CFA Exam Difficulty: How Hard is it to Pass All Three?
So, you’ve heard from your friends and colleagues that the CFA exam is hard. In fact, the CFA exam difficulty seems to be legendary. Everyone you talk to appears to know it’s tough. Many fail at least one of the three six-hour exams, and very few pass all of them on the first shot. So how difficult is it to pass?
Below I’m going to go through how hard it is to pass all three CFA exams (and why). While it’s certainly achievable, it’s best to know the facts before you commit the time and money.
CFA Exam Difficulty: It’s All in the Numbers
First things first. Let’s look at the data. The most recent (as of this writing) figures from the CFA Institute show that the pass rate for CFA Level 1 was 43%, for Level 2 45%, and for Level 3 56%. Therefore, we know that to pass all three the probability is therefore 43% x 45% x 56% = 10.8%. In other words, over 89% of candidates will try and fail.
At this point you should ask yourself a pretty simple question. Specifically, ‘Do I believe that I can beat out 90% of the other folks taking the exam?’ Almost all candidates that take the exam are college educated so if almost 90% of them can’t get through all three levels, you’ll need to be confident that you can.
All of the students that I tutor are capable of passing, but how much effort they put into studying is usually the key determinant of who passes. Even if you were on the honor roll in high school, or dean’s list in college, you will need to study. The CFA exam has too much content to “cram” in the week before the exam. On the other hand, it’s not rocket science. There is no calculus, no thermodynamics, just plain old addition, subtraction, multiplication, division (with exponents and fractions thrown in too). That said, there is a lot of everything, so be prepared!
How Much Time Do You Have?
One key reason for the high CFA exam difficulty level is the time commitment. Many people don’t make it through all three levels primarily due to the time it takes to study. Most people lack the necessary study time and/or don’t put in the time. It’s admittedly a hard exam, but not THAT hard. The difference between the CFA exam and your most challenging college exams is likely that you didn’t have to work a grueling job all day before you studied in college. What also adds to the CFA exam difficulty, is not actually the exam itself, but the gap of time between exams.
If you experience a failed CFA Level 1 exam, you can retake it again six months later. However, if you fail Level 2 or Level 3, you have to wait a whole year. A lot can happen in a year and a lot can be forgotten in a year. Restarting a disciplined study schedule from scratch can be daunting, and bring back the nightmares of the previous experience. This combination is enough to discourage many people from continuing after a failed exam.
Different Strokes for Different Folks
Another reason why the CFA exams are so hard is that they are all in fairly different formats. CFA Level 1 is a series of multiple-choice questions that are organized by topic but posed in short sentences with small datasets. However, CFA Level 2 includes vignettes (long form questions/scenarios) from which you must answer six related questions. Some of these questions build on each other. For example, you may need the answer from Question 4 to answer Question 5. And then there is CFA Level 3. CFA Level 3 is broken into two parts: Multiple-choice, and a long-answer. With multiple choice, you can get away with recognizing the answer, but for long answer you must know it. This is a distinct (and challenging) difference for some.
Everyone has their strengths. Some people like CFA Level 3 better than Level 2, and for others vice-versa. What’s more of a sure thing however, is that one exam usually presents more of a challenge for specific people than others.
Overall, with enough time to study I believe that anyone can pass all three exams. The CFA exam difficulty is not insurmountable. Whether you need a CFA tutor, or whether you can get by with Schwesers CFA QBank, find out what works for you. If there is one thing that I’ve learned from tutoring, it’s that everyone learns differently. The most important thing you can do is to truly explore and determine what study method works best for you. All you need to do is pass, so however you get there isn’t important.
CFA Level 1 vs Level 2: A Tale of Two Difficult Exams
Now let’s dive into the first two exams you will encounter on your journey with the CFAI…
What are the main differences between the CFA Level 1 vs Level 2 exams? There are plenty. Below I highlight a few distinct differences from a high-level perspective. I break down the differences into a few key components:
- Difficulty Level
- Question Format
- Course Content
Before I get too deep into it I should note that all of the below is applicable for various education levels.
