Strategy for CFA level III exam

Congratulations for passing CFA level II exam and welcome to the last hurdle of the coveted CFA exams. The pass percentage of CFA level III exam is around 50%. But don’t get complacent as the competition would be much fierce for this final exam. The exam consists of two 3 hours papers as usual. The morning half will be an essay based exam where you need to write the detailed answers in the workbook provided to you. There will be around 9-12 questions and each question will have 2-3 parts and the marks allocated would be ranging from 9-35 per question. The afternoon exam will consist of 10 item sets having 6 questions each (just like level II). The weight for both morning and afternoon exam is equal i.e. 50% (180 marks each).

The MPS (minimum passing score) for level III exam has been around 65% for past few years. If you score more than 70%, then chances of passing the exam are almost certain. So, we need to target at least 70% mark. 70% marks can be targeted using various combinations- Morning marks/Afternoon marks – 40%/100%, 50%/90%, 60%/80%, 70%/70%, 80%/60%, 90%/50%, 100%/40%. Getting 100% marks is almost impossible in both morning and afternoon exam. Getting a 90% in morning exam is also too difficult as per the historical pattern of candidates’ marks. So, we are left with these options – 50%/90%, 60%/80%, 70%/70%, and 80%/60% which basically implies that the marks in the morning exam can range from 50%-80% and that in the afternoon exam can range from 90%-60%.

Importance of afternoon exam:

The afternoon exam is very important for passing the exam. If you fail to score more than 70% marks in the afternoon exam, then the probability of failure increases. It has been observed looking at the past results that candidates who perform poorly in the morning exam can still pass the exam but the candidates who perform poorly in the afternoon exam generally end up failing. If you know everything in the morning exam, the chances are that you would still end up with 70% marks only but that is not the case with the afternoon exam. If you know everything in the afternoon exam, then you will definitely score more than 90% marks. While preparing for the exam, candidates generally tend to focus too much on the essay type questions and less on the item sets. Almost every candidate is too much focused on tackling essay type questions. Although the essay type questions are also important and should not be ignored but the item sets are more important.

Morning Session: Essay Based Questions

Before starting the preparation it is advisable to go through the previous actual exam papers. CFA Institute uploads the actual morning exam papers for last 3 years along with guidelines answers on its website. You can download those papers from here. Just go through all the question papers and get an idea about the types of questions asked in the exam. As you can see that around 80 marks (45%) have been asked from the readings – Portfolio Management: Individual and Institutional. These readings are the backbones of the morning paper. Everyone knows that but still most of the candidates fail to score more than 70% marks in questions related to these readings. The main reasons behind this are a lack of understanding of question and command words. Every candidate must go through the list of command words and ingrain those in your mind.

Each question will be having the number of minutes with it. The number of minutes is nothing but the number of marks associated with that question. There are total 180 minutes. It is advisable that candidates do not spend more than the allocated amount of minutes to a question. Try to keep a standard deviation of fewer than 2 minutes per full question. Otherwise, you might not be able to attempt all the questions and the unattempted question might be the easiest one out of all.

Another important thing is to answer the question where it needs to be answered. There have always been few cases each year where candidates get less than 50% marks in almost all the morning exam questions because of answering the questions at the wrong location. After reading each question, just flip the pages till you see the next question. Most of the times you will find some space where you need to mark the answer and then state the answer in the blank space provided.

All the questions must be read carefully. Some small words like pre-tax, post-tax, real/nominal make a lot of difference to the answer and can reduce the calculations significantly. For example, the question would be to calculate real interest rate required for the pension plan for the next year. But if we miss the next year part, we might end up wasting a hell lot of time thinking that we need to fulfill the liabilities for the entire pension period.

Another important thing to consider is the calculations. Candidates tend to be in the habit of using the financial calculator and just write the answer without explaining it. Just think if you get your answer little wrong and do not show any calculation, then most likely you will not get any marks for the question. However, if you show the calculation and make an error in one of the entries, you will be given partial credit for your solution. Always write the formula and the readings related to that formula on the paper.

Handwriting plays an important role in the morning exam. Most of the exam checkers are retired pharmacists or have experience in understanding the worst kind of handwriting. But still, you can save yourself a considerable amount of marks if you write neatly and in bullet points and highlighting the keyword or writing the keyword more cleanly. Most of the candidates face the issue in time management in the exam. So, the good handwriting becomes bad and the bad handwriting becomes worse in the exam. Practice is the key to learning about the time management. You need to attempt at least 3-4 mock tests and try to finish the mock tests in 2 hours 45 minutes so that you can finish the actual exam comfortably. Finishing the exam will make a lot of difference. If you happen to miss few marks due to mismanagement of time that can affect your performance in the afternoon exam.

Each question is graded by a different examiner. So, do not think that the bad performance in one section would impact the grading in the other sections. Also, do not try to impress the examiner by your knowledge by writing additional stuff which is not required. If the question asks for 3 reasons, give only 3 reasons which are most relevant. You are going to gain nothing by impressing the examiner in one question and leaving other question ill-attempted or unattempted.

