum really gets into the detail of financial analysis and working through a company’s financial statements. A lot of candidates are pumped up about hitting the books, even after a grueling few months of studying for the first exam. The curriculum is also undeniably good for your career and the sooner you learn the material, the sooner you can impress your boss with your expertise in analysis.
- You could easily wait until late January when December exam results come out to register and being studying for the second exam. This gives you nearly two months to enjoy with your family and friends. Believe me, you’re first few years as an equity analyst will be busier than that.
Don’t forget that the application deadline for the CFA Awareness Scholarship is February 2nd so you may want to get started on that ahead of time. This scholarship is for key influencers in the academic and financial communities and reduces the registration fee to $350, including the curriculum ebook. Check your local CFA society as well, many offer scholarships for local candidates.
The registration deadline for the standard fee on the June exam is the 18th of February though you have until March 18th as a late-register.
What’s the rush?
Whether you’ve considered it or not, there is nothing wrong with taking a year and a half to sit for the CFA Level 2 exam either. I know everyone wants to get through the exams as soon as possible but there are also advantages to taking your time.
- You can still start your study for the Level 2 exam by borrowing curriculum from other candidates or getting it from the local library. Make sure the readings are up to date but the curriculum really doesn’t change that much so most will still be applicable.
- Even if you set a study schedule that takes you to the June 2016 exam, you can still sit for the 2015 exam to see how it is. You only pay for the enrollment fee once but will have to pay the registration fee again.
- Burn out is a big problem for candidates and you might not feel like a couple of months is enough to spend with family and friends after taking the Level 1 exam.
- The CFA Level 2 exam is, in my opinion, by far the most difficult of the three. The detail and the number of formulas are intense, reasons why the average pass rate is only 44% over the last ten years. Spreading your Level 2 studies out over 18 months means you can really take your time with the material and master it.
- Many candidates will not complete the experience requirements by late 2016 anyway and will need to wait to use the designation. If you are not working in analysis or asset management now, it might be a good idea to find a job that will move you in that direction. Starting a new job takes time but a relaxed Level 2 study schedule will mean more time to learn your new responsibilities.
I know it is unlikely that many December candidates will consider foregoing the 2015 exam to take the 2016 exam instead but I thought I would outline the advantages and disadvantages of each option. Whichever you choose, make the commitment to do it well and continue being the professional you have shown yourself to be.
‘til next time, happy studyin’
Joseph Hogue, CFA
Last updated: December 22, 2016 at 7:56 am
First off, I just realized that in all the build-up to the December exam I forgot to congratulate June candidates for their hard work and success. I say success because, pass or fail, you committed to one of the most difficult professional programs in the world and are a better professional for it. I especially want to congratulate the 14,000 candidates that passed the CFA Level 3 exam and are on their way to receiving the charter. You’ve joined a select group in the industry and accomplished what few have been able to do.
Looking over exam results has me reminiscent of my own years studying the CFA curriculum. It’s reminded me of something I heard a long time ago from a teacher in high school. It’s the toughest roads that make the best journeys.
Would you do it all again?
The maxim is absolutely true and this may come as a shock but someday you will look back on those days with your nose buried in the CFA curriculum books with a desire to relive it.
“What?” you say, “No way, I would ever want to go through that again!”
Don’t be so sure. It’s been more than 15 years since I finished boot camp in the U.S. Marine Corps, one of the most difficult mental and physical journeys of my life, and I still remember it vividly. I constantly had to push myself beyond what I thought possible and the challenge was spectacular. I’ve yet to find another road that led to such a feeling of accomplishment or that has been as memorable.
And you will feel the same way about your years studying for the CFA exam. Right now, all you know is the constant struggle of practice problems and learning outcome statements. With every exam, you start to see the bigger picture and how much you’ve grown as a true professional. I still look back at those years and that sense of growth fondly, and I’ll bet that you will too.
No one said the road to earning the CFA charter would be easy. You will be pushed to test your limits of intellectual perseverance and commitment. You will likely question the program’s worth and your own ability to learn.
But you will also learn what it means to push yourself and sacrifice for a higher level of professional pride. The intellectual growth you achieve will only be exceeded by the feeling of emotional growth and the knowledge that you can make it down any road.
So, for you candidates struggling through those last few precious weeks to December or those of you terrified at the thought of another exam season starting soon, I say enjoy this time of your life.
You’ll miss it.