CFA Level 1 vs Level 2 Difficulty Level
CFA Level 1 vs Level 2 difficulty can be summed up fairly succinctly. The CFA Level 1 exam is hard if you have no academic background in finance, but more straightforward if you do. Most of it is review from introductory undergraduate level courses in accounting, finance, economic, and statistics (among others). Calculations and concepts can take some time but are ultimately not too complicated. A lot of memorization is directed toward formulas – there are also many definitions.
In CFA Level 2 however, you will find much different content. The content may be deeper than what you covered in business school or undergrad. CFA Level 2 includes very specialized curriculum. For example, much of the FR&A section is focused on the treatment of financial assets, pension accounting, acquisition accounting, and translating currencies among financial statements. This is much more nuanced than the general accounting learned in CFA Level 1. The amount of memory work involved spans from calculations and formulas, to rules, definitions, and differences in accounting standards (GAAP vs IFRS). For this reason, CFA Level 2 is one of the hardest of all three levels.
The CFA Level 1 and Level 2 overlap to some extent. You will find several sections that are particularly similar. For example, the most obvious section would be Ethics. The CFA Code of Ethics and Standards of Professional Conduct applies in both exams. Naturally, you will see recurrent themes. Other sections overlap as well however. In the Equity section of the CFA Level 2 you will recognize the Dividend Discount Model, among other topics. Despite the heavy emphasis on Equity in CFA Level 2, the extension of the material from Level 1 is fairly straightforward. For instance, Level 2 introduces multiple periods of varying growth, the H-Model, PVGO, and more in the Equity section.
You may be happy to hear that the Equity section isn’t so bad, but the Quant section is another story. Be ready for more in-depth regression work in CFA Level 2. Interpreting R-squared, ordinary least squares, among other topics makes for a deeper-dive into the quantitative topic. The Portfolio Management section is another one where the curriculum goes further, and also more so with derivatives. My advice is to put serious time into the Portfolio Management section as it makes up almost 50% of the exam in CFA Level 3 (which assume you pass Level 2!). All in all, you will come across some review in CFA Level 2, but practice, practice, practice makes perfect. Practice questions, especially.
The CFA Level 1 exam has fairly short questions followed by three multiple choice answers. On the other hand, for the CFA Level 2 exam, your questions are asked in the form of 1 to 2-page vignettes. These can take almost 5 minutes to read through and require great attention to detail. These can take a lot of practice and a lot of focus to make sure that you get all of the info that you need in such long questions. Consider a CFA tutor if you need help here. There are plenty of practice questions from Schwesers CFA Qbank (see below) and on the CFA Institute’s website that will help too. I have seen these long questions throw a lot of people off course so be careful (e.g., detail oriented) how you approach them.
Another key difference between the CFA Level 1 vs Level 2 is the actual content. You will find that CFA Level 2 has much greater emphasis on differentiating between GAAP and IFRS rules. In addition to the memory work that is involved, you also must memorize the formulas that differentiate the two. For example, GAAP and IFRS both account for pension expenses differently on the income statement so you have to know the formulas used for each. The material is also significantly more advanced than CFA Level 1. For example, in the Quant section for CFA Level 2, there are more advanced Econometrics than in CFA Level 1. Autoregressions and Ordinary Least Squares are two subjects that you don’t see in Level 1, for instance.
In a nutshell, the CFA exam difficulty level is high at almost every level. The CFA Level 2 exam is hard for specific reasons though. Anyone that had a rough time with Level 1 will definitely need to study more for Level 2. The vignette question format makes it more of a challenge and the content is more advanced. Candidly, I unexpectedly made it through on my first try. I was almost certain that I failed when I walked out of the exam center. With a lot of studying and a little hard work you can pass it too. To that point, when you starting studying makes a huge difference…
CFA Level 1 Exam Preparation: When Should You Start?
How early should you start your CFA Level 1 Exam preparation? This is a question that I get asked quite frequently. The answer however, definitely depends on who asks me. For our purposes here, it’s best to break this question down into two parts:
1) When should you start your CFA Level 1 Exam preparation if this is not your first attempt?
