Woman researching the differences between the CFA level I and level II exams.

Posted by: Kent Westlund, CFA
Published: August 11, 2020

A frequent topic of discussion among CFA® charter candidates is how one level of the exam compares to the next. The near-universal consensus is that Level II is a significant step up from Level I in a number of ways. The following ten points outline some of the major differences a candidate will encounter between Level I and Level II of the CFA exam:

10. Vignettes

At Level I, questions are normally defined using only a brief self-contained question stem, such as: “The period of time within which a hedge fund must fulfill a redemption request is called…” At Level II, vignettes are introduced. A vignette can be thought of as a mini-case, where a business scenario is described in several paragraphs using a mix of text, tables, financial statements, and so on. A Level II candidate must develop the ability to quickly scan through a vignette and pick out the pieces of data needed to answer a particular question.

9. Item set format

The Level I CFA exam currently consists of 240 discrete standalone questions (starting in 2021, there will be only 180 questions), and each of these questions is unrelated to the others. By contrast, Level II questions are organized as “item sets,” each based on a shared common vignette and containing 4-6 sub-questions. Generally these sub-questions will all dig in to a single topic. This deep dive into individual topics makes it potentially more dangerous to skip a particular reading, because each item sets represents 5% of the points on the exam.

8. Timing

One convenient characteristic of the Level I exam is that it’s traditionally been offered tweice a year. And, beginning in 2021, there will be 4 sittings per year. The Level II exam has two sittings every 12 months. Candidates who fail Level I or Level II cannot retake the exam in the adjacent timeframe. For Level I that means waiting 6 months. Level II candidates must wait longer. A candidate who fails the Level II exam in August thus has to wait until the following May to take a second attempt at the test.

7. Less ability to rely on past knowledge

Candidates who tackle the CFA exams have at least an undergraduate degree under their belt, often in business or a related subject. As a result, many Level I candidates begin their studies with a solid understanding of major Level I concepts. However, at Level II, candidates generally find this advantage runs out, and their previous studies provide relatively little direct advantage on exam day.

6. Personal situations may have changed

Many candidates begin studying for the Level I exam when they have a lull in their education, family, or career commitments. Often, candidates find that a year later, when the Level II exam rolls around, they have a new personal situation and a fresh set of distractions related to school, work, or children. These new distractions may require a candidate to double down on their commitment to their CFA Program studies.

5. Different topic weights

For the Level I CFA exam, CFA Institute specifies fixed topic weights; for example, exactly 6% in Portfolio Management, 6% in Derivatives, and so on. At Level II, CFA Institute instead provides ranges; for example, Level II Portfolio Management can have a weight anywhere from 5–15% (each 5% weighting represents one item set on the exam). Though CFA Institute has toned down their focus on particular Level II topics for 2020, there is still an outsized emphasis on specific subjects; Ethical and Professional Standards, Financial Reporting and Analysis, Equity Valuation, and Fixed Income all have June 2020Level II topic weights of 10–15%, making these key topics for candidates seeking to pass the exam.

4. Analysis, not memorization

In the Level I curriculum, there is significant focus on rote recall of formulas and definitions. At Level II, memorization is de-emphasized, while greater conceptual understanding is required. Level II candidates are expected to demonstrate their ability to apply tools and relationships to analyze financial data and to value assets. Furthermore, at Level II, a candidate’s ability to link one theory or concept to another will be tested.

3. More complex concepts

While the Level I exam is broad, most of the Level I material is a straightforward introduction to the concepts covered. The Level II curriculum, by comparison, is not only equally broad, but also contains numerous concepts that can be difficult to grasp. For example, swap valuation, CDS valuation, binomial options valuation, and Black–Scholes–Merton can all be mind-boggling topics.

2. Increased question difficulty

Not only are Level II concepts generally more complex, but the questions on the Level II exam also require a big step up in ability. Compared to Level I, a candidate will need a higher level of preparation and skill to select the correct answer to a Level II question. Every topic is tested to a more sophisticated standard. A Level II aspirant might believe because they studied CFA Institute Code of Ethics and Standards at Level I, they don’t need to revisit the material again at Level II. This would be a mistake. In Level II Ethics, the same content is tested, but at a much more grueling level.

1. Stronger candidate pool

Perhaps the biggest difference between Level I and Level II is “almost anybody” can sign up for the Level I exam, while only candidates who have conquered the Level I exam can enroll to sit for the Level II exam. As a result, 100% of candidates sitting in the Level II section on exam day are serious about the exam process and have demonstrated an ability to correctly answer questions about CFA exam topics. In short, the competition at Level II is far higher because all the candidates have earned their right to be there.

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