The CFA® curriculum
The four most expensive words in the English language are, 'This time it's different.'Sir John Templeton
In three successive exams you will be assessed on a wide range of subjects in four areas:
1. Ethical and professional standards.
2. Investment tools: quantitative methods, economics, financial reporting & analysis and corporate finance.
3. Asset classes: equity investments, fixed income investments, derivatives and alternative investments.
4. Portfolio management.
Level I
Level I teaches the foundations of finance with a significant emphasis on the analytical tools. Many candidates with a less relevant background find the accounting and quantitative components quite challenging, but the benefit of hard work is a deep understanding of financial reporting that enables analysts to "uncook the books" and get behind the numbers that are published by companies.
The course curriculum contains ten different subjects, and it is exciting to see how many interlinks there are between topics as you progress through them; you cannot understand bonds without a bit of quants, and equity valuation hinges
directly on the financial statements of a business.
Level II
Level II is often seen as the toughest technical level of the CFA Program, however with a solid grounding from Level I this next step is immensely rewarding.
You will start to understand the accounting "big picture" and how pensions and subsidiaries affect financial statements. Economics and portfolio management will enable you to gain a clear insight into foreign exchange and international investing.
Much of Level II focuses on asset valuation: you will see fixed income and derivative models that look pretty complex, but are, in fact, highly logical when explained in the clear and intuitive Quartic style.
Level III
The final stage of the CFA Program, Level III, has a strong focus on wealth planning and portfolio management. Some of the analytical subjects (accounting and quants in particular) drop from the curriculum, much to the disappointment of many candidates! Instead, you will investigate in detail the requirements of
institutional and individual clients, including the psychology of behavioural finance. Asset valuation is a key part of Level III, though the understanding of equity, fixed income, derivatives and alternative investments is very much from a portfolio perspective: how do these investments help us to achieve clients' objectives?
The evaluation and synthesis skills that you gain during the preparation for your final exam will enable you, on successful completion of Level III, to enter your workplace with your head held high: as a CFA charterholder you will have a wealth of knowledge and a strong sense of professional ethics that will benefit your clients over the course of your career.
The exam
The CFA exam itself is six hours long, divided into two three-hour papers, morning and afternoon. The topics that are covered, and their relative weightings for each level, are shown in the table below:
| Topic area | Level I | Level II | Level III |
|---|---|---|---|
| Ethical and professional standards | 15% | 10% | 10% |
| Quantitative methods | 12% | 5-10% | 0% |
| Economics | 10% | 5-10% | 0% |
| Financial Reporting & analysis | 20% | 15-25% | 0% |
| Corporate finance | 8% | 5-15% | 0% |
| Equity investments | 10% | 20-30% | 5-15% |
| Fixed income | 12% | 5-15% | 10-20% |
| Derivatives | 5% | 5-15% | 5-15% |
| Alternative investments | 3% | 5-15% | 5-15% |
| Portfolio management | 5% | 5-15% | 45-55% |
| Total | 100% | 100% | 100% |
Source: www.cfainstitute.org
Each of these topics is described with Learning Outcome Statements (LOS). These LOS define what knowledge, skills and abilities the candidate is expected to have after mastering the topic. They should not be used as a checklist of “things to know” on that subject – more as target skills to acquire while studying each topic.
Exam style
The exam has a somewhat different style for each level.
The Level I exam consists of 240 multiple choice questions, 120 to be answered in each three-hour paper. Each question tests one or more LOS and requires the candidate to select the most appropriate response from three possible answers. Hence candidates have an average of 90 seconds for each question.
At Level II the exam uses “item sets”: each three-hour paper contains ten vignettes, which consist of some case study information followed by six selected response questions. The candidate has an average of 18 minutes per six-question set, with 120 questions in total over the six hours. An item set can examine a number of different LOS and can include multiple topics within the same vignette.
Level III has two styles. The morning paper contains “constructed response” questions. This is a written paper in which each question component requires the candidate to circle an answer, write a few sentences, show a calculation, explain a statement, and so on. The afternoon paper contains item sets in the same style as Level II.