On Saturday, thousands of CFA level I candidates will sit down and attempt to take their first step towards the notoriously elusive ‘charterholder’ status. Pass rates for the level one exams are generally low, but historically the proportion of candidates making it through in December is below 40% - lower than the June exams when typically 43-50% of people get the thumbs up.
Those who coach people taking the CFA exam recommend taking the level one in December if you have failed earlier in the year. The reason being that you can maintain momentum and ensure you pass all levels over three years, rather than waiting another 12 months for a retake of level one.
By this point, you should be through most of the 300 recommended hours of study. So, how do you ensure you don’t mess it up? Nicholas Blain, chief executive of financial training firm Quartic Training and other CFA experts give us their tips.
One possible reason for more success in the June exams for CFA level I candidates is that newbies are often surrounded by colleagues and peers who have done it all before, says a former head of education at the CFA in Europe. Not only will they give you tips on what to expect on the day, they can divulge tactics on how to tackle the exam. It helps, therefore, to talk to as many people who have passed CFA level one before the big day.
Timing can be a huge issue with CFA level one candidates, who usually take a linear approach to the exam – tackling each question in the order they’re presented. The CFA head says it’s best to tackle the subject areas you’re most comfortable with first: “I was a trained accountant when I took CFA level one, tackled the financial analysis first. This helped me settle in and gain confidence as well as completing a section of the exam relatively quickly. You need a strategy to tackle the exam.”
It sounds basic, but knowing the route to the exam location, making sure your transport links or parking restrictions are all accounted for and having all the right equipment are incredibly important to success during the test itself. A lot of CFA level one candidates walk around with a “lost” look on their face because they haven’t planned for the practicalities and arrive flustered and panicked to the exam hall. “I can’t tell you how many people forget their calculator – you need to get the basics right,” said the former CFA head. Get to the exam hall by 8am, says Blain.
Ethics in the CFA exam is skimmed over by too many candidates, who rely on the summary notes rather than looking in detail, and instead they spend time on the meatier and more complex financial elements of the exam. “The curriculum goes into detail on the seven sections, 22 subsections, with a wide range of worked examples for each of the Standards of Professional Conduct,” says Bain. “It’s quite likely the exam will contain case studies that are remarkably familiar if you have read this in depth. At this stage in your revision, ethics will often provide the highest marginal benefit from each hour of study. GIPS too – it is a very short topic, yet may produce twice as many questions as deferred tax.”
An increasing proportion of CFA level one candidates are students, which means they probably give equal weighting to most technical subject areas. Others are working in full-time jobs, making it more difficult to study and more likely that they will spend less time on the topics related to their day job. This is a key mistake, says the former CFA head. “Every asset manager has a unique valuation approach and we have to apply a standard, for example, and even equity analysts need to study the theory correctly,” she says.
“Each of your answers will be one of three types,” says Blain. “Firstly, a confident and hopefully correct answer: mark it, and move on; secondly, a complete guess, so make a sensible guess, and move on; or somewhere in between. For this third group, list the questions neatly at the front of your exam paper. Hopefully, you will have a bit of spare time at the end of the exam: go back now to the questions you have listed, and attempt these ones, and only these ones, again. Your subconscious mind will have been working on them for an hour or two, and you are likely to pick up an extra couple of marks.”
Blain says that derivatives is usually a topic a lot of candidates have deemed their weakest and, therefore, they’ve mentally given up on getting many marks from it. “Every topic will have simple questions, even derivatives,” he says. “The differences between forwards and futures, when to exercise a call, how to reduce credit risk. Giving up will only push up your required pass mark elsewhere.”