The CFA Program – An Overview
There are numerous degrees and credentials a financial professional can consider but there is no designation so respected and focused on investment skills as Chartered Financial Analyst (CFA). According to The Economist magazine, CFA designation is a gold standard and equivalent to a specialized postgraduate degree in Finance with a combination of law, accountancy, economics and ethics. While there are thousands of finance degrees available across the world, each with its own scope and value, only the CFA designation is managed by the American association of financial professionals, the CFA Institute.
The CFA Institute is a non-profit professional organization consisting of over 100,000 financial professionals like charterholders, portfolio managers and others from more than 135 countries. It works to develop and promote a high level of ethical, professional and educational standards in the investment industry.
Professionals considering the CFA designation should meet the criteria stated below to get the designation from the CFA Institute:
• Clear the three rigorous, 6-hour exams over multiple years
• Possess at least 2 years of professional work experience which should be generally finance related
• Become a member of the CFA Institute by agreeing to the Standards of Professional Conduct and CFA Institute’s Code of Ethics
CFA Charterholders seek careers in investment firms, insurance companies, brokerage firms, banks, universities and pension funds. Some of them even consider government jobs in the areas of public policy and regulation.
Everybody considering the Chartered Financial Analyst designation has one major concern – the CFA exams. CFA Program exams are taken in three different levels over a time of minimum 18 months. Level 1 is held twice every year in the months of June and December. This exam tests the person’s knowledge of financial accounting, investment theory, and portfolio management. Level 2, as well as Level 3 exams, are taken once in a year in the month of June.
The CFA Program Curriculum is available in English language, like other standardized exams. It is organized into three levels with 17-18 study sessions in each level. Each study session comprises of learning outcome statements (LOS), assigned readings and problem sets. All the questions of the exam are based on the content corresponding to the curriculum for the specific level. Every question is based on one or more LOS. The CFA Curriculum gets more complex as one moves through the CFA levels.
• Level I tests the knowledge of ethical and professional standards
• Level II tests the way you apply these standards to situations faced by analysts
• Level III tests the way you can apply these standards in the context of portfolio management and compliance
Other Relevant Stats – What You Can Expect?
The CFA Program course was created in 1962 and gets updated constantly to make sure that its curriculum caters to the changing requirements of the investment industry on a global level. The graduate-level course typically requires six months of preparation before each exam.
According to the reports of CFA Institute, historical pass rates for Level I and Level II of the CFA exam are generally between 40 and 50 percent with a slightly higher pass rate for level III. The pass rates, however, were quite higher when these exams were first introduced in 1963 and have been decreasing since then.
In the year 2018, 43 percent candidates passed the Level I and 45 percent passed Level II while 56 percent passed Level III. About 10 to 20 percent candidates registering for the exam don’t appear for the test. Less than 20 percent of candidates clear all the three exams in the first attempts which means candidates should not get discouraged and lose hope.
These exams are not easy. According to CFA Institute’s estimate, a candidate requires at least 250 hours of study to pass each of the three exams. Such a number can be daunting for professionals who attempt to clear CFA exam while working in their field. However, a lot of people consider this course than any other as it focuses primarily on investment management and its practice.
The exam study material is quite difficult and exam questions are designed to trick and challenge the candidates. This is why test-takers should take enough practice tests, revise practice questions and get accustomed to the type of questions they will be facing. Level 1 has 240 multiple-choice questions, level 2 comprises of 20 item set questions and level 3 has a mix of item set and essay type questions. Though MCQs have only three possible answers, you should read the questions and options carefully to select the correct answers. There are often ‘all of the above’ and ‘none of the above’ type answers to these questions. The pressure of time limit during the exam can also cause some anxiety among candidates.
Key Highlights About CFA Exam Format
Here is the basic format of the three CFA test levels:
CFA Level I Exam
This is the first of the three exams students go through. The Level 1 focuses on the concepts and tools applied to investment management. This exam is conducted in two sessions of three hours each. It contains 240 multiple choice questions with 120 questions in each session. The questions are designed on the basis of topic weightage given in the CFA Program syllabus with little deviation.
• This exam focuses primarily on developing basic Finance concepts
• This exam follows a multiple choice question format to make it easier for candidates but one should answer each question in about 1.5 minutes
• There is no negative marking system
CFA Level II Exam
The second exam that students appear in, after passing the CFA level 1 exam, Level 2 deals with assets valuation. In this test, students should show their ability to apply the tools and concepts learnt in level 1.