‘til next time, happy studyin’
Joseph Hogue, CFA
We’ll get back to our review of the CFA Level 1 curriculum next week with a list of must know subjects and some study tips for the last couple of weeks. Make sure you are measuring your progress with mock exams and lots of practice problems.
First, congratulations on making it through another year of studying for the CFA designation. The relief you feel depends on how many more years you have to earn the charter but the accomplishment is as tremendous for level one candidates as it is for those taking the last exam.
Now, you’re probably sitting there wondering, “What do I do with all this marvelous free-time?” Sure you want to reconnect with friends and re-learn the names of your kids. That in itself might be enough for some people, but we are driven people and need to be doing something more. Even more, no one is relaxing in this industry and you can’t afford to rely on what you learned yesterday to make you competitive tomorrow.
This is a great time to put the material you learned for the CFA exam to practical use. This is going to serve two purposes. First, it is going to reinforce the material and you won’t have to review when you begin studying for the next exam. Levels II and III each have supplemental review sections ahead of many of the readings because many candidates neglect to keep the topics fresh in their mind. Save yourself a lot of time and don’t lose the information you studied so hard to remember.
Using the material is also going to help you grow as a professional. The smartest guy in the room still isn’t worth squat unless he can put his intelligence to good use. Working through the material on a project will help you see what works best and you’ll pick up new ideas along the way.
Being proactive with your own work
If you are not employed or not working in the industry, you absolutely must be putting together your own portfolio of work examples. Want to be an equity analyst? Who is going to hire you if you have never worked on a report? Putting together a couple of sample reports will not get you a job that requires years of experience but it will show your ability and enthusiasm and it will put you higher on the list.
If you can find a mentor, so much the better. This can be a professor or a connection, anyone with prior experience in the field. Have them help you with a roadmap of creating your project; i.e. sources, process, material from the CFA curriculum that you will use. Don’t ask for their entire day, just a lunch to outline what you need to do to put a report together. If you cannot find a mentor or someone to help you for a limited time… you probably are not trying hard enough or are doing something wrong. Our industry, as with many things, is all about networking and you need to develop the skill of reaching out to connections.
Leverage the exams at work
If you’re already working in the industry then talk to your supervisor about how you can use the curriculum in your job. The CFA curriculum is fairly practical so you should already be using some of the material. First, sit back and think through the topic areas and readings yourself. Ask yourself, which parts am I currently using and which might I use more. Of course, this is all assuming that your supervisor is open to change and new ideas. If he’s not then you may want to consider your options because his lack of creativity is eventually going to hold your growth back.
Side projects and team leadership are a dirty word around some offices but can really make your career if you succeed. Keep your ears open to planning and development needs and volunteer to lead or sit in on projects. Keep in mind that you may be studying for the next CFA exam in six months so be mindful of the time the project is going to require.
Whether you add a few responsibilities to your existing role or take on a new role, the idea is to use the material from the CFA curriculum. Just working through the exams and holding the designation has value in itself but it’s nothing compared to being able to use that knowledge.
Would love to hear how you used the information or how working through the exam has helped you professionally.
‘til next time, enjoy your break
Joseph Hogue, CFA
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)
Wreck-It Ralph (2012)
Star Wars (1977)
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
By now you are probably freaking out about the upcoming CFA exam on June 7th. Even candidates that have taken the exam before get butterflies in their stomach as test day approaches and if you are not even a little bit nervous, you might want to check your pulse.
Fortunately, very few candidates have problems unrelated to the material on test day. We have all heard horror stories of another candidate forgetting their identification or getting lost on the way to the test site, but these problems are fairly rare.
Even so, the day could be extremely stressful and it helps to know exactly what you can expect. There are also details that can help you have an easier, if not enjoyable, test day.
Test day: T minus 3 hours
I’ve covered the need to plan your route to the test site in other posts but it cannot be emphasized enough. Make sure you know how to get to the test and you may even consider booking a night in a nearby hotel. A nice leisurely stroll to the exam can help calm your nerves and you’ll face no risk of traffic problems.
I always made sure to arrive a couple of hours early to the exam. How early you wake up and arrive at the site will depend on how far you need to go and personal preferences. If you arrive early, you can always take the time to meet other candidates. These will be your peers throughout your career and can be a great source of information and networking.
As far as food, play it safe for breakfast and lunch. Do not eat too much more than you usually do or load up on greasy foods. You don’t want to be hungry but you also don’t want to be so full that it makes you groggy. Do not drink more coffee than usual. On the other hand, don’t forget to have a cup of coffee if you are accustomed to the caffeine pick-me-up. You are allowed to use the restroom during the exam but it comes out of your allotted time.
