Posted by: Dr. B.J. Tolia, CFA
Updated: August 18, 2020
Now that you’ve passed Level I, it’s time to start preparing for Level II of the CFA® exam. Join Dr. B.J. Tolia, CFA as he discusses the CFA Level II curriculum, the key differences between Level I and II, and study strategies that have been proven to work.
Hello friends, and welcome to “How to Pass the 2020 Level II CFA Program.” First of all, congratulations on passing Level I. Recognize the party is all over now. The task ahead is fairly onerous. Don’t take it lightly. You have 17 study sessions, 51 readings, loads of material, 6 volumes, so it is going to be a tough cookie to crack. Welcome. My name is BJ Tolia. I am the Level II professor at Kaplan Schweser. I’ve been doing it for too long for me to admit, 10 years as a Level II professor out of that long period involved in CFA education.
So let’s get started about what are the things that you need to be aware of as you prepare for your Level II exams. The Level II exam is going to be testing your cognitive skills. The CFA Institute is looking to see if A, you understand the content that is underlying those learning outcome statements. So what we are gonna do is to first explore the Level II curriculum on an overview basis. We are not going to go into details. The second thing we’re gonna talk about is what is the Level II exam format because it is different than Level I. We will then look at some of the bad news pertaining to Level II. And that is the historical pass rate. We will then explore a little extra detail as to how Level II differs from Level I. So it’s a monster at Level II. Why is it so? We will talk about that.
The next thing we’ll talk about is a little sidetrack into what is known as learning science. So we’ll see what science has taught us as far as effective learning. Regardless of whether you’re learning for CFA or basket weaving, it doesn’t matter. What other things that actually are effective modes of learning and what are less effective modes of learning? We’ll talk about that. Then we’ll talk about how to specifically efficiently prepare for Level II exam. And we’ll talk about how we can help in this process. And then we’ll summarize the steps involved.
All right. Let’s look at the curriculum itself. As I said, 17 study sessions and distributed over your standard 10 topic areas. And these are topic areas that are rather uniform from level to level. The focus changes. Now in Level II, the focus is asset valuation. And what you are being evaluated is on application. So remember, we learned out investment tools in Level I. Now, we are looking at asset valuation. So that is going to be your overarching focus. So, whenever you’re reading something, a specific learning outcome statement, you need to always keep in mind is - how does this help me become a better asset valuer? So that will keep things in perspective. That will also give you good focus to look for the types of questions you can deal with.
All right. Let’s look at the Level II topic weightings. And one of the changes that we’re gonna talk about, the differences between Level II and Level I is exactly that. And that is that the Level II topic weights are variable, so you don’t know what is going to be the weight of ethics in the 2020 exam. It can be somewhere between 10% and 15% and so on and so on down the list. As you can see, the focus again is on asset valuation and thereby it has a significant amount of weight. Portfolio management which becomes a focus of Level III is still important at Level II.
All right. Let’s talk about the question format in Level II. So in Level II exam your standalone questions that you saw in Level I are no longer applicable. Instead, what you have is short story or what did we call as a vignette and it is going to be followed by four to six related question. It is four/six or either it’s gonna be a four-question or a six-question item set. In 2019 is the first year that CFA Institute experimented with a mini item set. That’s my label and that refers to item sets with four multiple choice questions.
So in 2020, they are going to continue that experiment even more further and you will see, you know, more than half or about half of those questions in the four-item set format, the other half maybe in six-item set format. Regardless, the total exam in the morning will have 60 questions total, which means each question is 3 minutes each because the morning session is 180 minutes just like the afternoon session. They are both 180 minutes, so each question is given 3 minutes. And so you again, one of the things you’ll immediately notice is that the time allocated per question is double as what you saw in Level I.
All right. Let’s look at the bad news, the pass rates at Level II. And there is a reasonable consistency over the last 10 years or so. The pass percent is about mid-40s. And that in itself may not necessarily seem that bad because Level I pass rates are probably just a notch lower. So you have, kind of, experienced that, but recognize your candidate pool, against who you are competing are pre-screened pool. In other words, those are the good candidates and even in that good candidates, the exam is screening out more than half the people. So your job is to be in that 40 percentile, top 40 percentile, top 42 percentile, whatever the cutoff may be. In other words, get in the door before it closes. That’s your objective because the wait is long.
What are the five differences from Level I?
The first difference is the topic/30 session weightings are variable as we already saw. So unlike Level I, you have some mystery as to what will be the coverage on equity valuation, for example, on the exam.
