The chartered financial analyst title is a coveted designation for financial advisors, but passing the CFA exam isn’t an easy task. Less than half of those who take the test pass the first level.
The exam has three levels altogether, and test-takers often study for six months or more for each level. It could take more than three years to complete the series.
Candidates must also accrue 4,000 hours of professional work experience over at least 36 months before they are awarded the CFA designation. Here are some tips for passing this rigorous exam.
Learn About the CFA Exam
According to Chris Wiese, a CFA and senior head of learning, experience and assessment development for the CFA Institute, the exam’s topic areas are listed on the organization’s website and include quantitative investment knowledge areas such as statistics, accounting and economics. There are also topic areas for each of the major asset classes.
Level 1 covers foundational information, and Level 2 incorporates analysis, requiring test-takers to apply their knowledge. Level 3 synthesizes what candidates have demonstrated in Levels 1 and 2, presenting real-world decisions. “Level 3 is where a lot of our portfolio management topics tend to be covered,” Wiese says. He adds that ethics questions are part of all three levels.
Topics change occasionally. A newer addition relates to environmental, social and governance issues, for example, Wiese says. The CFA Institute determines the relevance of topics by interviewing members and others in the industry. Then, the organization’s educational advisory council decides whether to update the exam.
The first level contains multiple-choice questions. The second has so-called “item sets,” which are small case studies followed by four to six multiple-choice questions. In Level 3, candidates must write out the answers to the questions.
CFA Exam Pass Rates
It’s not uncommon for candidates to retake one or more of the levels, Wiese says. The Level 1 pass rate is 45% to 50%. The pass rate for Level 2 is slightly higher, and Level 3’s rate is just above that of Level 2. Of course, there is some bias effect for Level 3’s higher pass rate because these candidates have already passed the first two levels, Wiese says.
How to Prepare for the CFA Exam
Everything test-takers need to pass the exam is on the CFA Institute’s website, including practice questions, Wiese says. However, candidates who feel they need help studying can reach out to CFA societies in their area or use third-party exam study programs.
Derek Burkett, vice president at Kaplan Schweser, which created a CFA exam study course, says the amount of time it takes to study depends on the person’s educational background and role in the investment industry. Typically, candidates spend at least 300 hours per level studying the material.
One old habit that many candidates fall back on is reading and re-reading, but that gets students only so far, Burkett says. He recommends taking practice tests to help reinforce their knowledge.
Wesley Llado, who is a CFA and assistant vice president of wealth management at First Long Island Investors, says practice problems are useful to help familiarize candidates with the exam questions, and he personally used practice tests to help him pass.
The practice problems help test-takers understand the concepts behind the math formulas and when to apply those formulas, Llado says. “I feel like a lot of candidates memorize the formulas, and then they don’t know what to do with them or when to apply them,” he adds.
He reiterates that test-takers should start studying at least six months in advance. “This isn’t like an exam in college, where you can just cram the last day of the last week or even the last month. It may work for Level 1, because that is the easiest out of the three. But it definitely will not work for Level 2 and Level 3,” he says.
Recently, the CFA Institute made some changes to the test in response to COVID-19. The organization delayed test days in 2020, Wiese says, and it used the time to revamp the test. It is now four and a half hours long and computerized. There are fewer multiple-choice questions, too. The institute decided to shorten the exam because “by the time we’ve asked about 180 multiple-choice questions, we already know if someone knows the content, so asking additional questions beyond that wasn’t providing much incremental information,” Wiese says.
Navigate the CFA Exam on Test Day
On test day, candidates should take advantage of the lunch break to rest, Wiese recommends. The break time does not count against the total test time. Time management is also important, and test-takers should spend only about a minute or so on each question. Flag questions that are difficult and come back to them later.
Llado says his No. 1 tip for candidates preparing to take the CFA exam is to create a study routine. “Make sure you do not underestimate the test,” he says.
How the CFA Exam Is Scored
Scoring for the CFA exam is not like other tests, Burkett says. Test-takers are not penalized for wrong answers, so there’s no harm in putting down a gut response. Wiese adds that because people take the test over a few years, the CFA Institute adjusts the score for when the test was administered. “In one version, the exam may have been harder or slightly easier than the last time, so the score can shift a bit,” he says.
Other CFAs grade the exams, and for each item, the scorer considers the difficulty level of the question and whether someone with a new CFA designation would get the question right or wrong, Wiese says. The opinions are collected and aggregated to get an implied passing score, and that’s brought to the CFA Institute’s board of governors.
If a candidate’s score is borderline passing or failing, the board of governors can make an adjustment based on the person’s responses to the ethics questions. “If they’ve done well on the ethics, that will push them toward the passing side of that line,” Wiese says.
Candidates are notified in approximately eight weeks as to whether they have passed the exam. At that time, they are able to see their results for each of the topic areas.
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