Once you arrive at the exam site, you may need to sign in with proctors. This usually begins up to a couple of hours before the exam. If you do not see a registration table, ask other candidates.
About half an hour to an hour ahead of the exam (to tell the truth I don’t remember which it is), you will be allowed to enter the testing area. Any personal belongings not allowed during the test will need to be left in the lobby or in your car, so plan ahead. You may not wear any hats while testing. As you enter the testing room, you will show your admission ticket and find your assigned seat. Lay out all your materials in front of you on the table.
The proctors will begin reading the testing policies and rules. At this point, no talking or looking around! Every year, candidates are removed from the exam for cheating because the proctors saw them talking or looking at another candidate’s test. Whether you are actually cheating or just looking around may not save you from getting kicked out. Don’t risk it.
Test Day: Zero Hour
Follow the rules exactly. Do not open your test booklet until told to do so. This should be obvious but candidates get in such a rush that there is often someone that gets reprimanded for it.
Some candidates bring ear plugs for the test. I never had a problem with noise distractions but it is a good idea just in case. I have heard horror stories of open windows and lawn mowers distracting candidates. If you are at all distracted by small noises, bring ear plugs.
I was always amazed at some candidates that do not quit writing in answers after the session is completed. Some proctors will just warn you or repeat to put down pencils but you run the risk of having your exam thrown out! Do not risk it for a couple of points!
Lunch is always a big question. Should you eat or talk with others? What and where to eat, etc.
Again, don’t eat too much or eat anything that might upset your stomach. If you have a ‘comfort food’ or something that helps you relax, that is probably your best bet. As with finding the test center, you may want to plan where you will eat or your options the night before. The safest bet may be to pack your own lunch for test day and eat at the site. Be careful not to pack anything that is going to spoil if not properly refrigerated. Packing my own lunch always seemed too boring and I found that getting away from the test site for at least half an hour helped me to relax and recharge.
A lot of candidates obsessively avoid talking to others out of fear that someone will say something that destroys their confidence. I always felt a little more relaxed by socializing with other test-takers. We never talked about the exam, other than to mention whether it was easier or harder than we had thought. Whether you talk to someone else or not, I guarantee you will realize you missed a problem or second-guess one of your answers. GET OVER IT AND RELAX! No one has ever gotten a perfect score on the exam. Worrying about the morning session is the quickest way to fail the afternoon session.
I would often catch about 10 minutes of flash card studying before lunch was over. Sometimes you can guess which topics have a good chance of showing up on the afternoon section by what was not asked in the morning. If there are a few equations or processes that are still giving you problems in topics that were not in the morning section, this might be a good last-minute refresher.
The afternoon session will go exactly like the morning session. You will file into the testing room, showing your admission ticket. It must be the same admission ticket with the proctor’s check on the morning session so keep it with you and do not write on it. Once inside and at your chair, the proctors will read off the testing policies again.
You are allowed to leave the test if you complete early but no one can leave within the last hour of the exam. In my opinion if you complete the exam with more than an hour to spare, you are either extremely smart or rushed through it. Do you really need to be somewhere so quickly that you leave time on the table for one of the most important professional exams of your life? I recommend checking through your exam at least once. Make especially sure you have filled in the correct bubbles for the correct number.
Many local societies have some kind of party after the exam. Try to go to these if at all possible. They will give you a chance to relax and network with local charterholders and candidates.
The CFA Institute is always the last word on exam day do’s and don’ts but rarely changes policies. You have put in enough time studying and worrying about the exam. You shouldn’t have to worry about minor details of taking the exam as well.
‘til next time, happy studyin’
Joseph Hogue, CFA
There are just two weeks left to the exam and hopefully all of you are nearly prepared academically for the test. You’ve put in your 300 hours of studying, diligently worked your practice problems and mock exams and are confident that you have mastered enough to put you well above that passing score.
But are you prepared for the day of the exam? Every year, candidates are turned away from the test or fail because they do not understand CFA Exam policies and procedures. After spending all that time, do you want to fail the test for something as simple as checking out list of exam rules?
Below are four website links that will help prepare you for what’s waiting on June 7th. The last link is probably the most important as it leads to the full list of testing policies but click through the others just to make sure you are not missing anything important.
CFA Program Main Page
This is the main landing page for the CFA program. It’s probably of secondary importance compared to the pages linked below which focus on the exam but you should be familiar with the site in case you need to come back for general questions on the designation or the program.
