5/24/10

Looking at the pass rates of the three levels of the CFA, each in the low 30%'s, the exams seem to be extremely difficult and, admittedly, somewhat intimidating. This is compounded by taking into account who I hope is taking the tests. I would expect the level of effort to be a force that culls the weak from the herd and leaves only smart, motivated people left to actually attempt the certification. Taking this into account, 30% pass rate is a much more impactful statistic. Am I blowing this out of proportion? Or is this actually as difficult as everyone makes it out to be? I graduated from a good school with an Econ major and an accounting minor and a heavy focus on Finance through extra coursework and internships. Should I be worried?

Comments (48)

5/24/10

Look at it this way: yes, people taking the CFA are not your high school drop out, average schlub. Nor are they all guys with IQ's north of 180+ and 40 hours a week to study.

The CFA cohort is probably around the level of your average college class; maybe a tad bit better. So you have to ask yourself: have you ever in your life been in the 70th percentile, in anything?

Financial Modeling

5/24/10

The sheet volume of material is definitely intimdating. I have a lot of respect for people that actually get their charters

KICKIN ASS AND TAKING NAMES

5/24/10

With your background you'll definitely be fine given you put in the effort to prepare. I'd start 6 months out, do an online program (like stalla) and don't fall behind. Remember, a lot of people registered for the exam don't even show up to take it, and I believe these are baked into the pass rate. The volume of material is certainly intimidating. You don't haven to worry about the depth until level two.

5/24/10

Every time there is a discussion about CFA pass rates someone states that they are low because of no-shows - this is not true and has been clarified by the CFA Institute. Since none of the material is particularly hard, it really is just an indicator of how many people put up with the time commitment (not easy with a full-time job). There are no shortcuts to the test. You might be able to cut down hours with prior finance experience or be more efficient in test prep but there is no way that you can pass it without significant time put into it regardless.

5/24/10

No-shows are not included in the pass/fail rate.

5/24/10

I'm taking Level 3 next Saturday and I'm desperately under-prepared....

Passing the exams is much more about putting in the time than being exceptionally intelligent. The material is not hard, there's just a lot of it. A lot of financial professionals and people with academic exposure to finance go into the exams thinking their experience will carry them. Many of them fail because their experience has too narrow a focus.

Personally, I'm getting really frustrated with the Level 3 curricula. It's extremely esoteric, extremely insulated from developments of the past 3 years (ie - blind faith in models and traditional economic theory), and I can't imagine anyone using more than 10% of it. But that's the point - the institute wants candidates who're willing to pore over this, regardless of its utility. Passing the exams is a screening mechanism - more an indicator of work ethic, organizational skill, and drive than investment aptitude.

5/24/10

Thanks for the words of encouragement. I got my curriculum the other day and have been pounding it out in preparation of the December exam. Some say that I'm starting way too early for the first level and should relax for a few months, but I'm loath to lose the time. Although I have already seen a good portion of the material that is being covered, I am afraid that there are some concepts that are going to be hidden in the details that will be tested. Are the Shweser notes/Stalla really enough to narrow down the scope of the material to a more manageable size?

5/24/10

Schweser is enough - I passed last December with Schweser - all sections except Derivatives > 70%

5/24/10

As others have posted before, it's a question of self selection. 30% among the average american is very different then say 30% of a subsection of that.

And yeah, it's just about putting in the time. If you were an econ/math major in college, the quant and econ sections should be a breeze, you just gotta review the other stuff and take as many practice tests as you can.

5/24/10

Were the SAT scores and pass rates a good indicator?

5/24/10

Schweser is a must, IMO.

I used the curriculum for Level 1 and was oddly overprepared (eg - I had the formula for kurtosis memorized, whereas passing the test only required knowing what it was conceptually). I used Schweser for Level 2 and was well prepared. It is a fantastic filter.

1/17/11

I found AnalystExams.com to be helpful. It provides a quick overview of many topics pertaining to the CFA exams.

