Posted By: Dr. Doug Van Eaton, CFA
Updated: August 18, 2020
If you are a candidate for CFA® Program, you need a study plan that will allow you succeed. Join Dr. Doug Van Eaton, CFA as he discusses the CFA Program Level I curriculum and study strategies that have been proven to work.
Hi, I’m Doug Van Eaton, been a Level I manager for CFA® education at Kaplan Schweser for about 15 years now, teaching CFA for about 20 years, CFA topics, education and teaching finance and economics for, let’s just say much longer than that. So, we’ve got a pretty catchy title for you here, right? How to pass the Level I CFA exam. Well, let’s hope that this will be time well spent. We’ve got some experience with that and looking at the science of education over the years, we’ve come up with a few things that I’d like to share with you.
But first off, we’d like to take a look at the CFA curriculum and the structure and content of the exam. In these few minutes we’ll spend together, we’re also going to discuss the curriculum topics and exam weights. What have been the pass rates? What does it take to pass the exam? The structure of the exam and the question format, and then we’ll transition in how to prepare for and pass the exam. And how these ideas about efficient and effective study have been integrated into our Schweser programs and study materials.
So, let’s get a look at the challenge that you’ve undertaken. The way the curriculum for Level I is broken up, there’s 19 study sessions, and each consists of one or more readings, and each reading will have multiple learning outcome statement, we call them LOS. So, each of these learning outcome statements is a specific thing that you’re supposed to know or a skill you’re supposed to have, be able to calculate covariance from historical data, something like this. So overall, there’s about 60 readings and 530 learning outcome statements for the Level I CFA exam. These numbers change a little bit from year to year, but that’s a good estimate right there.
So, let’s take a look at this breakdown so you know what you’re facing in trying to learn and master this curriculum. The second study session is the first of two on quantitative methods, and it comprises three readings, the time value of money, statistical concepts, and market returns, and probability concepts. So, along with study session three, the second part of quantitative methods, this makes up the topic area of quantitative methods. And we know that quantitative methods will be approximately 10 percent of the exam questions and points. So, we have the readings, make up the study sessions, one or more study session makes up a topic area. And the topic areas is where we are given from the institute, the exam weights. So, each of these readings has one or more, as I mentioned, learning outcome statements.
So, let’s dive down into reading 8, probability concepts, and take a look at what a learning outcome statement looks like. Well, LOS A here for reading 8, is define a random variable, an outcome, an event, mutually exclusive events, and exhaustive events. So, this is the start of our reading on probability concepts. Now, let’s take a look at B, state the two defining properties of probability and distinguish amongst empirical, subjective, and a priori probabilities. And one further example, C, LOS C, state the probability of an event in terms of odds for and odds against the event. Well, that’s a pretty narrow and specific LOS. Other ones are broader like, understand the balance sheet or the income statement. So C is pretty narrow here, they want you to, I guess, be able to quote the odds like a horse race for stocks or something like that. But anyway, every learning outcome statement is fair game for the test. That’s the purpose of these reading level LOS is to focus you on the relevant material for the exam.
Now, as I understand that, the CFA curriculum readings are done and then these LOSs are put as an overlay rather than having the LOSs and telling the author, cover these. Well, in our Schweser materials, we really target the specific LOSs because all the questions on the exam will be drawn from one or more of these learning outcome statements. So, that’s why we say it focuses you on the relevant material for the exam and indicates the skill you should get, and the depth of the topic knowledge required because it has these command words. These command words may be, explain, contrast, compare, some say calculate. So, you’ve got a number of those command words that are in each learning outcome statement.
So, the curriculum and the learning outcome statements and the exam questions all begin with what we call the candidate body of knowledge. And this is based on feedback from practitioners and employers. They ask them, “What do you want a generalist analyst to know when he walks in the door or she walks in the door?” And so this is all three levels, this candidate body of knowledge. So, then it’s broken down and it’s broken down finally to where we get to the LOS level. And LOSs we believe are tested on a cycle. And as I say, I can’t emphasize enough, each learning outcome statement is fair game for the exam.