The second difference…we already talked about that too and that is the questions are not standalone questions but rather they are part of a vignette. They’re a part of a group which provides you with related information. And that requires a little bit of reading comprehension, a little bit of digging to seek out what is the relevant information and not be sidetracked, not be confused by what is known as red herring or extraneous information.
More integration of different topics. Your item set may include coverage of multiple readings. So it becomes a little extra challenging when you do a QBank question for example, you are limited to that topic, that module, that LOS. But as you get into practice exam, you see more integration. And that needs to be experienced. That needs to be practiced so that you are comfortable with that challenge.
The fourth difference is higher expectation of cognitive or analytical skills. So instead of just blindly memorizing a model or a formula and plugging the numbers in, you are going to be required to decide between the models which are appropriate. You’re going to decide under what scenarios, which model makes more sense. These are exactly the skills that analysts would need in a real world scenario.
And then finally, way, way, way more materials. So not only do you have a large volume of material, you need to know it inside out. You need to know how to read between the lines because any LOS is perfectly testable and they are going to be able to very easily decipher whether you’re really knowing it or you’re faking it. So the exam, it does a very good job of parsing or discriminating between candidates that are well prepared versus those that are not. So that is the five major differences from Level I.
Now, let’s talk about what should be a reasonably efficient approach to preparing for Level II exam. So there are no shortcuts. It is a lot of work. And, as I said, they will know whether you put in the work or not. The exam does a good job of deciphering it. So a rigorous, a well-planned…you should have a plan in place. Without planning, nothing happens.
So you need a plan in place so as to be able to put in lots of hours. Now I have 300 plus. It varies from person to person. There are some that have a good background in finance who may get away with 250 hours. Those are a minority. Those are very few. I have heard from my past candidates as well as CFA Institute’s sample candidates. And there may be a built-in bias to the service of CFA Institute in my opinion. But nonetheless, greater than 500 hours is not unheard of. So given the fact that what is at stake, if you are to put in an extra 50 hours, it may be worthwhile.
So how do you know whether you have put in adequate hours? Well, our practice exams will be an effective assessment tool to determine where you stand. But we’ll get to it in a little bit. Recognize that starting late and not devoting time is a recipe for failure. So common, common, common reasons for failing: starting late, not devoting enough time. Now recognize that it is a very voluminous, very arduous task and it is not something you want to take lightly. So recognize that first off. Also, my advice is always start early.
So start early. Why? When you start early, what you do is you try to assimilate or you try to absorb the curriculum as it is meant to be. In other words, you are in this business because you want to be. You like this field. Supposedly that’s you are pursuing your charter. If you like this field, then you will find the curriculum, except ethics…the curriculum to be very practitioner, very interesting. You should find it. So when you start reading it, read it as if you’re learning. Enjoy the process of learning. It’s something that you wanna do. It is helping you do that better. So why not? It’s just like learning a new language, for example, when you want to travel to a foreign country.
So enjoy the process of learning. It can be fun. Don’t have that overarching negative thought process of preparing for an exam while you’re learning it. So enjoy the process of learning. That learning will have a longer staying power, that you will retain that material longer and it’ll feel less taxing.
And then when I say start early, that is precisely for the reason that you need sufficient time to make it pleasurable. If you are trying to do a time crunch, you’re setting aside the last three months, 10 hours a day, that’s going to be a marathon session. You’re gonna burn out. That material is gonna be shallow and it’s not gonna help you, for most cases, pass the exam.
So A, pay attention to topic weights, which we already talked about. So obviously you want to spend almost three times as much time in equity as you do in, for example, economics and so your allocation of time should be proportionate to exam weights.So that is the first thing. And then secondly, focus on the learning outcome statement. You know, that is a nice thing. What is it that the Institute is saying they that they want you to know? That is the LOS, learning outcome statement. It clearly specified what do you need to know. And so once you know what they are looking for, make sure you’re absorbing that relevant information.
All right. So now we’re gonna talk about the approaches to learning. So learning and generic test-taking, nothing to do with CFA. Let’s talk about basic learning science. What works? What doesn’t?
So first we will talk about low utility. So low utility, poor techniques, highlighting, and underlining really doesn’t help much. It doesn’t help you retain the material, doesn’t help you understand the material. Similarly, allocating a specific location or space, that 10th table in the library and that is your routine, well that just makes it more monotonous and more boring. It’ll help you learn better. So those are not good techniques. These are not gonna help you learn better, not gonna help you retain the material.