1/24/11

According to results for the December 2009 sitting of the CFA Level 1 exam, released today, a mere 34% of December's candidates passed globally. and i think this is the good sign.

Financial Modeling

Best Response
1/24/11

Why Are CFA Pass Rates Declining? (Originally Posted: 08/19/2012)

This article is originally from 300Hours.com. You can read the full article here.

So June 2012 CFA season is fully over! Congratulations to those who passed, and to those who didn't make it this time - come back fighting and you'll get it in the end!Every year while waiting for the results, candidates speculate on the pass rate. And every year, most candidates expect it to be lower than the past years.And for good reason - the pass rates have been declining since... well, since the start, really. There is a general consensus within candidates and charterholders alike that the exams have been getting harder, and that may well be the case. I did some quick & dirty analysis this week & would like to offer an alternative: The increase in CFA candidates is a significant factor in declining pass rates.

The CFA Institute publishes on their website all the pass rates for the CFA exams since its inception in June 1963. Here's the data for all 3 levels, presented in graphical glory (I did have this in interactive format, but couldn't get html to work for this blog post. Click on the chart images for interactive chart versions)

As you can clearly see, the pass rates have taken a swing downwards from above 80% in 1963 to 40%-50% today. Comparing this with candidate volume, it seems that a possible significant factor is simply that more candidates are participating. Below is the number of candidates that took the exam over the same timeline. (Note: The dip in 2003 for Level I candidates is due to the introduction of the December exam)

Although pass rates have been declining somewhat before that, the large declines in pass rates happen after the early 90's, which coincides with an exponential increase in candidates. So a highly plausible factor is that average candidate quality has been lowered by the increasing interest and candidate volume.Taking it a step further, below is the scatter chart of candidate numbers to pass rates year by year, and the corresponding R-squared values:

<

div class="paragraph" style="text-align:left;">As you can see, there's some good correlation evidence there. Not perfect, but obviously declining pass rates can't be purely down to increasing candidate volume.So while the increasing difficulty of the exams may well be a factor, it may simply be a function of the large candidate pool and decreasing average performance. I suppose this analysis doesn't necessarily disprove that pass rates are causing the candidate increase - that the CFA Institute may be running a sinister conspiracy to lower the pass rates to encourage multiple retakes - hence increasing the candidate volume... but I doubt it.What do you think - do you have your own theories & explanations? New harder topics being introduced, policies, marking systems? Post your thoughts & comments below!

1/24/11

As a cynic, I think that the CFA has been erecting a barrier to entry, inflating the value of existing charters.

"There are three ways to make a living in this business: be first, be smarter, or cheat."

1/24/11

I'm just speculating here. The CFA is after all, a business. A business that strives to maximize the bottom line and the competitive advantage of its brand, so I suppose that how they determine how many people pass is dictated by how many people they want to retake it to maximize testing fees, but not enough to make it too hard that no one will continue. They also can't allow too many to pass to dilute the value of the charter to employers, which drive the demand for charterholders. They achieve this equilibrium by raising the bar to pass which based on a relative merit, and not absolute, which I dislike. The lower pass rate clearly isn't because people are getting less smart. Quite the contrary, with a global economy becoming increasingly competitive, people are studying harder to pass.

1/24/11
Moneyball:

I'm just speculating here. The CFA is after all, a business. A business that strives to maximize the bottom line

CFA Institute is a non-profit organization.

1/24/11
GetOnTop:
Moneyball:

I'm just speculating here. The CFA is after all, a business. A business that strives to maximize the bottom line

CFA Institute is a non-profit organization.

so are churches

1/24/11
Moneyball:

They achieve this equilibrium by raising the bar to pass which based on a relative merit, and not absolute, which I dislike.

Ok last post on this for a while. This is certainly a valid opinion, but I disagree with it. If I earn the charter I want it to be a strong signal that I am more intelligent than competing analysts, PMs, whatever. The designation's signaling power decreases when more people have it.

