Posted by: Kaplan Schweser
Updated: February 12, 2019
Now that the CFA® Program Level I exam is behind you, it’s time to set your eyes on the next prize: Level II. Here are the steps you can take to prepare for it and pass.
The Level II curriculum covers these topics:
These topics are weighted—some have more weight than others, and the weights are all variable. The two with the most weight are equity valuation and financial reporting and analysis, so you should be sure you are really on top of these two topics. Otherwise, it will be very difficult to pass the exam.
As you study, you should also be aware that unlike Level I, which focused on investment, Level II focuses on valuations.
At Level II, the exam is organized in the form of item sets that can focus on one topic or combine several. Each item set consists of six related questions. These six related questions are preceded by a short vignette that gives you information needed to answer the six questions. For example, an item set from ethics and professional standards will cover that topic.
The item sets are divided so that there are 10 in the morning session and 10 in the afternoon session. Knowing this format will help you start thinking along those lines as you study. Another important thing to remember is that quantitative methods can consist of one or two item sets. That introduces some mystery to the process when compared to Level I. It’s also why you need to have the topic areas down—there’s no gaming the system.
The pass rate for Level II is in the mid-40s. Instead of being discouraged by that number, use it to energize your preparation. If you haven’t already, you should start studying for it right away and put in more than the 300 hours that are recommended as a minimum needed to pass. Dedicate as much of your free time as you can to studying and don’t let up until you walk in the door of the testing center. In short, start early and don’t delay. Consider an exam prep package because surveys show that the pass rate for Level II is higher for those who do.
In addition to the variable weighting and the vignette question format, there are other important differences between Level I and Level II. Know them well. The first is the integration of different topics. For example, a vignette related to equity valuation could have a question about dividend discount models, a question about price multiples, or even a question about the cost of capital.
Another difference is that Level II tests analytical skills. The expectation is that you are going to be an analyst. Memorization, therefore, will not get you far. As you study and answer practice questions, ensure you understand what you are doing and be ready to demonstrate your analytical abilities by answering questions that are written appropriately.
But the main difference is that Level II has much more material. You’ll be reading a lot more, and your depth of understanding will be have to be much greater. Again, this is why you need need to allocate an appropriate amount of time for studying.
CFA Institute expects you to focus on the learning outcome statements (LOS), and they will be holding you accountable for them. Make sure that your understanding of the material is consistent with its underlying LOS. So, when it comes to preparing for the exam, you must go past the process of learning the material and get to a point where you understand it. Ask yourself, “Why does this make sense?” If you are able to answer those types of questions, it increases the staying power of the underlying material that you’re learning.
There are some good methods of studying to help you focus on the LOS. One way is through self-explanation or by pretending you’re the teacher who has to explain to a student. Interleaved learning is another. This is the process of taking breaks so that you’re not trying to learn or practice large quantities of material all at once. Interleaved learning can morph into distributed practice, which is spreading learning over a long period of time rather than “cramming.”
Remember, the most important and effective way to focus on the LOS is to practice. Take quizzes, do problems, put pencil to paper. And if you make a mistake, that can be used to your advantage. Your brain will flare up and recognize that this is the kind of mistake that can be made, and the result is that you’re unlikely to repeat it.
We’ve only touched the tip of the iceberg when it comes to passing Level II. In this video, Dr. B.J. Tolia, CFA, goes into much more detail about the CFA Program Level II curriculum, the key differences between Level I and II, and study strategies that have been proven to work.
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