So, our topic areas, the first one is ethical and professional standards. And most of that is the CFA Institute Standards of Practice Handbook. Two, we saw that one, quantitative methods, two study sessions. There we’ve got two study sessions for economics. We cover some microeconomics and macroeconomics and international economics. And then an important area, financial reporting and analysis, all about financial standards, income statements, balance sheets, comprehensive income, depreciation, inventory. There’s a lot there.
Then we do one on corporate finance, a topic area of corporate finance. I believe that’s two study sessions. And there’s also two study sessions for equity investments. Fixed income can be quite challenging about debt, bonds, interest rates, yield curves, all that sort of stuff. We’ve got a section, a topic section on derivatives, one on alternative investments, and the last one is two study sessions that comprise portfolio, the portfolio management topic area.
Now importantly, let’s take a look at the weights on these topic areas as we try to give you a picture of what you’re up against and how you can start to formulate your study plan. There’s ethics, although there’s no math, no calculations, and it’s based on basically a single book. There’s a little bit in that session about global investment performance standards, but overall, it’s the Standards of Practice handbook. Well, of the 240 questions on the exam, 36 of them are going to be drawn from this area. You can see I’ve put in red here, the two largest topic weights: accounting, financial reporting, and ethics. So, that’s almost a third of an exam right there. Quantitative methods, econ, corp fan, they’re all 10 percent of the exam. Expect about 24 questions from each of those topic areas.
Equity, 11 percent, fixed income, 11 percent. So, 26, 27 questions instead of 24. Our lowest weights are on these last three derivatives, alternative investments, hedge funds, venture capital, real estate, private equity, that sort of thing. And lastly, portfolio management and portfolio theory.
Now, about the Level I pass rate, in recent years, the percentage of candidates who pass their exams is 43 percent. And it’s not…doesn’t vary widely. I think I remember it most recently being between about 41 percent and 44 percent. Now this, though, this 43 percent, is not of the people who signed up for the test. This is the percentage of Level I candidates who actually sat for the exam. So, those who registered for the exam and got to the exam date and said, “Oh, there’s no way I’m prepared for this. I’m not going.” Or they change jobs or their life changes somehow, and they just didn’t take the exam; we’re not even counting those.
So, we could put it in another way and say 57 percent of those who actually went and sat for the exam did not pass. And this includes those taking the Level I exam for the second time or third time or whatever. So, this should be a little motivation to start early and study hard. Let me go back to that slide for a second, because you’ve got to wonder, well, all these people, just about everyone who registers for the CFA exam is either just completing their college education or have already completed a four-year degree somewhere. So, you look and say, well, over half of them that sit for the exam are going to fail the exam.
And one of the secrets is starting early and just being diligent. You really have to sit in the chair and learn this stuff. They are pretty good at testing your overall knowledge of all these 500 and some learning outcome statements.
So, the structure of the exam, well, it’s in two parts, a morning session and an afternoon session. Each is 3 hours and each is 120 questions. So, you have an average of one and a half minutes per question and they are all three answer choice, multiple-choice questions. Old exams haven’t been available, made available in over 20 years. So, it’s a little bit of a black box.
Both the morning and afternoon sessions cover all the topics. So, you can’t go out at lunchtime and go, “Oh they haven’t covered fixed income. I better study that like crazy during lunch.” No, that’s not the way that gets it done. They’ll start and at least, typically, they’ve been divided by topic area. Start with ethics, then do quant, economics, financial reporting, right on through. And the questions are segregated by topic areas.
So, some exam tips from me. Come early, stay calm. Don’t come there after having tried to find a parking spot, or tried to find a building, or getting caught in traffic, or underestimating the time, get there early, take a walk, relax, to the extent you can, come well-rested. And please don’t let your eyes wander around the room. We hear horror stories of people that have been accused of looking at other’s papers. Maybe they were, maybe they weren’t, but if they appeared to, that could be a big problem, they could not count your exam results.