What are the things that are moderately medium effectiveness? First is elaborative interrogation. And this is where when you’re learning it, you are embedding it in your thought process, in your flow chart, in your brain. So what you’re doing is when you learn something, you need to ask yourself a question, “Why does this make sense? In what context does this apply? Why is this true?” Well, in fact, one of the best way to do it is to critique what you are learning. In your opinion, why does this not make sense? And that is perfectly fine. That gives you the higher order of learning, higher cognitive skills, exactly the skill that you need to pass the exam.
More continuation of moderately effective methods interleaved learning. In other words, what do you wanna do is to give some variety to your routine of study. Instead of just studying four hours at a time of FRA, you want to split it into different topics. Instead of just reading from the notes, you may want to do some reading, some practice questions, some watching video, for example. So that reduces the monotony. You reach a saturation point in one area or one medium of learning then you employ a different medium. So that makes it a little extra effective.
Now, we go to the more highly effective methods. The first one is simply distributed practice and that is exactly what we’re talking about start early, spread it out. And, as opposed to cramming, distributed practice is a lot more effective. What you learn is going to stay with you longer and it is going to be ingrained. You are less likely to be dissuaded or confused by the distractors on your exam.
And then finally, test effect. Now studies have shown, I mean this is really a powerful effect. Studies have shown that, let’s say you’re taking your test and you got something wrong and you look at the answer, you realize you got it wrong and you take the same test again, maybe a mix of different tests, but the same question or a similar question appears. You are likely to remember what you did wrong and not make the same error again. So that is their test effect. In fact, the test effect is so powerful that, let’s say when you’re taking a test and you guessed on something, you got it right. Well, what you got right, in other words the correct answer, is less powerfully embedded in your memory as compared to the one you actually guessed wrong or the one you selected wrong. So test effect is very powerful. Making mistake is great in this practice session because it is part of the process. It’s part of the learning process to make your learning strong, to make that chain stronger chain of learning module stronger.
Now, how can we help? What do we do in this preparation process?
The first thing is our modus of delivery of content is in what we call as an activity feed. And activity feed is basically breaking up the entire task into bite-sized learning. So we have modules, again, distributed learning, remember, very powerful. So we created the activity feed. You just go down the list, finish this task. Move on to the next task. Everything that you need to do is embedded within that activity feed, including test-taking, including practice question. So this is again the entire process of delivery of content. The curriculum is designed around learning science. Now, the products that we offer include, first, our flagship product and that is the SchweserNotes. SchweserNotes is basically clear, concise and comprehensive product, meaning it covers every single LOS. It gets straight to the heart of what is required for you to know and it is worded in a clear language so that it’s easy for you to comprehend.
All right. So every single LOS is covered. There are five volumes. And for each of the modules, again, it is organized by modules and again, that is map directly to the activity feed that is the online platform that you would log into when you prepare with Kaplan.
All right. Now the second product that I wanna talk about is the QBank, the Question Bank. Now, parts of this Question Bank are used to generate activity feed meaning there are quizzes embedded within that activity feed we talked about. You have additional ability to pull as many questions as you want. There are a total of 3,000 plus Level II question. So you can pull more questions depending on your assessment of your weakness, your areas that need extra improvement.
The QBank is designed as a learning tool. It is not designed to mimic the test. So don’t confuse the two. We will talk about the practice exam in a little bit, but right now we are focusing only on embedding what you’re learning and keeping it in your brain for a longer period. Why? Because the real challenge of the exam is not the volume of material. The real challenge is being able to regurgitate that entire six months’ worth of learning on a single day in two, three-hour chunks. That makes it extra difficult. So the quiz effect, the QBank question reinforces what you’re learning. That’s all it does.
Then we get to…after you complete your go around with the entire curriculum, that’s when you crack open your practice exams. So we have two volumes of practice exams. Each volume has two full-length exam. When I say a full length, meaning has AM and PM. You take an exam, try to mimic exam-like conditions, meaning go and do it at a single sit and you input your scores on our online platforms. It’ll give you exact detailed analyses of what your weak area is. It also does benchmark you vis-à-vis your competition. So you know where you fall, whether you’re above average, below average, and it gives you heads up on things you need to do before the big day. So it is very powerful feedback that you get. You don’t wanna find that out, you know, on the exam day. You want to find out way ahead so you can fix those areas that need extra attention.
