Woman celebrates she was able to pass the CFA Exam Level III

Posted by: Kaplan Schweser
Published: April 10, 2018

So, you passed Levels I and II of the CFA® exam. It wasn’t easy getting here, but you did it. Now the final CFA exam step is in your sights: Level III. Get a passing score, and you’ll have finished up this stage in your career, so naturally you want to know how to accomplish that. Here are the steps to preparing for and passing Level III, with some additional tips along the way.

Step 1: Study the CFA® Level III Curriculum and Format

Level III is a full-day, 6-hour exam, with 3 hours in the morning and 3 hours in the afternoon. The morning exam is typically around 9 to 12 questions, each of which has multiple parts. The afternoon exam has 10 six-question vignettes, like those in Level II.

The topics covered, with their exam weights, are:

  • Ethics: 10-15%
  • Economics (Applied): 5-15%
  • Fixed Income: 10-20%
  • Equity: 5-15%
  • Alternative Investments: 5-15%
  • Derivatives: 5-15%
  • Portfolio Management: 40-55%

The big difference with Level III is the format of the morning portion of the exam. It’s all written. CFA Institute calls this format constructed response, and they describe it as questions that have “varying structures and point values and typically have several parts related to a case study that describes an investment challenge. Candidates’ responses require a higher degree of specificity.”

All the questions have different numbers of parts, and each part varies in length. Not only that, but they also indicate the page where the answer should go. Candidates have to go back and forth between where the question is and where the answer should be. The point of this format is to test your ability to apply and use judgment and follow a prescribed path, which is what CFA charterholders have to do for their clients and firms. No client is going to benefit from your ability to recall factoids from memory; they are relying on you to make the right decisions for them based on their situations and needs and your knowledge of finance and investment.

You might have noticed how much weight is on the portfolio management topic. If you don’t pass it, you aren’t likely to pass the exam. And, here’s an important tip to remember for structuring your study: except for ethics, all of the topics relate to portfolio management. It means that up to 100% of the constructed response part of the exam could be portfolio management.

Step 2: Use the CFA® Level III Pass Rate to Your Advantage

In the last decade, the pass rates for Level III have been holding steady at around 50%. In 2017, it was 54%. Interestingly, the number of people taking the exam increases substantially each year. In fact, in just five years, from 2012 to 2017, that number jumped by almost 7,000, from 24,754 to 31,631.

As a result, although a significant portion of the exam is written, the people who put it together have to take into consideration the fact that they’ll be grading more than 30,000 exams. So, those who devise and score the questions take a standardized approach to the process. Those who fail the exam have a tendency to think that, because much of it is written, it is like a college essay exam, and they can pass based on the creativity or process of arriving at their answers. Those who pass are the ones who focus on what it actually is: a standardized exam with questions that have specific answers. Thinking creatively or using the right process won’t be counted if you don’t provide the correct answer.

Step 3: Prepare and Practice

CFA Institute recommends that you study at least 300 hours for the exam. The focus should be on the Learning Outcome Statements (LOS) from CFA Institute because they detail exactly what you are expected to do on exam day. Level III CFA exam preparation classes can really help here, and that’s why anyone serious about passing the exam should enroll in one.

These courses will go over the concepts and help you navigate what is expected in a constructed response. You will get a good idea of what you need to know and do on exam day. You will be answering practice questions throughout these classes, but you should also make them a major part of your self-study, because research studies have shown that practice is the most effective way to prepare for these exams.

Successful CFA charterholders report that review workshops were part of their preparation strategy and helped them pass. These review workshops pull everything together, which is critical to doing well on the exam. They show you slightly different perspectives for the same topic, which can help you remember solutions to questions when you’re taking the exam.

Step 4: Take Mock Exams and Challenge Yourself

A good rule of thumb is to complete your preparation coursework about a month before the exam and spend the rest of the time taking mock exams. Successful CFA charterholders report they spent the entire last month working and reworking exams and focusing on main issues. “I rewrote, and I learned from mistakes,” they say.

There’s a process to answering the constructed response questions, and it’s not possible to memorize anything that can give you the answer when the time comes. If it asks you to calculate earnings per share, for example, it has to be done with what they provide in the question. The facts will differ, but the process is there. The problem is that it is easy to go off on a tangent and get the answer wrong. Therefore, you need to practice how to answer the questions. Take as many mock exams as possible. This is the best way to improve your ability to apply everything you’ve learned in the form of answers to constructed response questions.

Also, it’s important to remember that once is not enough, particularly when preparing for the constructed response portion of the exam. That’s why the mock exams often repeat questions. You should never think, “I’ve seen this question before, so I’ve got this,” and write the same answer you did before. Challenge yourself to write a better answer this time around. Your goal should be a more effective written response each time you answer. In addition, answering questions multiple times helps you learn from your mistakes, which is a really important of the exam preparation process.

Step 5: Watch This Tutorial for Specific Details, Tips, and Tricks

For a more in-depth look at what you need to do to pass Level III of the CFA exam, watch this video tutorial. Dr. David Hetherington, CFA, provides a lively and entertaining explanation of the format of the exam, what to expect, and what you can do to prepare. As a bonus, he even shows a few questions from past exams.


Looking for more help passing the Level III CFA exam? Enroll in our CFA Level III PremiumPlus or Premium study packages to receive expert instruction and CFA study materials that provide a solid framework to prepare, practice, and perform on the CFA exam.