And stop immediately when the proctor say, “time.” Running over time is another reason that people get excluded from the exam. My suggestion is to read that Standards of Practice Handbook for ethics one more time the day before the exam. It’s really kind of memory stuff, short term memory stuff. It’s the first section on the exam. It’s 15 percent of the exam. If you get a good start on those and recognize a lot of them and feel you’re doing well, it just leads to an overall better exam day performance. Feel free to write in the exam books. Don’t make any stray marks on your answer sheet, but in the exam book, you can write anything you want. You can’t take them with you at the end of the exam clearly, but anything you need is scratch paper. There’s space on there to do it. You can’t take any formula sheets in. You can’t take any blank paper in. So, just be aware of that.
So, now let’s talk about your preparation. How do you get to that point with all of this material besides starting early? Well, in terms of learning and retention, the important thing is engaged learning. Different people can sit down and spend three hours reading an article and just come away with totally different amount of understanding and usable knowledge. You really have to get engaged. And what are they trying to teach me here? What could they ask of this? You know, get engaged in that learning process. But beyond that, repetition is a good thing. And repetition is good for putting things in your long-term memory. Now, you’re going to study many topics over, maybe, a six month period, right? And you don’t want to get to the end and go, “Oh, I studied all that quant stuff. That’s five months ago. I don’t remember any of it.”
Well, by returning to that periodically, when you go back, tell your brain, “Hey, I need to use this stuff.” Your brain goes, “Oh, this must be important stuff. I better put that in long-term memory instead of just getting rid of it.” So, repetition will really help. And studying across topics, studying one topic and maybe taking a quiz on a previous topic that you’ve covered. This can be very effective in terms of your retention and learning. Now, we’ve got here the test effect. In educational science, the test effect has been well known for a while. And in the first studies of this, what they did is they took two groups and they said one group, they both read the material and then they said to one group, “Now, go really read the material.” And the other group, they gave them a test. And it turns out the group they gave them the test, they did better, they learned more. That’s the test effect. And in fact, they learn more even if they didn’t grade their tests and give them answers to it. Just the activity of taking that test made it better.
Now, let me just put in one note here for you. In case you didn’t get my point from the test effect, do lots of questions. We think that is somewhat limited, but we think that students who spend more time…more of their study time doing questions, do better on the exam. Now, in terms of writing or remembering, the scientists tell me from their studies, not personally, from their studies, they tell us that writing notes doesn’t seem to add anything to the studying process. However, anecdotally I know it’s worked for me over the years, and as I looked more into it, it’s people that are writing things, but they’re actively, they’re engaged in the learning and they’re distilling what they read into maybe shorter sentences, or key factors, or compare and contrast things. So, it’s not the writing that does it. It’s the thinking that goes with the writing and the importance of review, going back and not losing what you learned in the early parts of the study process.
So, for efficient learning, know the extent of the material and the format and topic weights for your exam. Well, we’ve covered that here. So, then learn and understand the CFA curriculum concepts, definitions, all the bold words, and the techniques if it says calculating the LOS.
Do practice quizzes and then do more practice quizzes, learn how to take the exam successfully. We’ve got a number of practice exams that we think are pretty close in difficulty and timing, and certainly in topic coverage and format as the actual exam to get you ready to do what you need to do on exam day. Probably get 70 percent of those multiple-choice questions, right? We believe they don’t publish the passing scores, but they are adjusted from time to time. But we don’t believe they’ve ever been higher than 70 percent, and sometimes they’re lower.
And then your final preparations before the exam, filling in the gaps in your knowledge. So, trying to identify and fill in the gaps in your knowledge in these last few weeks, the last month before the exam, which we consider the review period. Finish your curriculum at least a month before the exam to do this kind of final review, practice exams, mock exam, this sort of thing.
So, let’s summarize these five steps in the exam preparation process. Learn about the exam topic weights, question formats, and the readings, understand what it is you must accomplish and formulate your study plan and then stick to it. Now, on our learning management system, we take you through step by step. Okay? Read this, do this quiz, read this, do this quiz, take this review quiz, move on to this next topic. Oh, here’s a quiz back on the old topic. And then maybe a third of the way through, we give you what’s called a checkpoint exam that then covers everything you’ve studied up until that point.