So now we have several packages, depending on your personal preference, you can choose from. So the first package is our bare bones package. We call it the Essential Self-Study. The key word here is “self-study” meaning there is no instructional support in this package. So if this is something that you prefer to study on your own, you don’t need any tutorial help, you don’t need any email support, for example, then this would be what is appropriate for you. It includes the notes that we talked about, the SchweserNotes. It includes the QBank and the practice exams. So it is sufficient if you don’t need any tutorial support, any instructional support.
Now, for those candidates that need a little extra instructional support, so it either A, they need hand holding because reading by itself is not sufficient, maybe they get stuck on some areas so it is better to have somebody available to help you, we have live classes being offered globally. For example, in Boston, Chicago, New York, Toronto, we have weekly classes, just like a university course. We also offer exactly the same format, exactly the same slides in an online format. And that is also live. And we have our own idea of timings for that depending on your personal preference. So Early Start starts in late October. And again, that is exactly what we recommend. Start early so as spread it out more over time rather than compress it in a shorter timeframe.
So Early Start starts in late October and it goes biweekly until May. The Eastern, which is simply the New York time class… So Eastern Standard Time or London Time class or Asia Time. These are all online. You can log in online wherever you are and you will have access to archives. So if you are unable to attend, you are traveling for work, well everything that occurs in the class is archived. You can watch it at your convenience. There is also a supplementary video lectures included with all instructional packet. So you have the recorded videos in addition to live classroom.
All right. So that was instructional support that we offer. Now, we packaged that instructional support in a variety of packages. So the first one we’re gonna talk about is the Premium Instruction Package. That is our most popular package. So what it is, is it includes a live instruction, the weekly class, either in person or online, it doesn’t matter your choice. It includes the email support. We call it “Ask an Instructor.” It includes the on-demand videos, the prerecorded videos, and it includes what is known as a Candidate Resource Library. That is also in a video format.
The PremiumPlus Package, our platinum package if you will, includes additional resources. So it includes what we call as a Secret Sauce. This is a late season review. It is a SchweserNotes. So SchweserNotes, it compiles the critical must-know things in a small book that you can carry with you. This is something that you wanna read through after you’ve gone through the curriculum. After you’ve had a first pass at it and maybe in April you wanna go through that book and see what your recollection is.
It also includes what is known as late season review. So late season review is either a three, five, or a seven-day live class, live in terms of in-person or on-demand. And the three, five or seven, it depends on your personal preference. Obviously a three-day seminar, everything is compressed where we cover a lot less material than what we cover in a seven-day class. So these are review courses which we deliver by A, going over some of the content and then doing a lot of practice questions. So, kind of, a hands-on experience because you have gone over the curriculum when you’ve come to class, you already seen it once. We refresh your memory and then we do practice questions together.
So Late-Season Review. Again, those products are Secret Sauce, the workshops that we talked, three, five or seven-day. And then the last thing, in addition to the two practice exam we talked about, that is part of your package, that is part of all packages, Essential Premium or PremiumPlus. In addition to those four practice exams, two in each volume, you have an option to have two additional practice exams.
We call these mock exams and these are all digital. Now, the first out of these two is also administered in conjunction with CFA societies around the world.
So if you want exam-like conditions, there are many partner societies that administer that exam at a venue and they proctor it and they distribute it. So that is one option. If you don’t have a participating society nearby or it’s not convenient for you, we offer it as an online exam. Both these exams include a tutorial. This is again, a video tutorial for every single question on that exam. So if you got a question wrong, you want a short two-minute video on that question, well, here it is. You don’t need to spend, you know, three hours on going over every single question in that exam. We provide individual, single links to single videos to specific questions that you wanna go over.
All right. So let’s summarize what we talked about, the steps in the process of preparing for this exam. Step one or the first thing you keep in mind, start early. Make it less burdensome. Enjoy the process. Second step, read the notes. So you start out with just reading the notes. Again, you are starting early. You are gathering information. You’re learning. You’re enjoying the learning process.
The Schweser notes are your clear, concise-to-the-learning-outcome statement. So it should be, you know, hopefully not too burdensome. Then you supplement. As you learn, as you read, it’s supplemented with videos. So, you know, again, the videos are part of the instructional packages. So not in your essential, but the video we are talking about is on-demand or prerecorded videos. So you can supplement it. Again, delivered online, so on your dashboard you have that video available. You read a module. You’re not too sure you understood it or you prefer video learning. So you don’t want to read. You wanna watch a video or a mix of two to what idea spice of life. Either way, your choice, and again, everything is mobile-friendly. So if you want to learn on your commute, you know, you have an ability to do that.