In level 2, there are 20 item set questions divided into two sessions. The morning and evening sessions each have 10 item set questions. The CFA level 2 exam has a total of 120 questions. The time duration for this exam is 360 minutes. Some topics from the CFA syllabus are covered in the morning session while others are covered in the evening session.
• This exam follows a format of mini case studies which are 1.5 pages long on average
• Each mini case or item set has six questions and answers to these questions depend on previously answered questions
• There is no negative marking system
CFA Level III Exam
The final CFA exam that students should clear to become charterholder, level 3 exam tests the in-depth knowledge of portfolio management and wealth planning. The exam format of this exam includes item set questions and essay type questions together. The duration is 6 hours and is held in two sessions – morning and afternoon.
The morning session has 10-15 essay type questions containing hypothetical situation or case studies to which students should suggest measures, construct solution or explain details. The afternoon session has 10 item set questions each consisting of a case study followed by 6 multiple choice questions.
• The Morning Session of this exam has an Essay Type Format where candidates are required to solve case studies and answer appropriately
• The Afternoon Session is similar in format to CFA Level II where one can find mini case studies with multiple choices for answers to questions
• There is no negative marking in this exam
The six-hour exam covers a number of topics ranging from ethics and professional standards to economics, quantitative methods, financial analysis and reporting, equity investments, corporate finance, alternative investments, derivatives, wealth planning and portfolio management which is why most CFA charterholders suggest more than 300 hours of studying for candidates appearing for this exam.
How To Prepare For The CFA Program Exam?
Just like any other standardized exam, CFA Program Exam demands a lot of commitment and practice. Learning to take the exam is as important as understanding the curriculum and material. All the three exams in the CFA Program are designed to be self-study curriculum but one can take help of a study course or a tutor to prepare effectively for the exams. Here are some of the important things to consider in order to prepare for the CFA Program Exam.
Creating A Study Strategy
Apart from the appropriate study skills you need to pass the CFA exam, you should also develop an examination strategy for skill assessment, time management and taking numerous sample and mock exams. Time management relates to the time you allocate to exam preparation and for the exam itself. It also ensures you can answer all the questions within the time limit and gives you an idea about the time you can use for each question.
Skill assessment is about identifying your strongest and the weakest sections. This lets you work more on your weaker topics and spend less time on sections where you have more chances of passing and scoring. For multiple choice questions, you should know which questions you should skip and return to later. You should be able to decide which questions are worth attempting.
Taking multiple exams not only brings confidence when sitting for the actual exam but also enhances your ability to manage time, giving you a better sense of taking the exam apart from answering the questions. It is a great idea to do a number of possible sample exams throughout the study period.
Is Self Study The Right Option?
While many believe self-study to be the best option for CFA Program preparation and have passed the exam by studying alone, it is certainly a difficult option. The information the candidate has to understand and remember is so much that it can be overwhelming. Though self-study allows the candidate to enjoy freedom in managing his/her time and resources, people who are not motivated enough to study continuously for more than six months may have too much material left to be learnt in a very short amount of time.
A lot of study materials are provided by the official CFA Program and other third-party providers on different subjects covered by the course. When the candidate chooses to self-study, he becomes responsible for making an interpretation about the quality of information available in each resource and making the best out of it. Most CFA study guides recommend a minimum of 300 hours of time spent on exam preparation in order to pass the three levels. This number is based on the assumption that you use your time efficiently and that your review course is helpful. This requires that you have really useful, focused exam prep books and materials that maintain your focus, work for you and prepare you in the real sense for the big day.
It is thus essential that you select a CFA Prep Provider to get well-designed, comprehensive aid to boost your self-study strategy. If you are a motivated starter who can use the available time effectively to prepare for the CFA exam, you can benefit from self-study to enjoy the freedom of time and resources. A top-rated CFA Program prep material can provide you the appropriate structure and study plan to help you utilize each hour productively. There are various providers in the market, each offering their own set of materials and features to benefit from. It is, however, essential that you pick the one that suits your learning style and requirements to avoid being misguided and confused.
One can make self-study strategy effective by selecting a well-designed study material consisting of summaries, mock tests, questions, sample papers and study plan crafted by experts in the program. Such course materials are intended to offer summaries of the topics and sample questions to help candidates grasp well and learn the topics. Mock tests and practice papers let the students get enough practice and learn time management to perform better in the actual exam.
Why Choose FinQuiz?
An approved CFA Prep Provider for Levels I, II and III of the program,