2) When should you start your CFA Level 1 Exam preparation if this IS your first attempt?
Let’s take a look.
CFA Level 1 Exam Preparation…Again
If you receive the unfortunate email from the CFA Institute that indicates you failed your exam, then the question of when to start studying again will likely come up.
My basic advice is that you should start studying again immediately. Sure, you still have time before the exam. And sure, you probably studied really hard the first time you took it and feel like you could put it off a bit. However, you ultimately want to stay as fresh as possible. At a minimum, go back and start taking a few practice questions from different topics. You will be surprised how fast it comes back, and importantly, how much you have retained.
Furthermore, the second time around, your study time should largely be spent on CFA Level 1 practice questions. Presumably you have read, or are familiar with, all of the material already. Going through it all again won’t be overly helpful. In fact, it will likely be more of a time waster. Your familiarity with the text, is likely quite sufficient. Focus on practice questions, and then return to the text where you need to fill in gaps.
Book a tutor if you are having a hard time identifying your knowledge gaps. Tutors will help lower the time it takes to learn a specific topic. A good CFA tutor (*wink wink*) should also be able to incorporate some test taking tips. In addition, you won’t likely need the same amount of time to study the second time around. However, it will definitely help if you put the same amount of time into it.
CFA Level 1 Exam Preparation…The First Time Around
Now for the student studying for the first time around. The CFA Level 1 exam preparation needed for a first-time test-taker will ultimately depend on his/her educational (and work) background.
There are a number of topics where a previous course or two on the subject can help out tremendously. For example, if you have a statistics background, the Quantitative section will come as a review. If you have taken a corporate finance, or economics class or two in your studies, then those topics will also be more straightforward. In terms of timing, expect to spend at least a couple weeks on each topic. The Financial Reporting & Analysis (FR&A) section alone can take a month to get through. This section is among the largest of the entire exam. Put the time into getting to know it. It will matter for your score.
With no prior educational background in finance, don’t be surprised if you need six months or more to study. That said, even for those with some familiarity in the curriculum, I still recommend taking six months to study. Get yourself a CFA study plan with a group of friends or colleague. Map out your schedule with a priority on heavily weighted section with which you have minimal familiarity.
All in all, the bottom line is that you should start as early as possible. Having the discipline to do so is usually the biggest issue. Take some time away from some of your extracurricular and invest it in your self-improvement. There may be a future career waiting for you if you pass.
What is the CFA Exam Pass Rate? It’s Complicated…
Speaking of passing…
If you want to boost your career prospects in finance, start out by taking the CFA Level I exam. Unfortunately, however, that the odds are against you! The CFA exams are extremely difficult and both the June and December CFA exam pass rate in 2019 were between 40% and 45% for Level I. At one point in time the CFA exams were not such a Mount Everest-like challenge. But, in the last 20 years the CFA exam pass rate for each level has steadily declined.
What is the CFA Passing Score?
So, what do you need to score to pass CFA Level I? The CFA Institute, which controls the process, is conspicuously evasive in explaining its criteria for a pass or fail.
In order to pass, there is a minimum passing score (MPS) candidates need to hit. This mysterious score is never revealed and changes from test-to-test, much like a bell-curve.
Specifically, since 1996 the CFA Institute has used something call the modified Angoff standard setting method to help establish the minimum passing score. The institute uses psychometricians (expert psychologists in administering and interpreting tests) and a swath of CFA charterholders to determine the expected performance for each question, and then the entire exam.
Not every subject is worth the same amount. Therefore, if you do well in one, it doesn’t necessarily mean it will compensate for another’s poor performance.
Based on all of the students that we tutor, and have tutored, at Professional Exam Tutoring, we have compiled some common themes from those that passed and failed the Level I exam.
Improve Your CFA Exam Pass Rate
- Remember, you don’t need to be an expert at every section. For CFA Level I exam you can actually pass despite failing (less than 50%) four sections (Economics, Derivatives, Quant, and Portfolio Management). With a score of 51% to 70% in Alternative Investments, and over 70% in Fixed Income, Corporate Finance, Equities, Financial Reporting and Analysis (FR&A), and Ethics, you can still pass.