But you need your own study plan besides that. But we certainly do have it laid out in modules and quizzes and tasks for you. So, you need to learn the exam curriculum, one learning outcome statement at a time, when you can look at that learning outcome statement and say, “Yes, I know how to do that.” Think of the one we looked at before. “Yes, I know what a random variable is. I know what an event is. I know what mutually exclusive and exhaustive mean in terms of probability.” Well, check it off. You’ve learned it. And the buildup is to the study session and the topic area. Read our Schweser notes. We’ve got our five volume Schweser notes that cover every learning outcome statement, complete all the concept checkers. That’s our end of reading or end of module questions.
And learn from your errors, if you miss a question, you’ve got to go back and go, what did I need to know that I didn’t know to get that question right? We have on-demand video lectures that you can go to after you read the Schweser notes and get a more conversational approach to each module, each reading, each topic. We also have live online classes and offer live instruction around the world. You may have heard of it. We’re pretty famous. And then learn and retain the material. Take quizzes. We’ve got our SchweserPro QBank where you can dial down to an LOS level, or a topic level, or a reading level. And somewhere over the course of your study, look at all the end-of-reading questions in the CFA Institute books. See how they’ve treated the material, see what they’re trying to draw out of that material.
Take topic assessment exams from your Schweser online account. And then you need to learn how to take the exam. Now, we do have our Schweser review workshops where we’re about half question practice and half review. Try to get the right balance depending on when in the season. These are all late…this is late season stuff.
Also, our Schweser practice exams along with our mock exams, we offer six different ones. Okay? There’s full six-hour exams, so this is where you’ll get your timing right. You’ll learn to approach these multiple-choice questions and you’ll identify the areas with our software. You just look and it’ll tell you how you scored in each topic area so you can know where to focus your review and do what we were referring to before at fill in the gaps. So, then review the answer explanations. If the answer explanation doesn’t do it for you because you just don’t know what spot interest rates are, then it’s time to go back to the Scheweser notes or maybe the video lectures to review that material and make it something that you know and is usable to you.
All our online classes are available on demand right up until exam day. And remember the CFA curriculum books. If you want to fill in some things, get a more detailed explanation or more examples of something, certainly, you can take a look there during the review process. So, your final preparations, take our Schweser live mock exam. It’s offered live in well over 100 locations around the world by CFA societies. We do have an online version if you live a long way from a place where it’s offered live.
And with our mock exam, whether you take it live or online, we’ve got a multimedia tutorial where we’ve got little tutorials for each question. So you didn’t get the question right, you look at the explanation and go, “Oh gee, how’d they come up with that?” Well, we’ve got some short, you know, two, three, four-minute tutorials that review those concepts that were being tested in that question. And I think candidates have found this to be a terrifically efficient way of filling in those gaps in their knowledge in the last couple of weeks before the exam.
And as I mentioned before, read that Standards of Practice Handbook, not for the first time on the day before the exam, but maybe for your at least second and maybe third time the day before the exam. We’ve got new feedback over the years and candidates have told us, yes, this actually works. So, our five steps, learn what you’re up against, then learn the material, no way around that, and then practice and retain the material.
And in that last month, get exam-ready. Become a good test taker. You want to get the best score you can. You walk in that exam with a certain amount of knowledge, but your practice on taking those exams and your timing and managing your time are going to get you the maximum score for the amount of knowledge you walked into the exam with. Our late season review workshops, secret sauce, our Schweser mock exam with the multimedia tutorials.
So, that’s the process we’ve integrated into modules in our LOS, on-demand videos of varying lengths, but usually about 20 minutes apiece for that. So, that’s the Schweser program and it will work for you. We had great success. Our candidates have had great success and their feedback over the years, that’s what’s allowed us to put together such an effective and an efficient learning program. Best of luck on your Level I exam.
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