CFA Exam Main Page
This is the main landing page for the CFA exam. It is also more general than you probably need at this point but a good reference for later. You should know most of the information like exam dates and content structure but there are a few links here that might be helpful. The page links to testing policies, grading and when you can expect results.
June Exam Testing Locations
This is the first ‘must-see’ page with a drop-down list of cities in which the test is administered. The test center for which you are registered is listed on your exam ticket which you should have received by now. You can only take the test at the site for which you are registered. You are allowed to change your test center but it must be done through the Institute before the exam.
If you have not already done so, I highly recommend you look at your exam admission ticket now. Right now. You absolutely MUST know how to get to your test center before exam day. If at all possible, you should try a practice run some morning before exam day to see how traffic might be and where you are able to park. I always arrived at the test center extremely early on test day, sometimes as much as three hours early. If you plan on arriving an hour or two early and everything goes smoothly, then use the time to review flash cards or just relax. This avoids any one-in-a-million problems like a car breakdown or having to run back home to get something.
If you do not live close to your exam site (within city limits), I would recommend staying in a hotel the night before if possible. First, you do not want to be waking up extremely early to make a 3+ hour trip to the exam site. You need a restful and relaxing morning before the exam. Second, there is just too much that can go wrong with that long of a trip planned the morning of the test.
CFA Program Policies
This last link is hugely important. It links to all the testing policies for the exam including admission tickets, calculators, exam materials, identification, and personal belongings. Even if you think you know all the exam policies, I would recommend that you go to the page and just double-check the material. It will take less than half an hour and you may just find something that will save you on exam day.
If you have not done so, I would suggest preparing your exam day kit as soon as possible. The items are not perishable so you can put it together two weeks in advance and not have to worry about it. Print out two copies of your admission ticket. In this kit, you will put:
- Passport identification
- Two printed copies of your admission ticket
- A printed map from your home to the test site
- Pencils (and pens if needed for the Level III Exam)
- Ear plugs
- Pencil sharpener
- Extra calculator battery and small screwdriver
Your passport information absolutely must match the information on your admission ticket and that you supplied when registering for the exam. If any of this information has changed, you need to contact the Institute immediately. Processing these changes can take up to a week so you cannot wait.
Exam day really isn’t too complicated. We have all taken exams before and understand testing policies. The reason why this particular exam day is so important is because it only happens once a year and there is absolutely no leeway in the rules. This isn’t like the professor you had in undergrad studies that would let you take the exam later if you were sick or late. There are no excuses and no repeats with the CFA exam until next year.
We will cover some suggestions for test day in another post this week. For now, the important thing is to make sure you know exactly how to get to your exam site (including any road closures or detours) and exactly what you will need to bring.
Til next time, happy studyin’
Joseph Hogue, CFA
An email from a Level III candidate brings our post today over two changes in the curriculum this year. The changes were not the only ones but the candidate wanted to know how to approach the two new readings, reading 13 (Concentrated Single Asset Positions) and reading 28 (Currency Management).
After looking back over the new readings, there may be less of a change than candidates are expecting. For those taking the exam for the first time, the change means little because they did not see the old curriculum. For those retaking the exam, the new material is going to look a lot like the old material.
Concentrated Single Asset Position
Previously, reading 13 covered Low-basis Stock but dealt with some of the same issues as we see in the new reading. Two of the previous LOS required candidates to understand psychological considerations, risk, tax issues and techniques for reducing a concentrated position. The new reading brings with it 10 new LOS but the reading looks relatively intuitive.
The reading revolves around the issue of diversification and company-specific risks that come with a large single-asset position. Not only do you have to worry about limiting these risks but your have to do it in a tax-efficient manner.
List material is always a good bet on the Level III exam. It is relatively easy to test on the exam, especially the essay part. Remember the considerations affecting a concentrated position (taxes, liquidity, market constraints, and psychological constraints) as well as the common strategies (sale, hedging, and monetization). Pay special attention to advantages and disadvantages to each strategy when available.
There doesn’t look like you need any calculations so make sure focus on the conceptual material. Lists and the advantages/disadvantages to different tax regimes and strategies should also be remembered.
Currency Management was previously seen in reading 35 as Currency Risk Management but now becomes reading 28 and Currency Management: An Introduction. The new reading is still within Study Session 14, Risk Management and the LOS look similar if not identical in spirit.