- If you fail the FR&A section (15% of the exam), you could still pass even if you also fail the Quant section (10% of the exam) and Derivatives (6% of the exam), as long as you get over 50% in everything else.
- Stick to what you know. FR&A is a large and difficult section for those without much accounting knowledge. If you are having a really hard time, then focus on sections you know you can master.
Keep in mind that you don’t have to be an expert at every turn. Book a CFA tutor if you want to understand the nitty-gritty. If there is one section that you just can’t seem to master, try to make sure you learn enough in other sections to over-compensate. Always consider the exam topic weights!
The CFA Level 2 Exam is Hard, Here’s Why
Now let’s look at the next exam…
Studying for the CFA Level 2 Exam?
The CFA Level 2 exam has a reputation as the hardest of the three exams. Only about 40% of test-takers pass the exam. I have seen many candidates stop the CFA program entirely when they can’t get past this hurdle. It can be very deflating.
What makes the CFA Level 2 exam so hard?
Below I cover why this exam trips so many people up.
1. Attention to Detail – The content for CFA Level 2 is much more granular than Level 1. If you thought the volume of content from Level 1 was daunting, plug your nose and dive into Level 2 (well ahead of time). The content goes deeper. Be prepared to explore areas such as pensions, leases, and derivatives more deeply. At times it can feel overwhelming. All that said, there is hope because people DO pass!
2. The Vignettes in the CFA Level 2 Exam Are a Lot to Cover – All of the exam questions come in the form of vignettes with associated multiple-choice answers. Get used to reading a lot of material and be ready to process it quickly. This is a major challenge for some people. Practice questions are a must when it comes to these vignettes, in my view. Importantly, when the CFA makes them available, review past exams from the CFA website. This is a huge help. You will notice under “Candidate Resources” on the CFA Institute’s website that there are some multiple-choice questions also offered as practice. Take these as well! They are much more difficult than the Schweser QBank questions and those included as a part of the CFA curriculum. Similar to the CFA Level 1 exam approach, I would recommend taking over 3,000 practice questions to ensure you cover as much as possible.
3. Competition Gets Fierce – For most CFA Level 2 candidates, a background in finance or accounting is helpful. Such a background is arguably more helpful for CFA Level 1 however, since the competition is less severe, and the exam is graded on a curve. For Level 2 there will be a lot of finance/accounting majors so it’s a more level playing field. That said, any leg up in Level 2 is beneficial. Your competition to get a passing grade for Level 2 is a group of people that already jumped the same hurdle that you did – namely, CFA Level 1. Your competition ramps at every level, so keep that in mind when deciding how early you should start your preparation. The earlier the better, and it might just be one of the few ways you can get an extra leg up. Start early! And of course…get a CFA tutor if you need to accelerate your learning!
So, What Do I Do?
At this point it’s probably clear. The CFA Level 2 exam is not a cake walk. From what I’ve seen, I’d highly recommend a balance between studying the concepts and taking practice questions as mentioned above.
Lastly, make sure you focus on the most important sections such as Equity, Fixed Income, Ethics, and FR&A. These contribute at least 50% of total potential exam. Above all, study, study, and study!
CFA Level 2 Easy? Why I Never Get Asked This Question
Is the CFA Level 2 easy? Despite being a CFA tutor for hundreds of students over thousands of hours, this is a question I have never been asked. Most people have a general sense that the CFA Level 2 exam is more difficult than Level 1. However, it seems to me that it is lost on most people why the CFA Level 2 exam is so much more difficult. In what follows, I end this CFA Exam discussion with a few reasons why.
A Deeper Dive
What makes the “CFA Level 2 easy” question so particularly rare is that as mentioned above, there is an understanding that the curriculum is much deeper than Level 1. For example, it is expected that you thoroughly understand basic accounting, ratios, etc. in the second level. The content then builds on what you should already know and dives even deeper. In CFA Level 1 just knowing the components of Shareholder’s Equity can get you by. However, in CFA Level 2, the CFA Institute explores more detailed line items.