1/24/11
Moneyball:

I'm just speculating here. The CFA is after all, a business. A business that strives to maximize the bottom line and the competitive advantage of its brand, so I suppose that how they determine how many people pass is dictated by how many people they want to retake it to maximize testing fees, but not enough to make it too hard that no one will continue. They also can't allow too many to pass to dilute the value of the charter to employers, which drive the demand for charterholders. They achieve this equilibrium by raising the bar to pass which based on a relative merit, and not absolute, which I dislike. The lower pass rate clearly isn't because people are getting less smart. Quite the contrary, with a global economy becoming increasingly competitive, people are studying harder to pass.

speculating, but i feel your view is supported by the volatility in the model. just glancing at it, i saw a volatility where there where marked spikes in pass rates, following by marked declines, on the overall declining trend. could spikes in pass rates indicate they made the test a little easier that year? i guess it could also mean there were more quality candidates in those years. could the marked declines following the spikes indicate your view that supports test fee revenues? at any rate, there are definitely more people taking it, and I think that is a testament to the quality of the cert.

"Everything comes to those who hustle while they wait."
-Thomas Edison

1/24/11

Yeah I doubt they're just trying to increase revenue by making more people retake it. Chances are that they have a target number of charterholders they want worldwide in order to preserve the prestige of it. And they should. The CFA shouldn't be like a college degree where anyone can just float through.

1/24/11

See the movie 'Idiocracy' to receive most plausible explanation. I expect passing rates to continue to drop precipitously over time.

1/24/11
SirTradesaLot:

See the movie 'Idiocracy' to receive most plausible explanation. I expect passing rates to continue to drop precipitously over time.

Damn, beat me to it. Well said. The overall candidate pool is dumber now, the main people who did the CFA before already had the qualifications to be a charter-holder now most people have no real work experience are the ones taking it.

1/24/11
SirTradesaLot:

See the movie 'Idiocracy' to receive most plausible explanation.

Really sad that you say so.

The Auto Show

1/24/11
huanleshalemei:
SirTradesaLot:

See the movie 'Idiocracy' to receive most plausible explanation.

Really sad that you say so.

Why is that? That is the explanation I have for almost everything in life.

1/24/11

Probably for the same reason the AMA constricts the amount of students accepted into medical school each year.

I didn't say it was your fault, I said I was blaming you.

1/24/11

Correct me if I'm wrong, but isn't the CFA a completely different test today than it was in even the early 2000's... let alone the 1970s? Finance is an evolving field, ergo so too is its curriculum. I'm sure the 1970s test was heavy on derivatives for example (I'm kidding, btw). I mean c'mon guys, 80%+ L1 and L2 pass rates in the 60s and 70s? If that doesn't scream that we're comparing apples and oranges here, I don't know what does. I was actually talking to my friend about this recently, and how if you passed before a certain year you should be forced to retake (or if you refuse, be tagged a pre-(insert year) CFA charterholder).

GBS

1/24/11

I must see this movie - will probably feel the same way as SirTradesaLot.

1/24/11

I've already passed all 3 levels. The argument of increased population leading to lowered pass rates has the most merit at the L1 level. I can agree there. The argument works less at L2 and almost none at L3.

keep in mind survivorship bias. To take L3 means you had to have beaten L1 and L2, which means you are serious AND know how to study well for exams. A group of people 20 years ago that knew how to study well against another group today that can study well shouldn't yield a 80% and 50% pass rate gap. So, the exams either got much harder, or they are lowering the passing % of the population.

I've talking to multiple people who passed L3 decades ago, and they've admitted it was far easier before.

1/24/11
grapefury:

I've spoken to multiple people who passed L3 decades ago, and they've admitted it was far easier before.

Co-signed. Also the driving force behind my prior post.

GBS

1/24/11

The test was completely different back in the 80s. I've had older charterholders from my office who got it during that period who have looked at my study materials(I'm sitting again for L II), and have been like, good luck, glad I don't have to take it now. The Level III test, used to be, according to one of my colleagues, simply a 10-k test. I.e. they hand you a 10k and you have to analyze the company. This easily explains the 80%+ pass rate back then. Not to mention you had nothing in the way of derivatives, which other than accounting is the trickiest part of the whole test.

