CFA

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Gillsie's CFA

Chartered Financial Analyst Exam

The Chartered Financial Analyst (CFA) program is administered by the Association of Investment Management and Research (AIMR). According to the AIMR CFA study guide, when one receives his CFA charter, he:

"will have demonstrated the knowledge that will make (him) competitive in the investment profession wherever (he) decides to practice. The charter has opened up job possibilities for many charterholders and helped advance their careers. The charter should provide (a holder) many opportunities to help clients reach investment goals. Additionally, CFA charterholders, by promoting greater understanding of global capital markets, help advance the world's standard of living.

"The purpose of the CFA Program is to help candidates learn...How much one learns depends on (that candidate's) dedication. The examination sets an exacting standard against which (one) can measure (his) understanding. Mastering the curriculum is a challenge and a significant accomplishment for which (one) can be justly proud.

"AIMR is a global non-profit organization with 87 societies and chapters and more than 80,000 members and candidates - investment analysts, portfolio managers, and other investment decision makers employed by investment firms, banks, broker/dealers, investment company complexes and insurance companies. The association's mission is to serve investors through its membership by providing global leadership in investment education, sustaining high standards of professional conduct, and administering the CFA Program. AIMR is also widely known for its Performance Presentation Standards, which provide professionals with a global standard for reporting investment results.

"During the 35-year history of the CFA Program, more than 200,000 examinations have been administered to candidates and more than 27,000 charters have been awarded. The dramatic growth in candidates and charterholders is a tribute to the CFA Program's focus on candidate learning and the desire among financial professionals to achieve and maintain high standards. Each of the three levels of the program represents a significant achievement in professional career development, and preparing for each examination adds to a professional's knowledge and skills in investment analysis and portfolio management."

Now, having said that, I can tell you preparing for the CFA Examination is a beast of a chore. AIMR states that one needs to spend about 200 hours in preparation. That is a relatively conservative estimate. Most people start preparing in December for this exam which is given once per year on the first Saturday in June (that is its usual date, though it has been given in May in the past---creating nightmares for me when I had to forego sitting for the exams when I had concurrent law school finals....d'oh!) Usually, only about 60% of test-takers pass the exam (at virtually all levels). See the AIMR site about past performance. That means, 40% of the people who have passed Levels I & II will fail the Level III exam (that includes me...d'oh!). FYI, currently, Level I is entirely multiple choice (though when I sat for it, the exam was 1/2 essay), and Levels II and III are half essay and half multiple choice. Level I basically serves as an introduction to accounting and financial analysis. Level II focuses on asset valuation. And Level III covers mainly portfolio management and derivatives. Though, a big chunk of each exam deals with the vital topic of ethics. This portion of the exam is vital because if one is on the borderline of passing, but aces the ethics questions, he will receive a passing grade. But, if he bombs ethics, he will fail. Exams age graded on a modified curve. To pass, one needs to be in the 70th percentile relative to the top 1% of the scores attained on the exam. In layman's terms, there are 360 possible points one can attain (relax, nobody has ever scored that high...according to legend). Say, the top 1% of test-takers score a 320 (88% of all possible points). In order to be in the 70th percentile, one needs a score of 224. Thus, a passing score can be achieved even if you receive credit for only 62% of all possible points. So, say you have a 223, but ace the Ethics, you will pass. However, if you drop a stink-bomb on the ethics portion of the exam, you will not receive a letter praising you for passing the exam.

To me, the most excruciating part of the whole process, beyond preparing, is waiting for the results. You put in 4 months of hard work, sit for the exam in early June...and then wait....and wait...and wait. AIMR tries to return your results within 90 days. Usually, one starts to rush home to the mail in mid-August. In 1999, AIMR was fairly late in sending out the results. I think most candidates received their results on day 89 or so. Plus, there was a printing error in the results, leading many people to question the validity of these results (since AIMR claims stringent standards in the grading of all exams, perfection in just about everything, and nobody has EVER successfully reversed the results of a failed exam due to a grading error). The NYSSA has a message board which contained messages regarding the anger at this printing error -- check the board to see if these messages are still posted. Plus, one does not receive a score. Instead, one is notified that either he passed or did not pass. Though, for each question, AIMR lets you know whether you received (a) <50% of the possible points on that question, (b) 50-70% of the points, or (c) >70% of the points. Thus, one can only assume where he lost points and that makes re-taking the exam a dreadful prospect.

In order to actually be granted a CFA charter, one must pass all three exams sequentially and accrue 3 years of acceptable work experience. AIMR has some strict standards in this sense. Contact AIMR to see if your current or perspective job functions will count (if this is really important to you). When I worked at the Chicago Board of Trade, AIMR decided that my particular job functions would not count towards the required work experience. At the time, it was not a big deal to me (since I attended law school at night), but since then, this has become an issue with perspective employers.

Now, back to preparation. My first year in the program, I thoroughly read every assigned reading, outlined everything, watched the Stalla Video Review, and met with a Study Group. Now, even though this worked (I passed) I think it was a waste of time. Essentially, if one is mainly concerned with passing the exam, I think it is safe to say that a Review Program, like Stalla or Schweser's, is sufficient. For Level II, I watched the Stalla Video Review, outlined it, and tried to memorize everything I could. This, too, worked. Essentially, this type of review was similar to the process I used in preparing for the Bar Exam. (Click to read about my Bar Exam preparation). For Level III, I used the same approach, but I failed the 1999 and 2000 exam. So, for the 2001 exam, I will probably take the Schulman Review. In addition, I will also use some of the outlines and review questions provided free of charge at pass101.com. For Level III, I think practice test taking may be more important than memorization. It is essentially a policy production exam. Thus, you need to know how AIMR wants candidates to write about creating portfolio policies for various types of clients.

To see some of my past CFA Review outlines, click below. I have finally put them in pdf format so if you do not already have an acrobat reader, you'll have to get one.