Other Comprehensive Income (OCI), currency translation, and a more intense exploration of financial assets come into focus. I don’t believe these topics are inherently hard, but for most people they may be new, and that in itself can make them a challenge. In fact, explained one-by-one to my students, the concepts are quite digestible. But, they are often unfamiliar to most candidates and in totality it’s a lot of new information. In addition, a more in-depth study of statistical topics such as multi-variate regression analysis adds another layer. No wonder that this is one of the topics for which my services are frequently requested.
CFA Level 2 Easy? No, Not Really. And Level 3 Is Not Much Better
Although I rarely hear anyone mention that the CFA Level 2 is easy, CFA Level 3 is no cake-walk either. If you have the strength and discipline to get yourself over the hump for Level 2, then beware the climb for CFA Level 3. CFA Level 2 is the last of the CFA Institute’s exams that are entirely multiple choice.
The CFA Level 3 exam is half short answer, and half multiple choice. The long answer section is notoriously difficult, and what often leads people to fail the exam. Although the CFA Institute does not formally break out the results of your exam by section (written vs multiple choice), I have heard plenty of feedback to know that most people find/believe that a failing grade is largely due to the written portion. One key reason for its difficulty is that there is no room for “fluff” and no related answers to help jog your memory. You either know it, or you don’t. With multiple choice, you have a chance to at least recognize the correct answer, but with the written answers you have to know the answer.
WHAT SHOULD YOU DO NOW?
Well, it might seem evident at this point that each level of the CFA Exam is quite hard. They require a lot of discipline, focus, and patience. You can give yourself the best possible chance by taking the advice given in this guide as well as our other informative posts on the subject. It is vital to be prepared properly and that is down to you. However, at Professional Exam Tutoring, our tutors can give you that extra edge and help you focus, to achieve the result you want. For more help and guidance, give us a call.
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Frequently Asked Questions (FAQ)
Should I take the CFA Level 1 Exam in June or December?
December! There are so many reasons why we believe you should take your CFA Level 1 in December as opposed to June. The first is the most obvious – if you pass, you can immediately go for CFA Level 2 the following June. Although Level 2 is a different exam, there is some overlap in topics which will certainly help. More importantly, you will already be in “study mode” so getting back to the books will be easier than a longer hiatus.
Another timing consideration is how a December Exam date can impact the length of time required to complete all three levels. Pushing it off to June for instance, extend the time to complete all three levels by at least a year. For example, if you took the December 2019 CFA Level 1 Exam, you could theoretically complete Level 3 (assuming you pass all three the first time through) by June 2021. However if you decided to push it off to June 2020, then you can’t take Level 2 until June 2021, and Level 3 until June 2022. A lot of life can happen in a single year. Why risk it? Get it done while you have the time.
Lastly, consider outside temptations at different times of the year – namely, the weather! As the December exam approaches the weather tempts candidates much less than it does in the spring after a long winter. Aside from a minor distraction around Thanksgiving, you won’t miss much outdoor fun (if you live far enough from the equator of course!). A nice warm library is a tolerable place to be as you approach the December Exam.
How long will it take to study for CFA Level 1?
Our students typically take between 3 to 5 months on average. Whether a student has little finance background, or an undergraduate degree in business/finance, there are few that fall outside of the 3 to 5 month study range. You may only need 3 months if you have a deep educational background (E.g., MBA) on the subject, a related job (E.g., Equity Research, Investment Banking, Investment Management, etc.), and ample study time.
On the flip side, those with an undergraduate degree in an unrelated subject may find they need closer to 5 months (or more in some cases). If you are starting from scratch consider giving yourself a 6 month head start – especially if you need to learn basic accounting and statistics (two difficult and large sections).
What should I study first for the CFA Exam?
At Professional Exam Tutoring, we always advise our students to start with the highest weighted content first. For example, for CFA Level 2 Equity is the heaviest weighted so we move that to the front of our students’ study schedule. We follow Equity by FR&A, Ethics, etc. We recommend that you start with the highest weighted sections for two main reasons.
