How to Crack Level III CFA
Last week, I wrote a blog post on How to Crack Level II CFA.
Today, we take a frank and insightful look at the Final Frontier.
I’ve delivered Level III prep classes for 8 consecutive years. So, here are the Challenges and Study Strategies (and the key differences from the previous levels) to prepare you better for the Exam.
The Challenges
1. This is the most underrated of all the 3 levels. People look at the high pass rate (the highest of all the three levels), think the worst was Level II and start preparing lightly. And they fail
2. The format is unique. Morning session: Constructed response (essay) questions (usually between 8 and 12 questions, each with several subparts) with a maximum of 180 points. Afternoon session: 11 item set questions (8 vignettes with 6 items each and 3 vignettes with 4 items each, for a total of 11 vignettes)
3. The AM session is where students usually get killed, for many reasons. One reason is that it is the first time that you will be answering essay questions in the CFA exam. The others are poor basics, panicking unnecessarily and rubbish time management.
4. The thin looking curriculum books are misleading. There is surprisingly LOTS of dry, boring theory to wade through.
5. Level I was the Foundation level. Level II was the Valuation level. Level III is the Application level. This is where you apply the material in the context of a specific question.
6. There are tons of nuances and subtext in Level III. True there are fewer LOSs and Readings compared to Level II but that only means they can ask from any corner of the Level III curriculum.
7. In Level I and Level II you had some idea of what kind of questions you could be asked. In Level III that is not always the case. Take Individual Portfolio Management- each question is totally unique which you’d never have seen before that requires you to think rapidly on your feet (or your seat!).
8. Within an essay question, sub questions in Level III can and do build on one another. All Level I questions and even most Level II questions were stand alone.
9. For probably the first time in the CFA journey, you may face time management issues in the exam, more so in the morning (essay) section
10. Till the June 2019 exam, the CFA used to release past actual exam questions (with guideline answers) for the Level III AM session section for the previous three years. Starting with the June 2020 exam, these are no longer available.
The Strategies
1. It doesn't matter whether you passed CFA Level I and II in the first attempts and/or scored above 70% in most or all subjects. Level III is a completely different beast. Do NOT be overconfident
2. Tough, long and unique questions DEMAND that your knowledge of the material is super solid. You need to able to think more broadly. And that means putting in the hours.
3. You could skip a small weightage subject in Level I or II, hope to pass and you probably did. You can’t afford to ignore anything in Level III. Weakness in any subject can be fatal as one essay question/item set on a topic you ignored can damage your chances. Do NOT try and game the exam.
4. Essay questions in Level II can be large. Hence speed-reading skill is essential. You can be given 1-3 page(s) long large essay questions, so you need to quickly sort out the rubbish from the relevant.
5. Learn to WRITE well. It may sound obvious, but it is more critical than you think. Essays are major time burners and one big reason for failures is the inability to write quickly, concisely and clearly under stress. Practice as you study- write down the answers.
6. The CFAI will NOT care about the answer if you don’t tie it directly to the facts in the question. They don’t generally ask conceptual questions and hence they do NOT want a generic, conceptual answer—they want an answer that fits this set of case facts. They want application.
7. Regarding the number of hours, plan anywhere between 400-500 hours. If you are starting now, budget to spend 30-35 hours/week till the exam.
8. Work out the examples from the CFA Curriculum (CFAC) and the end of chapter problems in the CFAC. The CFAC is your BEST friend in Level III- you should rely on this far more than in any other level. Google to find other sources and work out at least last 7 years past AM papers. But be aware that the curriculum has changed for many topics in that period.
“Regarding the number of hours, plan anywhere between 400-500 hours. If you are starting now, budget to spend 30-35 hours/week till the exam.”
9. On exam day, never lose your cool in the AM session. You may see tough, unfamiliar questions but if you stay calm and confident you will make it. Level III is much more about the exam than the content.
10. Finally, enjoy the ride. For me Level I was easy, Level II was a lot but boring, but I enjoyed Level III. I learnt a lot of new stuff. Success is easier if you like what you do, and I hope you take that approach.