One of the more difficult aspects of passing any of the three levels of the CFA exam is that they are constantly changing. While the CFA Institute never radically overhauls the exam from year-to-year, they are constantly tweaking each level to include material that is more relevant to the current landscape in investment management. With the June exam date on the horizon, we chatted with Stephen Horan, the CFA Institute’s head of credentialing and its interim managing director of the Americas to get a better idea of what’s in store for 2019. He also offers up some advice to prospective CFA candidates.
What are the big changes to the CFA exam for 2019?
This year, it’s the introduction of fintech, including artificial intelligence, machine learning, algorithmic trading, data science, cryptocurrency and blockchain. “It became clear that investment generalists need to understand issues in fintech,” Horan said. The addition material is “not intended to make a candidate an expert but to help them understand how to apply the principles to investment management.”
What does this mean for test-takers? Level I candidates shouldn’t have too much to worry about, other than needing to go over additional material. The CFA Institute gave us a sneak peek into some of the practice questions last year. They cover basic concepts within fintech, mostly asking test-takers to define the technologies and their applications within investment management. Click here to give them a try.
As for Level II, things become a bit more complicated. Horan said they have added two new case studies involving fintech, such as exploring the ethical issues that may coincide with recommending cryptocurrencies. The other point of emphasis this year is make sure candidates fully understand looking past their self-interests and being a professional, he said. This too would seemingly add to the ethics portion of the exam that many have struggled with in the past.
When will you be moving away from paper exams?
“The shift to computer-based testing will begin in 2021 with Level I, and then we’ll go from there,” Horan said. However, he wanted to make it clear that the testing will still take place in a controlled environment chosen by the Institute. “People should know they won’t be taking the exam in the pajamas,” he said.
What are the most difficult sections of the CFA exam?
“Most candidates report derivatives being the hardest portion of the exam. It’s the most quantitative and deeply conceptual,” Horan said. Derivatives is a “perennial challenge.” As for Level III in particular, portfolio management seems to trip people up if they don’t have experience.
Generally speaking, Level I is all about knowledge and recall, while in Level II you’ll be showing that you can apply that knowledge, he said. Level III asks you to extend and synthesize the concepts in a more cognitive way. The final step “can be really tough for people who haven’t been working in the industry,” Horan said.
With that said, do you suggest candidates have applicable work experience before starting the process?
“We don’t have a problem with new graduates entering the program,” he said. “The average age goes down each year.” Roughly 35% of incoming candidates are students who just completed their undergrad or MBA, according to the Institute. The average age across all three levels is around 27.
“That’s where the emphasis on professionalism comes in,” Horan said. “We’re trying to avoid people who are very young and who don’t have the awareness, maturity and intellectual development required to succeed in the field.”
So who shouldn’t be enrolling in the CFA exam?
“What I tell folks is that unless you are committed to program, you won’t be successful,” he said. “If you’re not sure, it’s not worth trying it out just to see how it goes.” You don’t need to know the exact function you want be working in before signing up, but you do need an intense motivation to work in investment management.
Any last-minute advice for fresh candidates?
“I highly recommend going to the test venue ahead of time – to understand the traffic patterns and things but also to avoid the nerves. Familiarity will help you do that.”
“I try to discourage people from cramming the night before. Going over the finer points isn’t a problem, but you want to take it easy and get a good night sleep. It’s a six-hour test, so a certain amount of stamina comes in play. You won’t be able to deliver what you do know well without being rested.”
“Also, listen to directions exactly. ‘Pencils down, open up your book etc.’ We’re not looking to get anyone in trouble, but small things can inadvertently get people into situations in which they don’t want to be.”
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