Why do candidates fail in CFA exams and what to do about it?

CFA Institute declared the result of June 2012 CFA level I exam yesterday. Only 37% of the candidates could pass the examination. The pass rate was 1% lower than the pass rate of June 2012 CFA level I exam. The pass percentage rate has varied from 34% to 46% for CFA level I in last 5 years. Both 34% and 46% pass rate came in the same year (2009). CFA Institute might have set a lower MPS for June 2009 exam which led to a passing rate of 46% and they set a comparative higher MPS for the December 2009 exam as only 34% could pass the exam. I guess you probably got the point. To clear the CFA level I exam, you need to be in top 35% of the candidates who sit for the exam. Generally, 25% of the candidates do not sit for the exam.

CFA is not an exam to check your intellect or mental ability. It’s not a SAT/GRE/GMAT exam. This is an exam which checks your knowledge. The curriculum is comprehensive. To succeed in the exam, you need thorough preparation and must be comfortable with almost all the areas to be asked in the examination. That’s the only reason why so many brilliant guys have failed to clear the exam. They just couldn’t devote the required time to clear the passing line. Below are the five most common reasons for failure in the CFA exam:

(1) Wrong targeting: Almost 80% of the candidates suffer because of the wrong targeting. Generally, the first question asked by the candidates is that how much they need to score to pass the exam? They soon find the answer that the MPS has been around 62-67% over the years. They target the score of 65%. Few candidates even target a score of 70% and they generally feel complacent after getting a score of 65% to 70% in the mock exams and do not push themselves more. Generally, they tend to give one mock exam (3 hours duration) at a time and the main exam is of 6 hours duration. The conditions are very much different in the main exam. In mock exams, they tend to get the similar questions what they have studied in case they attempt the mocks from the same vendor from which they are studying the CFA curriculum. In the main examination day, because of excess pressure, newer questions, and two exams of 3 hours duration tend to decrease their marks by 3-10% and they are the guys who generally end up with a score band of 8 to 10.

How to correct it: It is very easy to correct this one. The candidates should not keep such lower targets. It would be best if they can keep the target as high as possible i.e. 100%. But to be rational, a target of at least 75% marks should be set while attempting the mock exam. Practicing 2 tests of 3 hours each on a single day can also benefit a lot.

(2) Comparing yourself with peer group: It’s good to form study groups and to take inspiration from the best guy in the group. But the problem arises when you’re the best guy. It can happen that all the group fails to clear the exam. It’s not a good habit to improve yourself just only to become the best one in the group. Sometimes the candidates fail to make full use of their potential and underutilize their skills. They think that if they fail then everyone in the group will fail. That’s certainly not a good thing to make targets.

How to correct it: Rather than focusing on topping the group, focus on improving yourself. It’s perfectly fine to have competitive nature and to be the best in the group. But there is sample biasing in the group. The group might be smaller enough compared to the number of candidates sitting for the exam. The best way would be to target a particular score and once you reach the target, keep on increasing it by 5%. By doing it on a consistent basis, you soon will be touching 90% limit and then no one can stop you.

(3) Setting unrealistic goals: Many bright guys fail to clear the exam because of unrealistic goal settings. They overestimate their skills and the time they have with them. They would have passed all the engineering or some other graduation exams by studying one week or few days before the exam. So, they think that they can do that with the CFA exam as well. I understand that there are few guys who could do that but only those who knew the content of curriculum inside out. The exam is different than the normal exams because here we have to study and remember 10 subjects at once. That makes it one of the extreme difficult exams to crack.

How to correct it: Prepare a proper time table and work according to that. Give adequate time to each reading and set the time allocated to each reading according to your capabilities. It varies from 200 hours to 600 hours depending upon various factors. Set some additional time for unexpected events as well as anything can happen which is not in your control. It is ideal to complete the course curriculum at least 4 weeks before the exam. After completing the curriculum, one can revise 2-3 times before the final exam and that would make you feel very confident and comfortable before the exam. Many guys fail only because of the panic of the exam. If you’re not panicking, you’ve already won the half race.

(4) Perfectionist attitude: It’s okay to be a perfectionist. But often the cost of being a perfectionist is too high. The candidates read the CFA curriculum and realize that everything about that topic has not been covered in the curriculum. They look for the additional readings and spend a lot of time in reading those. This consumes a lot of time and they start lagging behind the schedule. Eventually, they leave few subject or study very little about those subjects which lead to failure.

How to correct it: It’s very good to be curious and study and understand the subjects deeply. But one should not deviate from the timetable. It’s always better to finish each and every reading as per the time allocated to that reading. If you really want to study the subjects in detail, then set additional time for those readings. The time can then easily shoot up to 1,000 to 1,500 hours. You must be having that much time to become a perfectionist. That is the cost which you have to pay for that. Or you can study those additional readings after the exam. The time between the exam date and the exam result date is ideal for that.

(5) Leaving practice questions for the end: Many guys tend to leave practice problem for the end. They just read the curriculum without solving any problem. They think that they will do these problems at the later stage after completion of the curriculum. But that day never comes. Even if that day comes, it’s not a good thing to do. You don’t get to know about your strength and weakness unless you solve problems after finishing each reading. At the end, if you find your weakness in some subjects, then there is no time left to improve upon that.

How to correct it: There is only one way to correct it. That is to solve problems as they come. It’s good to get a decent question bank and solve at least 2,000 practice questions along with the completion of the first reading of the curriculum.

(6) Wrongly interpreting your progress: The candidates read one reading and then attempt practice question of that. They score 70-75% marks on those practice questions and think that they are on the right path. But nothing is further from the truth. When you just finish the reading, it’s very easy to score 70-75% marks. But when you attempt the full paper comprising of all subjects, your performance tend to fall down.

How to correct it: While solving the questions after just finishing a reading, you must score at least 90% marks. If you’re not scoring 90% marks, then it clearly shows that you’ve not understood the topic clearly and a re-reading is necessary to work on your weaknesses. The target of 75% is okay when you attempt the mock tests but certainly not for the concept checkers after just finishing the readings.

Those were the few reasons because of which many candidates fail to clear the exam. If a candidate takes care of all of above mentioned reasons and set adequate time according to their capabilities, then no one can stop them in succeeding. I wish you all the best for your future. I hope you never fail in any exam from now onwards.


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One thought on “Why do candidates fail in CFA exams and what to do about it?

  1. […] Do you know the main reasons behind your failure? […]

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A blog of the NYU Colloquium on Market Institutions and the Leipzig Colloquium on the Market Order

Fundoo Professor

Thoughts of a teacher & practitioner of value investing and behavioral economics

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