To the OP would you say that HBS has a weaker candidate pool now because of the flood of applicants and only 5% acceptance rate? 300+ hours, your work is inane.

1/24/11

Most of the correlation data that is significant comes from the period after the mid 90's. I am aware that the exam has evolved, but am simply putting forth the theory that as the candidate pool increases by 10x, the candidate pool becomes less and less targeted and influences the pass rate. I'm not saying it's solely responsible for the decline in pass rates.

Taking your HBS example, as a B-school becomes more and more renowned (and therefore popular), I would say that the general quality of applicants would be lower than if they have a small, highly-targeted pool of applicants.

Or another real-life example - a flood of takeups in ballet lessons after the success of the movie 'Black Swan' also meant that the general quality of the ballet student declined as more casual students appeared. A friend of mine that runs a studio had to create new lesson structures to accomodate this new type of student.

On a less related note, Idiocracy sounds like an interesting movie.

1/24/11

Compare it to med school. Practice/ industry standards change due to the findings of poor practice, better efficiencies, shitty ethics (late 80's). A college degree/ "certification" is a dime a dozen now, I would really like to see a chart of medical school applicants & pass rate compared to the current time.

1/24/11

I know a lot of people in college that think CFA is almost a prerequisite to a job in finance. You can hear freshmen say they "need" their CFA without much knowledge of what they will gain from it. So rates for L1 should be falling combined with increasing difficulty.

1/24/11

Great analysis, very interesting!

No contract means I have all the power. They want me, but they can't have me. - Don Draper

1/24/11

id imagine there were less IT guys/people who think omg CFA = finance job taking it back in the day

1/24/11

I wonder if the pass rates and the difficulty of the exam relative to earlier versions has anything to do with the fact that my dec L1 exam center looked like Ellis Island. Lots of Asians who are trained in the art of brute force memorization from a young age in their home countries. I know more than half a dozen Chinese who took L1 without any background in econ/finance and destroyed it on their first try.

1/24/11
Amphipathic:

I wonder if the pass rates and the difficulty of the exam relative to earlier versions has anything to do with the fact that my dec L1 exam center looked like Ellis Island. Lots of Asians who are trained in the art of brute force memorization from a young age in their home countries. I know more than half a dozen Chinese who took L1 without any background in econ/finance and destroyed it on their first try.

Yes, the institute is tailoring the exam for Asians.

1/24/11

Like you said (I think, lol), if anything keeping revenues up would be done by HAVING ppl pass, not vice versa. I can only speak for myself, but everytime I pass I WILL take the next test.... however I have hit the point regarding my perceived benefits from the program, that with a fail I'm probably done with it. Juice just isn't worth the squeeze anymore imo.

1/24/11

I wonder what the pass %'s are by undergraduate major / prior work experience. That'd be an interesting stat to look at.

1/24/11

This is exactly covered in our analysis report. We'll cover this stat in the upcoming weeks - I need to get around to writing it, but I can say for now that the group with the lowest pass rate is surprising! :)

1/24/11

300 Hours:
This is exactly covered in our analysis report. We'll cover this stat in the upcoming weeks - I need to get around to writing it, but I can say for now that the group with the lowest pass rate is surprising! :)
How did you get access to data like that?

"After you work on Wall Street it's a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side." - David Tepper

1/24/11

Oreos:
300 Hours:
This is exactly covered in our analysis report. We'll cover this stat in the upcoming weeks - I need to get around to writing it, but I can say for now that the group with the lowest pass rate is surprising! :)
How did you get access to data like that?

We have an analytics tool / survey that we constantly run here (http://www.300hours.com/analyze-results.html). Based on aggregated data from candidates submissions we can draw out some conclusions. :)

1/24/11

I think a lot of people take it to see where they are at before studying for it and taking it seriously. Had the fees been higher, people would spend more time studying for them

1/24/11
1/24/11
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