Foreign exchange concepts is probably one of the most difficult for many candidates but extremely important. You absolutely must understand the basics because you will need it within multiple topics (Financial Reporting in Level II, Portfolio Management, and Risk Management). If you did not master the basics in an earlier level, you might want to go back and review.
The important calculations are finding the mark-to-market value of a position and the return decomposition. Focus on these before any of the other formulas and spend your time on the conceptual elements of the material. As long as you understand the conceptual material and the two important calculations, you should be able to get most of the points on the exam. As with the section above, the list material is a good place to start. Lists can be easier to remember and have a good chance of showing up on the exam. Pay attention if any advantages or disadvantages are offered.
Both of the new readings are fairly large and it really isn’t possible to list out all the concepts in the space we have here. The FinQuiz notes condense the two readings down to 28 pages or you may want to create your own outline of the material for easier review. Less is better with an outline so try to describe each concept or step in a process in no more than a couple of sentences.
Just a couple of weeks to the exam and you need to start wrapping up your studying. Work those practice tests and understand where your strengths/weaknesses are on the material.
‘til next time, happy studyin’
Joseph Hogue, CFA
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
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
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
With just six weeks to the CFA Exam, you might be feeling pretty confident about your preparation so far and ready to coast through to the June test. You are doing well on question bank problems and are sure you will be able to pass the exam.
Don’t take your focus off of the finish line! This is the time you need to double your efforts and finish strong for several reasons.
Surprised every year
Everyone knows that nearly half of the candidates taking an exam will not pass their level this year yet the statistics are always the same. While the Institue shifts the passing score from year to year, we should see pass rates increase if more candidates were getting at least a 70% or better across all topics. Even after experiencing the exams, candidates continue to underestimate the challenge.
While you may have already put in hundreds of hours in preparation, know that it may take another hundred hours or more to cement your place at the top of the pack. I put in a fairly tough schedule usually from September or October all the way through May each year I was a candidate and was still surprised every year when I went into the exams.
Put in that little extra time and you’ll be rewarded with a huge sigh of relief in June.
Exam, what exam?
One thing I have tried to stress on the blog is the fact that professional development is an enormous part of our industry. Not only is the competition among analyst jobs so fierce but trying to find the best investments in a fairly efficient market among a sea of investors seems impossible at times.
You need every tool at your disposal and the CFA material is the best toolbox around. Try to not think of studying for the exams so much as a one-and-done event but a continuous process in your new career as a true professional.
Obviously, this is tough to do when you are singularly focused on passing your next exam. I understand because I was in the exact same spot just three to five years ago. Keep focused and confident that you will pass the exam but keep the studying in perspective. Don’t stop when you think you are safe to pass the exam. Only stop when you feel you have mastered the material.
Putting it into perspective
While you might feel that the exams are consuming your life right now, putting the time spent in perspective might help a little. That 300+ hours studying for each CFA exam is insignificant over a lifetime.
The Bureau of Labor Statistics reports that Americans 15 years and older spend approximately 7.5 years in front of the television. That’s nearly three hours a day on sit-coms and reality TV.
Surfing the internet takes up nearly as much time with 10,000 hours or about 5 years of our lives. Some of it is time well spent connecting with friends and family or other worthwhile sites but there has got to be a few pointless hours within that total.
Thinking about some of the time wasted throughout the day makes a few hours of professional improvement a little easier. If you spend 300 hours on each exam, that’s just 37.5 days and a little over 11 hours a week over six months. Find that quality time with your family, make sure you get enough time where it counts and then get to work!
Good luck. You’re almost there and I know you can do it.
‘til next time, happy studyin’
Joseph Hogue, CFA
If you’re a CFA level 1 candidate, your top priority right now is to pass that first hurdle and enjoy a well-earned six months of rest. The last thing you want to think about is putting in your time on the next two exams.
But if I told you that there was something you could do while studying for the CFA level 1 exam that would save you a lot of time next year, would you be interested?
You bet you would!
Remembering a few key points while studying for the first exam could help you pass the level 2 exam and even give you a head start on the third exam as well.
Relationships between the CFA exams
The secret is understanding the related material across the exams and what you need from one exam to the next. While the topic areas across all three exams are all related to an extent, there are a few in which your work on earlier exams is absolutely imperative to passing.
Ethics and Professional Standards is probably the most consistent across all three exams. You will see a couple of new sections in the level 2 and 3, but the core material is exactly the same. The topic area is worth more nearly 12% of your total score across all three exams so definitely points you can’t afford to miss.
