Are CFA exams getting harder or are test takers getting dumber or just less prepared? One correlation is clear. The number of people seeking to add the distinction to their credentials has risen over the last 50 years, and so has the flunk-out rate.
“The test is so stupid because it doesn’t test for the key concepts," one test taker told eFinancialCareers. "They throw on (stuff) to keep it hard so it’s difficult to attain and desirable. It's the studying that helps you. The passing/failing is about how big of a loser you are. It’s just memorizing. It’s not that much of an intelligence test as it is a grind."
Richard G. Lipstein, managing director of New York recruiting firm Gilbert Tweed International, says the CFA is one the most difficult exams and most people really need to study for some 300 hours and take a prep course.
“I guess it’s getting harder in that there are more rules and regulations” included in the questions, says Lipstein, a former M&A banker and recruiter for the past twenty-five years.
A director of marketing and communications at a New York-based value investor concedes he didn’t study enough.
“The CFA demands a great deal of studying on topics that the candidate might not agree are worth the time,” he says. “This included, in my case, technical analysis and modern portfolio theory. It also stresses discounted cash flow analysis, which is great for most people and necessary to know, but at the expense of more asset based value investing techniques.”
To join the Board of the New York Society of Security Analysts (NYSSA) Lipstein had to take just the ethics portion of the exam online. “Much of the ethics portion is common sense but some of it concerns rules and regulations."
“The CFA exam is a badge of honor," Lipstein says. “You can go to a business school that is low ranked or you can go to Harvard. A CFA is a CFA."
When 284 people took the first CFA exam in 1963, when just a single exam result was recorded, 94% passed. A year later, the number of test takers for Level I soared to 1,241 and the pass rate sank to 79%. That same year, just 302 took the Level II with 94% acing it, and 189 went on to Level II with 95% conquering the final test.
In December 2012, 48,981 aspiring CFAs took the Level I with a pass rate of 37%. In June 2012, 38% of 49,445 people passed the Level I, 42% of 45,247 passed the Level II and 52% of 24,754 made the final cut.
A new crop of test takers is anxiously awaiting their results from the June 1 Level I, II and III exams. There were 146,605 candidates from 168 countries registered for the exam, but a good deal never show up.
The test taker, a New York-based accountant, isn’t holding his breath after Saturday’s session.
“It holds weight but I don’t know how much. If I pass my salary doesn’t go up,” he says. “If I get my CFA it doesn’t really open any doors. It’s just impressive and will make you look better switching between jobs. Looks better than an MBA, but doesn’t open the doors.”
He says a friend who passed Level II was just too busy to tackle the Level III this year.
The marketing director put off studying when his interest weaned. He wasn’t guaranteed any sort of raise or job promotion as motivation.
“I suck at math and kept reading novels instead of the CFA books,” he admits.
The accountant blamed the wording and randomness of the questions more than their difficulty. “Sometimes you know it, but it’s a trick with wording,” he says. “Some question on senior debt coverage ratio was really hard. There were swaps questions that sucked and residual income model questions that sucked."
The toughest one asked about the Black–Scholes–Merton model. “You didn’t need to know full equation, they gave inputs and risk neutral probability and you needed to calculate. Everyone was complaining about that.”
Says the marketing and communications director: “I remember a confusing question about the internal rate of return for two investments. I know I got it wrong because the guy sitting next to me was very confident in his answer which, we discussed afterwards, was not mine.”