How to prepare for CFA exam

cfa exam preparation

If you are planning to take the Chartered financial analyst (CFA) exam, you would have already heard how tough these exams are. The last ten year (2006-2015) average pass rates for various levels is Level 1: 39%, Level 2: 43% and Level 3: 53%. On the whole, only 42% of candidates pass the CFA exam and if you considerer average pass rate of completing all three levels of exam sequentially, it’s only 9%.

CFA institute says that at-least 250 hours and six months of preparation is required to clear a single exam and a successful candidate take 4 years to complete the entire program. So the time commitment for the exam is high. Odds are that you are a working professional (approximately 75% of candidates taking CFA exam are working either full time or part time), then time available to commit to CFA program would be limited. So CFA exams tests not only one’s intellect but also endurance and commitment to become a CFA charter holder. Another aspect of CFA exam which makes it challenging is the fact that multiple topic areas tested at single time. CFA exams test you in at-least in 8-10 different areas and you are expected to achieve a minimum in each of the topic area and also cross the overall minimum across all topics.

Topic Area Level I Level II Level III
Ethical and Professional Standards 15 10 – 15 10 – 15
Quantitative Methods 12 5 – 10 0
Economics 10 15 – 10 5 – 15
Financial Reporting and Analysis 20 15 – 20 0
Corporate Finance 7 5 – 15 0
Equity Investments 10 15 – 25 5 – 15
Fixed Income 10 10 – 20 10 – 20
Derivatives 5 5 – 15 5 – 15
Alternative Investments 4 5 – 10 5 – 15
Portfolio Management 7 5 – 10 50 – 55
Total 100 100 100 Bottom of Form


Based on the above, it will very clear that making a sincere commitment to completing the program is a prerequisite for success. The program is so intense and requires so much of one’s time and energy that one needs to have a clear strategy in mind when they are appearing for the CFA exams. I have highlighted some very important principles one needs to keep in mind while preparing for the exams
Start early: This cannot be emphasized enough. Most candidates get scared by sheer volume of the CFA exams material and get a mental block. CFA exam preparation is a marathon and not a sprint. One of the most effective ways of time allocation for CFA exam preparation or any competitive exam preparation is to put in some minimum hours weekly over a longer period of time. Thus it’s imperative to start early, have sufficient time for revision and practice exams in the last few months before the exam. CFA institute recommends starting at-least 6 months before the exam.

Develop a study plan and be committed to it: Most of the successful candidates go through the following phases of exam preparation
Most candidates spend most of their study in just reading the material required for CFA (either the original material or study material provided by third party). Sufficient time is usually not planned for other areas like revision and practice which are key for passing the CFA exam. Developing a study plan which suits one study style and focusses on all areas above is very critical. Ideally one needs to finish the basic material at-least 2-3 months before the exam, leaving sufficient time for revision and for practicing questions. Developing a study plan is one aspect but a more importantly, one should consistently stick to the study plan. This requires commitment and endurance.

Revision: This is one of most neglected aspects of exam preparation but the most important aspect for success in CFA exams. Revision is the most effective way to ensure that our brain retains what we have studied. When exam preparation time is longer and involves multiple diverse topics, revision of topics studied is very effective way of mastering the topic material. Everybody has their own style of studying and revising, one should to the stick the style that suits us. Greater emphasis should be placed on revising the topics learned soon after the studying the topic material. So studying and revising should go hand in hand in the initial period of preparation.

Practice, Practice, Practice: Time management is one of the essential skills for CFA exam preparation. For example, The Level I exam consists of 240 multiple choice questions, split among two 3-hour sessions. Which means, on average you would have approximately 90 seconds for each multiple choice question. This is very demanding. Unless, one is well versed with topic areas and practiced answering multiple choice questions, it would be very difficult the time required during the exam to get the overall minimum score. Ideally last month or two before the exam should be devoted to practicing questions on all topic areas.

Mock Exams: This is another important part of the preparation. Since the exams are split into two 3 hour sessions, one needs to concentrate for long periods of time. One should get used to exam conditions. Ideally in the last month (except for the last week) before the month, one should be having 2-3 mocks practice exams provided by CFA institute or third party provider, as close to real conditions as possible.

I have tried to highlight some of important points in preparing for CFA exams. You may not need to follow the order or timelines suggested above, as individual studying style may vary. However, all areas should be given sufficient focus and time, especially for revision and practice. Last but not the least, it would ideal if we keep ourselves free for the last week before the exam, to focus on revision of topics and focus on weak areas. CFA exam is certainly tough but definitely manageable especially if you keep the above aspects in mind. Best of luck for your endeavour.