By Lakshmi Nagarajan and Arif Irfanullah, CFA
Congratulations! You’ve crossed two hurdles on your path to becoming a CFA charterholder. Now your goal is to clear Level III.
In this post, I will talk about how the Level III exam is structured, how different it is from the earlier levels and how to design a study strategy to ace this exam.
The curriculum from CFA Institute is organized into six volumes. Each topic is further divided into study sessions, and each study session into several readings. There are 32 readings in all for the June 2016 Level III exam spanning a few thousand pages. Each reading consists of multiple learning outcomes (LOs).
Exam Topics:
There are only seven topics in Level III as there are no readings on Quantitative Methods, Corporate Finance and Financial Reporting and Analysis. The focus of Level III is on Portfolio Management as you can see from the weights for the various topics given below:
|
Topic Area
|
Weight (in %)
|
|
Ethical and Professional Standards
|
10-15
|
|
Economics
|
5-15
|
|
Equity Investments
|
5-15
|
|
Fixed Income
|
10-20
|
|
Derivatives
|
5-15
|
|
Alternative Investments
|
5-15
|
|
Portfolio Management and Wealth Planning
|
40-55
|
Exam Structure:
There is a significant shift in how the Level III exam is structured as compared to the other two levels. The Level III exam consists of a morning session and an afternoon session spanning 3 hours each, like the other two levels.
The morning session is held between 9 a.m. and noon and consists of constructed response questions. The number of questions vary between 8 and 12, and each question has one or many subparts. The morning session is for 180 points. The points for each question vary and are specified in the exam book.
One example of questions and their respective weights from a morning exam is given below:
|
Question
|
Topic
|
Minutes
|
|
1
|
Portfolio Management – Individual/behavioral
|
15
|
|
2
|
Portfolio Management - Individual
|
23
|
|
3
|
Portfolio Management - Institutional
|
26
|
|
4
|
Portfolio Management - Economics
|
23
|
|
5
|
Portfolio Management – Asset Allocation
|
20
|
|
6
|
Portfolio Management – Fixed Income
|
19
|
|
7
|
Portfolio Management – Equity Investments
|
22
|
|
8
|
Portfolio Management – Risk Management
|
16
|
|
9
|
Portfolio Management – Performance Evaluation
|
16
|
| |
Total
|
180
|
Afternoon session: held between 2 p.m. and 5 p.m.; consists of 10 case studies like the Level II exam. Each case study has 6 multiple choice questions.
The focus of Level III is on application and how you use concepts in the real world. If you recall, Level I was all about testing your knowledge of tools and concepts, while the emphasis moved to pricing and valuation in Level II.
How to prepare for the Level III exam
· Draw a schedule such that you finish going through the curriculum at least six weeks before the exam.
· Use the curriculum as your primary study material. We advise that you use the curriculum as your primary study material for Level III. It is not recommended to rely solely on any prep provider material; videos and notes from prep providers can be used to complement the curriculum.
How to use the curriculum:
Here are some useful guidelines on how and when to refer to the curriculum and some general advice:
· Go through the learning outcomes at the beginning of every reading. This will give you a fair understanding of the effort involved.
· Practice the examples in between the readings.
· Practice the problems at the end of every reading. Practice the structured response questions in the way mock answers are written instead of the descriptive way given in the curriculum. However, pay attention to important keywords and how to approach a problem.
· Solve past papers. CFA Institute releases the actual morning exam along with answers every year after the exam is over. The questions from past several years are good training ground, and will reduce the surprise factor on the actual exam. Unlike the other two levels, do not wait until the end of your preparation to work through these papers. When you are studying the portfolio management readings for individual and institutional investors, identify relevant questions and practice them instead of attempting them for the first time just weeks before the exam.
Points to Remember When Taking the Level III Morning Exam
· Time Management: keep track of the time you spend on each question. The minutes next to the question are a rough indicator of how much time you should spend on each question. Often, students fail because of poor time management on the morning exam and spending way too much time on one IPS question. If you are not sure, flag it and come back to it later. This is where practicing with real mocks helps.
· Structured response: the morning exam is often referred to as essay format. In reality, it is a structured response. Responses should be crisp and to the point; responses become short and succinct with practice. The more questions you practice writing, the more familiar you will get with different types of questions.
Show your calculations.
Use bullet points.
Use templates given.
One last word of advice. Don’t let the 50% pass rate fool you. Do not underestimate this beast. The exam is not easy. Remember that the candidates taking the Level III exam with you are the ones who have either cleared two levels or are taking it again. They are just as smart as you are.
As always, it’s all about practice. Leave no room for surprise.
Good Luck!