CFA Exam Overview
The Chartered Financial Analyst (CFA) designation is a widely recognizable professional title for financial analysts in the investment management industry. In order to earn the CFA Designation and become a CFA Charterholder, you must first enroll in the CFA Program at the CFA Institute and then pass the CFA exam. The CFA exam is an important and difficult test that measures a candidate’s comprehension of the CBOK – the Candidate Body of Knowledge curriculum that is created by the CFA Institute. A candidate will receive the CBOK curriculum upon registration so that studying can begin immediately.
Candidates will need to pass three distinct “levels” and will also need to have certain industry experience in order to receive the designation. In order to take any level of the exam, a candidate must have a bachelor’s degree (or be enrolled in the final year of your bachelor’s program) or four years of related work and/or college experience. This article will detail the requirements for each level and discuss other aspects of the designation.
Level I
The Level I is the first exam in the series and is the only exam that is offered twice a year (June and December). The exam is multiple choice and has 10 main topics, with a slightly more concentrated focus on Ethical and Professional Standards, Investment Tools, and Asset Classes.
Major Items:
- Test time: about 6 hours
- December 2009 passing rate: 34%
- June 2009 passing rate: 46%
- Cost: Price varies depending on when you register –
9 months prior: $1020
4 months prior: $1110
3 months prior: $1435
- When to take: June and December
- Where to take: There is a list of CFA Exam locations on the CFA Institute website
Major Topics:
- Ethical and Professional Standards
- Quantitative Methods
- Economics
- Financial Reporting and Analysis
- Corporate Finance
- Investment Tools
- Equity Investments
- Fixed Income
- Derivatives
- Alternative Investments
- Asset Classes
- Portfolio Management and Wealth Planning
Level II
The Level II is the second exam in the series. It consists of item-set questions and emphasizes the application of concepts that are introduced in Level I. It tends to focus more on Investment Tools, Equity Investments, and Asset Classes. Additionally, the exam presents ten hypothetical cases that include a series of multiple-choice questions to answer afterward. In order to take this exam, you must have earned a passing grade on the Level I.
Major Items:
- Test time: about 6 hours
- June 2009 passing rate: 41%
- Cost: Price varies depending on when you register:
9 months prior: $1020
4 months prior: $1110
3 months prior: $1435
- When to take: June
- Where to take: There is a list of CFA Exam locations on the CFA Institute website
Major Topics:
- Ethical and Professional Standards
- Quantitative Methods
- Economics
- Financial Reporting and Analysis
- Corporate Finance
- Investment Tools
- Equity Investments
- Fixed Income
- Derivatives
- Alternative Investments
- Asset Classes
- Portfolio Management and Wealth Planning
Level III
The Level III is the final exam in the series. It consists of item-set questions and an essay, and tests a candidate on all concepts and applications introduced in each previous exam. The exam’s predominant focus is on Portfolio Management and Asset Classes. In order to take this exam, you must have earned a passing grade on the Level II.
Major Items:
- Test time: about 6 hours
- June 2009 passing rate: 49%
- Cost: Price varies depending on when you register:
9 months prior: $1020
4 months prior: $1110
3 months prior: $1435
- When to take: June
- Where to take: There is a list of CFA Exam locations on the CFA Institute website
Major Topics:
- Ethical and Professional Standards
- Equity Investments
- Fixed Income
- Derivatives
- Alternative Investments
- Asset Classes
- Portfolio Management and Wealth Planning
Grading and Exam Day
The exams are reported as “pass” or “fail” within 90 days after the exam is taken and the scores are only available online. There is no minimum passing score for any of the exams. Instead, the CFA determines the passing level each year after all exam scores are processed. The CFA Institute suggests that successful candidates spend at least six months and 300 hours preparing for the exam, which had a combined average passing rate of 42.5% for 2009. However, the Institute also acknowledges that a significantly greater amount of preparation time may be required depending on each individual candidate. The duration of the exam lasts around six hours, with a typical exam day beginning around 8 a.m. and ending around 5 p.m. The day is broken up by morning and afternoon sessions and includes a lunch break in the afternoon.
Membership – Experience & Dues
In order to maintain your CFA charterholder membership after passing all three exams, you must have accrued at least 48 months of acceptable professional work experience either before or during the program, or after you have passed the exam. This experience must be in a full-time position and 50 percent of the work must include direct involvement in the investment-decision making process and engagement in responsibilities and/or producing a work product that informs or adds value to that process. Unacceptable work experience includes summer, part-time, and internship positions, and work that involves managing your own investments. You can view sample work experience descriptions and titles on the CFA Institute website: http://cfainstitute.org/cfaprog/charterholder/membership/work_descriptions.html
In addition, you must also submit an annual Professional Conduct Statement and pay annual membership dues of $225. The Professional Conduct Statement must be signed by all members and must disclose any professional-related litigation or arbitration, customer complaints, and/or disciplinary proceedings. It can be signed online when you pay your membership dues. As a member, you are also required to comply with the policies and procedures outlined in the Articles of Incorporation and Bylaws, Code of Ethics and Standards of Professional Conduct, Rules of Procedure for Proceedings Related to Professional Conduct, and any other conditions or requirements established by the Institute. These policies can also be found on the CFA Institute’s website: http://cfainstitute.org/cfaprog/charterholder/maintain_status.html
Conclusion
While the preparation for the exam may be rigorous and the exam itself may be challenging, there are a number of benefits for earning the title of CFA Charterholder. The CFA Institute cites the global networking opportunities that come with earning the CFA designation, as well as the mark of expertise and professionalism that will allow clients and colleagues to hold you in a higher regard. Although the exams are suggested to be completed over a course of three years, there is no maximum length of time to complete all three levels. Each exam can also be taken an unlimited number of times in the event that you do not pass. There is also an extensive amount of study guide and review opportunities offered in print or online to ensure that you are well-prepared for the exam.
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Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs the Hedge Fund Law Blog. He can be reached directly at 415-868-5345.
Just note that Level 2 is now offered twice a year as well.
Mike