Not only is the topic extremely important across the exams, it’s been my experience from candidate comments that it is the one they are most often disappointed by on the first exam. Candidates assume they are ethical people and will be able to pick the correct answer out of the three possibles. They neglect the section and then are surprised at how difficult it is on the exam. Spend a little extra time on this area, do the end of chapter problems and save yourself a ton of time and stress in the next two exams.
Quantitative methods is another topic where mastery of the CFA level 1 curriculum will pay off big time on the second exam. While it is not a high-point section, only 12% of your first exam and 5% – 10% of the second, understanding the material in the CFA level 1 is critical to do the work on the next exam. The level 2 curriculum usually even includes optional refresher material for those candidates that didn’t learn or forgot the prior material. Think of it as the difference between two mathematics courses, one teaching the basics of multiplication and the other moving on to algebra. You would be absolutely lost in the algebra class without mastering the prior course.
Financial Reporting and Analysis is one of two or three core topics to the entire curriculum and worth more than a fifth of your first two exams. The readings on the financials statements in the first exam must be mastered to be able to do the intense analysis work in the second exam. Talk to almost any level 2 candidate and they will tell you that one of the hardest parts of the exam is the FRA material, especially intercorporate investments, multi-national operations and pensions. To be able to understand these readings, you must understand the relationships between the financial statements which is Level 1 material. Save yourself the time of reviewing this by mastering it early.
Study session 14 in the Equity Investments topic area will also be a very important reading for progressing to the level 2 exam. In fact, it looks like a lot of the level 1 material is repeated in the level 2 curriculum. Equity Investments are a quarter of your total score at the second level so you want to be ready for the topic.
The usual disclaimer applies that you cannot afford to completely neglect any topic area. You will need around 70% on your exam to pass to the next level. These exams are extremely difficult on a mental and physical level so do not expect to get all the points in any one section. Spend enough time on the secondary topic areas so you can get at least 60% or more and then focus on the higher-point and higher-importance sections.
‘til next time, happy studyin’
Joseph Hogue, CFA
Last updated: July 18, 2016 at 16:59 pm
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.
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
Last updated: July 18, 2016 at 16:40 pm
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
- No sanction required
- Cautionary letter
- 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)
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
* 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.
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.
*** 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.
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
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
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
Last updated: July 19, 2016 at 11:33 am
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
A recent post on the LinkedIn forum is asking how people with children are finding time to study for the exams. We can all relate to the time constraint to some degree but I have a ton of respect for the candidates able to do it while caring for young children.
I worked a full-time job throughout my studies and was married while studying for the third exam but never had to juggle studying with the full-time job of raising a young child.
So I researched some time saving tips online and came up with this list…
1) Is it a coincidence an enlistment in the military and the average time to pass all four CFA exams is four years? I say it’s time to teach the kids the importance of serving their country. Never too young!
2) The average person spends more than 23,000 hours washing clothes and over 300,000 hours getting dressed! Save the time, go naked!
3) Instead of calling your name while making love, ask your lover to call out formulas from the curriculum!
Real Ways to Find Time
Joking aside, there are ways to find time to study even with a full work schedule and kids. It really comes down to time management. We all have to do it, you will just need to sacrifice more and manage your time more efficiently if you have more commitments.
1) Start earlier – You know that it takes an average of 300 hours of studying to accumulate the knowledge to pass any given level of the CFA exams. This doesn’t change whether you have four hours a week or 40 hours a week to study. There are approximately 36 weeks left to the June 2014 exams. That means about eight hours a week studying, a fairly manageable goal even with kids.
2) Take longer – Everyone is laser-focused on passing the exams each year but there is nothing that says you cannot take two years per exam. The curriculum doesn’t really change much from year to year. You should be able to find a recent year’s curriculum through another candidate, the local CFA society or the library. That allows you to study for free until you are confident you can register for and pass the next exam. Just make sure you check the readings in the older curriculum against the Institute’s current year curriculum.
3) Who needs TV anyway – It’s not only TV but we all have little things that we spend time on that could easily be sacrificed. Budget your time carefully and you should be able to find a couple of hours per week.
4) Your support system is everything – Friends and family are a great resource for support and help with time. Can they help watch the kids a couple of hours per week? Can they help run some errands that might save you a couple of hours? Don’t be afraid to ask, they care about you and want you to succeed. That’s why they are your friends.
You are taking the exams for a reason. You are highly motivated and ambitious. Don’t let the lack of a few hours per week keep you from achieving your goals.
‘til next time, happy studyin’
Joseph Hogue, CFA