It is very important to study from the curriculum books. If you are planning to study from some other third party content provider, then please at least go through the entire curriculum once to see whether they have missed something or not and try to cover that part from the curriculum book. In CFA level I and CFA level II exam, it is easy to manage that part in the exam as the questions were multiple choice and one can always make intelligent guesses. But it will be totally different in the morning exam where you have to give constructed responses. Even if you manage to guess intelligently and write the answer successfully, it will certainly lead to wastage of precious time to think about the answer. The exam setters have the habit to ask around 10% of the questions from the part which you might have never seen while studying from the third party content.

It always becomes tense during the last phase of preparation when only a few days are left as candidates tend to forget the curriculum. They fear that they would forget the curriculum and might not be able to write the constructed responses. But most of the times these fears are misplaced. One should remain confident. As one can see that around 45% of the questions would be asked from Portfolio Management : Individual/Institutional/Behavioral Finance and most of the stuff asked would be direct from the text. So, there is no need to panic at all. Even if one scores 70% in that 45% and score only 50% in rest 55%, he/she would end up getting around 59% marks in the morning exam and those marks will be more than enough if one can perform well in the afternoon exam. Even if we do not consider the afternoon marks, 59% marks in the morning exam would be above the MPS for the morning exam paper. So, it is very important to keep your cool and tackle the problems like a peaceful warrior.

Afternoon Session: Item Set Questions

Morning exam is not the end of the paper. Even if you perform badly in the morning exam, do not let your confidence shake for the afternoon exam. It happens with many of the candidates that they are not able to complete the morning exam and leave 10-20 marks worth question unattempted. But there is nothing to worry. Just think like that. If you can score 60% in rest of 160-170 marks paper, you would end up getting around 55% marks and you need to get around 75-80% marks in the afternoon exam to clear the hurdle. Scoring those many marks is not that difficult in the afternoon exam if you manage to curtail your silly mistakes and have covered the curriculum really well.

Ethics and GIPS have additional importance in the afternoon exam paper. Most probably you will end up getting 2 item sets on Ethics and 1 item set on GIPS. Scoring well in Ethics can make a huge difference because of Ethics adjustment. It can be the difference between getting a band 10 and getting a pass result. One has to remember many things in GIPS and its weight is only 5%. But still one should not leave it. One or two more right answers can make a huge difference. They can shift you percentage score from 63% to 65%. Make use of flash cards but do cover every topic in GIPS. The questions asked in GIPS item set will most likely be straight forward and can definitely boost your score.

There are only a few numerical questions that can be asked in level III exam and you are most likely to find almost all of that stuff in the exam. So, be better prepared for that. CFA level III curriculum is short on quantitative topics and has many theoretical concepts. There are hardly 25 types of topics which require calculations. Make different notes for those topics and revise them again and again. You can easily improve your score by around 5% by following this strategy in the afternoon exam.

Practice enough item sets for your preparation. Try to improve your score to 80% in mocks. 80% targeting will cover the bad performance in the morning exam. You can study more about how to tackle the item set questions from here.

Sometimes it becomes all too difficult during the last days of preparation before the exam. But you need to push yourself as someone has rightly said – The ones who push the limits sometimes discover that the limits sometimes push back. This is the last hurdle for you. Give 100% to it. There is always a rainbow at the end of every storm. Wish you success and good luck.

Please download the 4 months study plan for CFA level III from here.

Please read the strategy for attempting CFA level III morning exam here.



7 thoughts on “Strategy for CFA level III exam

  1. Suryabir Singh Saluja August 21, 2013 at 4:52 pm Reply

    very well written

  2. […] Strategy for CFA level III exam […]

  3. CFA level III in 2 months | konvexity March 31, 2014 at 1:02 am Reply

    […] of all we need to be aware of the pattern of CFA level III exam. You may also like to go through this post about level III exam. As you are aware that there are 18 study sessions in CFA level III. Now you need to know what all […]

  4. curious August 12, 2015 at 3:00 am Reply

    Most useful article I have read on level 3. Worth its weight in gold 🙂
    As you rightly pointed out, the afternoon session often seems to be the difference between passing and failing, since people usually tend to fare poorly in the morning session.
    Level 3 is clearly not to be underestimated because of the ‘higher’ pass rate. Bear in mind that the percentage is calculated from test takers who have already cleared level 2 (and thus are a lot more serious, better than those appearing for LI and L II).
    After being lucky to get a 3/3 and completing in 18 months I am still not convinced about CFA’s utility though 😉

  5. vipin October 24, 2015 at 3:33 am Reply

    Great article’ with a power of convincing and driving through level3 in just 15 minutes. Thanks writer

  6. PUNEET October 15, 2016 at 11:15 am Reply

    This is really helpful…..

  7. Sanajy Saraf December 29, 2017 at 8:03 am Reply

    Thanks, I have read all points which you mentioned in this blog. I have read almost of your blogs. I like to collect new ideas for preparing CFA or its Levels 1, 2, and 3.

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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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