Learning Outcome Statement Changes: Level 2 and 3 CFA Exam 2011-2012

An important, but often overlooked, resource for candidates is the changes to curriculum Learning Outcome Statements (LOS). The changes are important for repeat candidates because they present the new and removed material from what the candidate studied the prior year. The changes are also important, however because they help highlight new directions in which the Institute wants to take the exams. **While it can’t be proven because the actual exams are not public knowledge, it is rumored that the Institute likes to test new material on the exams. Whether this is to ‘test’ repeat candidates or to highlight the change is up for debate.
Every year presents some changes to the curriculum at all three levels, but rarely do they change a great deal. A complete list of LOS changes are available for each level of the CFA exams on the FinQuiz website. Looking through the list at least once is an absolute MUST for all candidates.
Wording Changes
Looking through the list, you will notice two types of changes. The most common are wording changes to the learning outcome statements. These are usually just changes to the ‘command’ words like changing Evaluate to Analyze. There may be some use here in observing the changes where the candidate does or does not need to calculate something. For the most part, I think the Wording Changes are fairly unimportant. The overall objective of the LOS remains the same so your strategy for addressing the topic will probably remain the same as well.
Curriculum Changes
The more important changes are where the curriculum has been removed or added. Sometimes LOS changes come from the same reading but an emphasis on different parts, while sometimes LOS changes are a result of completely new readings. If you are a new candidate to the specific level and using only current year materials, you probably just need to check out the LOS statements added for that particular year. As mentioned, it’s rumored that the Institute likes to test these so make sure you understand the topic.
Candidates repeating an exam level must read through the changes to understand what has changed from the prior year. Special emphasis may be needed for those new topics and reading since they will be completely new to the candidate.
Level II Changes 2011-2012 (click here for complete list)
Curriculum changes in the level 2 CFA exam this year are fairly light and fall in economics, equity, alternative investments and fixed income.
There is less emphasis on the conceptual foreign exchange and interest rate material in economics with the removal of 4.17 from last year. These LOS were much more esoteric and less-quantifiable. Candidates are still required to work calculations in forex.
LOS 10.36 from last year, dealing with execution costs and some foreign equity issues, was removed.
Removing LOS 11.39d and adding LOS 11.36d looks like a semantic change to me. The LOS is basically the same but more generalized in scope to changes in the industry structure rather than just eliminating rivals (think changes from entrants AND exits to industry)
The ‘stock screen’ LOS always seemed a bit of a side-note to the curriculum and has been removed.
All mention of commodities has been removed from the LOS and replaced with more material on hedge funds.
A couple of LOS in Fixed Income have been removed. These seem more relevant to the last few years’ economic problems and may not be deemed as relevant going forward.
Level III Changes 2011-2012 (click here for complete list)
The removal of Ethics LOS 1.1c from last year’s curriculum seems a little unnecessary as you still need to know the code and standards, including sub-sections to answer the rest of Ethics material. I don’t know that this really changes anything.
The big change to level 3 this year is the all new readings in Behavioral Finance. It looks like less emphasis is placed on individual/specific behavioral biases (i.e. being able to spot or explain representativeness, overconfidence, anchoring, etc) and more emphasis on being able to explain behavioral finance in a generalized way. ** Be sure you read and understand the new readings.
A few LOS have been removed from the private wealth management section mostly dealing with using lifestyle goals and cash-flow matching instead of traditional measures of risk/return. This section seemed to conflict with the rest of the curriculum.
A couple of miscellaneous LOS have been added to the Capital Markets section dealing with macro economic issues.
The need to explain the GIPS standards specific to private equity has been removed but candidates still need to explain the provisions that apply to real estate and private equity together, so not much different here.
Not knowing the curriculum changes probably isn’t going to be something that will make or break you come test time, but it may get you some extra points. LOS changes are more important for repeat candidates but also worth the time for first-time candidates within their level as well. Spend half an hour to look over the changes and understand where the Institute wants to take the curriculum.
‘til next time, thanks for reading.
Joe Hogue, CFA

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