So learn the material, assess yourself, but remember the test-taking effect. So do the end-of-module questions in the notes as well as end-of-reading prompts in the CFA curriculum books. So I want you to not completely discard the curriculum books even if you are learning from Schweser notes. You want to at least attempt the questions that are end of every chapter in the curriculum book. That test-taking effect is very, very powerful, gives your learning a strong foundation that you can really rely on come exam day. In addition to it, periodically again, distribute it, do practice questions from the QBank. Again, your activity feed will prompt you at the appropriate time. In fact, the activity feed builds in practice exams way before you get to April or May. Why? Because you want to, you know, when you go through three, four topic areas, see how you did. And if you need to tweak your learning style, if you need to make changes, you know ahead of time rather than wait all the way until April, May to find out that your style, your approach was not working. So, periodically assess how you are doing things, whether you’re doing it right away, whether it is working for you or you need to make appropriate adjustments.
Again, topic assessment at the end of every topic. And when I say topic, we are talking about topics like quant, econ, financial reporting and analysis. At the end of every topic we have, again, assessments built in to see how you are doing. Attend the late-season review. That is the putting everything together mode at that time. You learn the material. Let’s harness all your learning as well as see whether that learning is integrated or disjointed. Bring it all together. Have an instructor with you, work through questions to see, you know, how much of that learning needs tweaks, how much of that learning needs extra attention because, again, that is a lot of material. It is almost impossible to remember everything on your first go.
Take your practice exam. After this, after step eight, this is where you are now finally taking exam-like question. Up until now, it is all part of preparing for an exam. So this is what I call as a perform phase where you are mimicking an actual exam. Now, you see whether your prepare was sufficient or not. You’re not going to be ready. Nobody is when they take their first practice exam. But the objective is it will give you clear roadmap as to what you need to do. You know, otherwise you’re just going around in circles because, you know, you’re done with the first review in March. You don’t know what to do. You start all over again. That’s an inefficient utilization of time. You’re going to patch up your weak areas and every practice exam is different. It is designed to attack you from different directions to clearly identify the holes that your ship needs to patch up before it, you know, goes out into the sea on the big day.
Use the Performance Tracker, again, online Performance Tracker to give you feedback as to how you stand vis-à-vis your competition, your peers. And then we have the mock exam, as we talked about. We have two. And, again, depending on how much time you have, depending on your propensity to get feedback, you know, if you want more practice, here it is. There are two mock exams that again, come with those video tutorials to explain to you what are the things you did wrong, why you did wrong. And so that, you know, again, you have your rough edges all smoothed out.
Ethics is special. We recommend that you don’t necessarily start with ethics. Why? Because, you know, it is something that is requiring you to do a lot of memorization scenarios, violations, requirements, recommendations, all the wonderful things that go into the code. Well, we say that you build that review, you know, either towards the end, you know, or in the middle of your preparation process. But because of the memorization requirement there, you wanna review it one additional time prior to the exam date. So you may want to review it, you know, in April and then come back to it late May and review it once again. And probably the one last time, the day before the actual exam.
So, you know, the bottom line is it is, again, a long and arduous process. It’s not easy. If it was, everybody would be passing it and you would have very little value to the charter. But, you know, recognize you don’t need to be the top score getter on this exam. You just wanna, again, get in the door before it closes. So utilize your time wisely. Don’t consider this as a easy test by any means, meaning give it the respect it deserves and, you know, put your best foot forward.
Now, in closing, of course, I’m going to recommend that you use Schweser or Kaplan. You know, that my perspective is biased. I’ve been writing Kaplan Level II products for the last 10 years. So SchweserNotes and everything that we publish in Level II, write, curate, edit has been my role for the last 10 years. So, as I said, I’m biased. What I would recommend is talk to your colleagues, talk to people who have actually past the Level II exam, the people that you know. Not on a bulletin board because you may see a lot of vested interests promoting their product. So find out from others and ask them why it worked for them. And again, find out for yourself. We have sneak previews and we have samples, so you can find out for yourself. But no matter what approach you choose, whatever path you choose, I wish you well. Make us proud. And, you know, with that commitment, with that hard work if you demonstrate it, I would be very happy to welcome you in my fraternity. So signing off, this is BJ Tolia once again. And start your journey and enjoy the learning process.
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