Pass Your CFA Exams On The First Try

By William Artzberger AAA

Overall, the Chartered Financial Analyst (CFA) designation is a daunting challenge, and the odds of success from start to finish are slim; less than 20% of those who begin this challenge reach the end. However, as one in five candidates have demonstrated, it is possible.

There is no secret code to navigating through the CFA program and passing the test, but an organized, disciplined approach will help you pass each level of the program and ultimately achieve your goal. Find out what you'll need to make the cut and pass each level on your first try.

The CFA Program
Before we get into the nitty gritty, it's important to understand what the whole program entails. The Chartered Financial Analyst program, offered by the CFA Institute in Charlottesville, Virginia, is designed to teach investment professionals a "candidate body of knowledge" (CBOK). The CBOK tests candidates on ethics, quantitative analysis, financial statement analysis, economics, portfolio analysis, corporate finance and the analysis of stocks, bonds and alternative investments.

It consists of three levels, each of which culminate in a six-hour exam. The first exam is administered both in the late spring or late fall, (usually the first Saturday of June and December) and the level 2 and 3 exams are offered only in the late spring (usually the first Saturday of June). After passing all three levels of the exam, each CFA candidate who has four years of professional investment experience is eligible to receive the Chartered Financial Analyst designation.

Are you up for the challenge? The keys to success are to get organized, develop an effective study program and review.

Key No.1: Get Organized
Once you've made the decision to sit for the upcoming CFA exam, you need to develop a course of action. Here are some tips:

Start Early
The CFA Institute estimates that at least 250 hours of independent study is necessary to pass each exam. In other words, a candidate starting six months before exam day should plan to spend no less than 10 hours a week studying.

Preview the Material Before Starting
After registering for each level, you will receive a curriculum that is divided into about 18 study sessions. Broadly preview each session to determine your familiarity with each topic. (Check out our Exam Prep page for a quick review of the CFA level 1 exam.)

Develop a Game Plan
Get out your calendar and determine which weeks you will be studying which sections. Plot this on Excel, Outlook or a similar schedule-making program. Schedule your studying so that you finish with all the sections at least one month before the exam, so you can review. Also, schedule in review days as you go along.

Select a Review Course
In no way should a review course substitute for studying the material. However, a good review course can augment your study program by clarifying or pinpointing concepts you may be having trouble with. The key is to pick only one course, so that you can spend more time focusing on the CBOK.

Key No.2: Develop an Effective Study Program
An effective study program will make the difference between passing and failing. To develop an effective program, consider the following:

Study All "Learning Outcome Statements" (LOS) 
The CFA Institute defines LOS as "knowledge, skills and abilities that you should be able to apply after completing a reading and all associated exercises and problems." To master each LOS, develop an outline and write down any important terms, definitions and formulas relating to each one. You'll be more likely to remember these points later if you take time to write them down as you come across them.

Use Flash Cards
Homemade flash cards are an effective way to master the material. Flash cards are portable, much lighter than carrying the entire CFA curriculum with you and can be quickly reviewed while commuting to work, during a lunch break, etc.

Use Memory Techniques
Mnemonic devices, such as taking the first letter of each word in a concept to spell one word, are helpful. There are other tricks as well, such as catchy slogans. For example, "SiP a CoKe" can be used to remind you of option put-call parity: The prices of a Stock + the Put = those of the Call + the present value of the striKe price. Also, don't fail to take the value of auditory memory cues into account.

Study Quantitative and Qualitative Material Differently 
When studying quantitative material, working on problems is important. First study the concept, then learn by doing these problems over and over again. Once you understand how to solve a problem, return to the material for further understanding. Read qualitative subjects, such as ethics or behavioral finance before working on any problems. Approach these readings as if you were enjoying a good book. Many ethical problems are scenario-based and easy to read.

Work Through as Many Practice Questions as You Can
Use the curriculum provided by the CFA Institute to show which problems you must work on. Enhance your studying by working on additional problems from reputable exam preparation providers.

Use Your Approved Calculator
Part of the challenge in passing the CFA exams is the ability to answer questions in a short period of time. Practicing with the calculator you will use on exam day will allow you to achieve the greatest efficiency.

Stay Motivated
Focus on why you are earning your CFA charter and how you will reward yourself after you take the exam.

Maintain a Healthy Lifestyle 
Eat healthy meals, sleep right, avoid excessive alcohol or caffeine, and remember to exercise. People who are healthy are better learners.

Key No.3: Review
Hopefully, you've been reviewing the material as you progress. However, you will still need a solid month to review the material again once you have gone through all the sessions. Do not take this part of the study process lightly. Here are some helpful tips for your review stage:

Finish Early 
Finish covering all materials at least one month before the exam.

Use Practice Tools
Tools like CDs or online exams are available to assess your strengths and weaknesses. Find out where you need to build on your strengths and practice in areas where you are weak.

Work Problems Offline
Do your work like you would on the day of the exam – with a calculator and pencil in hand.

Take Practice Exams 
Take these beginning on a Saturday several weeks before exam day and try to replicate the actual testing environment as much as possible. Time yourself and allow no interruptions. This will allow you to become used to writing two three-hour exams in one day. You might also want to invest in a set of good ear plugs; these will come in handy during the actual exam.

Do a Test Run 
The Saturday before the exam, drive down to where you will be taking the test and check out the site. Determine where you will park and the quickest way to get from there to the exam room.

Make Time for Yourself 
If possible, take off the week before the exam. This will allow time for your final review, and reduce stress levels before the exam. Stay at home, study the material and allow no interruptions.

Sleep Tight
Take it easy the night before. Lightly review the material, brush up on weak spots and eat a nice dinner. Pack a lunch for the next day to eat during your two-hour break. Also remember to pack your calculator, pencils, erasers, required medications, exam ticket, photo ID and ear plugs. Get to bed at a decent time.

On Exam Day 
Wake up early and eat a good breakfast. Go over some broad concepts. Start with ones that are easy for you; then work a few problems. Don't go into the exam cold. Leave the house in plenty of time to get to the exam.

Take (and Pass) the Exam
Relax and take a few deep breaths. Avoid talking with others about the exam. If you see someone you want to talk to, try not to talk about the exam. This will only stress you out and hurt your performance.

The Bottom Line
If you're a candidate in the CFA program or are planning to register, you need to plan in order to succeed. Organize your material, study effectively and review. In this way, you should be well on your way to passing each level of the CFA program on your first try.

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