First, since they are the most important, you don’t want to “cram” these topics. Studying them when the pressure is low will allow for better concentration and absorption. Second, you want to make sure you hit them early so that you have the chance for repeated “touches” to the most tested material over a longer period of time. To ensure these repeated “touches” one thing we work into our students’ schedules is a mid-schedule “midterm” week. Whether you use us or not, make sure to take a week in late February or March to review all of the topics you have covered up to that point. Do that again in early April.
It’s easy to get laser-focused on trying to get through all of the material as opposed to thoroughly learning it. The problem with this however is that by the time May rolls around, what you studied in January is a distant memory. A few “midterm” review weeks (or even days) can make a huge difference in retaining the content.
Which level of the CFA Exam is the hardest?
We get this question a LOT.
What we can tell you for sure is that the CFA Level 1 Exam NOT the hardest. As challenging as it may seem, the CFA Level 1 Exam is quite a bit easier than the CFA Level 2 Exam, and the CFA Level 3 Exam.
Comparing the CFA Level 2 and CFA Level 3 exams is more difficult. The CFA Level 2 Exam is often cited as the hardest. A major reason for this is that it is a significant step up from Level 1. Just from the content, you will notice that the CFA Level 2 Exam gets much deeper on every topic, and includes every subject from Level 1. CFA Level 3 on the other hand, drops certain subjects (such as Quant) from Level 1 and Level 2, but has a much larger weighting in Portfolio Management (50%!). Not to mention the “dreaded” written section that most people find very challenging!
While it boils down to personal opinion, we believe that the CFA Level 3 Exam is the hardest. Our reasoning is threefold: 1) The written section requires rock solid recall ability (guessing gets you no points); 2) Few people spend much time on Portfolio Management in the CFA Level 1 and Level 2 Exams so a 50% concentration in Level 3 may throw you for a loop, and; 3) Competition tends to be fierce for CFA Level 3 candidates. Given that the exams are graded on a curve, you have to make it to the front (or near to it) of the pack of a very competitive and intelligent group.
MBA or CFA?
Curious whether or not you should take the CFA Exam in the first place? When it comes down to it, first ask yourself what you want to do.
If you’re leaning toward financial services, attaining your CFA Charter is a universally respected signal of high aptitude – appealing to many employers. To complete it is cheaper than an MBA, can be equally, or more highly regarded, and makes most people quite employable. An individual with an MBA is much harder for an employer to evaluate as specializations, schools, and teachers can make a major difference in a graduate’s preparedness to handle real-world situations. Consider taking the CFA if your focus is financial services and you have the time, patience, and self-motivation to put yourself to work.
If you’re more interested in the corporate finance world, then an MBA degree might make more sense. If your goal is to climb the corporate ladder, and run a company, an MBA is a more direct route. In addition to the financial and business education, the connections (professional and personal) that you can make are a significant. The school from where you get your MBA makes an enormous difference however. An MBA from a Top 20 school is more likely to get you a job at a brand name company/investment manager than an MBA degree from a school that doesn’t crack the Top 100. The Wall Street Journal, as well as The Economist put out MBA ratings every year that you can consult when trying to determine reputable schools.
Overall, both can serve very different purposes, but either one is better than neither.
Is the CFA Exam worth all of the work?
To be frank, this question usually comes up after someone fails their first exam (or hears about the heartbreak others go through when they fail). The CFA Exam is a lot of work. We advise young professionals early on in their career to consider starting with Level 1. The more you pass, the more we encourage you to keep it up. The CFA Charter is a great way to build your resume early in your career. Especially if you decide against getting an MBA. On the other hand, as one progresses through a career, your competency is much more important than your credentials. This is especially true by the time you are in your mid/late 30s. Employers tend to look for young people with impressive academic credentials (E.g., CFA Charterholders) because they have little real-world experience from which to be judged. In the end, how well you can do the job is what the employer cares about. The CFA Charter is no doubt a prestigious credential to have given its difficulty level. That said…Warren Buffett doesn’t have it.