Hi there!

Welcome to the first of our study session specific blogs for the CFA Level I exam. My focus in this post is on Study session 1- Ethical and Professional Standards (Ethics).

My personal advice to you is to read the Ethics portion THOROUGHLY just as you commence your preparation, and at least once again at some point in the last three to four weeks leading up to the exam.

Candidates are often unsure of whether they should be reading the Ethics material from the curriculum or from study guides. It’s fairly obvious that the curriculum is a lot more comprehensive, but I understand the need for study guides as a more efficient and focused mode of learning. For Ethics however, I strongly recommend that you read the curriculum. It is a bit too technical in certain areas, and tends to use a lot of investment industry-related jargon that might overwhelm some of you who are new to the investment management industry (e.g. buy side and sell side research, discretionary and nondiscretionary portfolios). So do not get caught up in too many minute details.

If you find the Ethics readings in the curriculum too long, too boring or if you don’t have so much time, then the least you should do is read the description, guidance and recommended procedures for compliance from your study guide but go through the examples from the curriculum. You might not realize it as this stage, but reading over those examples thoroughly will improve your problem solving skills going forward.

Only once you are done with the readings should you attempt the Ethics questions in the curriculum. Ethics-related questions on the exam will be very similar so don’t waste these questions by attempting them before you’re ready. Yes, prep providers provide lots of questions, but I feel that they tend to be very verbose, and sometimes extremely vague to the point that they end up doing more harm than good. However, one of the best ways of absorbing subtle points is learning from your mistakes. So when you answer questions incorrectly make sure you understand exactly how your thinking was flawed. Keep in mind that Ethics questions on the exam aren’t very long, and do not generally contain convoluted case studies/stories that you might get lost in.

CFA Institute does make mock exams available for purchase. These contain Ethics questions as well. Only purchase these after you’ve reviewed the Ethics readings again as a part of your final revision. Of course, if you’re not doing well enough on Ethics, I would advise you read it again and again.

Ethics comprises 15% of the Level 1 exam. Typically the first 18 questions of both the morning and afternoon sessions are on Ethics (including GIPS, which I shall blog about later). Do not underestimate its importance. I find that students are very eager to get with the ‘real stuff’ so they leave Ethics for bedtime reading later on, but I urge you to read it at least once at the onset. Doing well on Ethics is crucial to your success on the exam.

I welcome constructive and helpful feedback from my peers and students. If you currently are a Level I candidate or have already taken the exam, please do share your strategy with regards to preparing for Ethics. It’s always good to learn from one’s own mistakes, but it’s wiser to learn from someone else’s.

Be back soon with more.

Tata

Recently, there has been an increased emphasis on IFRS in curriculum readings. Not only are differences between IFRS and U.S GAAP discussed at length, but there is an entire reading on convergence in international accounting standards (Reading 43). This has culminated in the default for accounting questions on the CFA exam being set to IFRS.

In the May 2009 newsletter to Level I candidates, Dr. Robinson states the following:

“….some of the concepts in the study sessions may be superseded by updated rulings and/or pronouncements issued after a reading was published. You are expected to be familiar with the overall analytical framework contained in the assigned readings, but you are not responsible for changes that occur after the material was written. For questions relating to financial reporting and analysis, you should assume International Financial Reporting Standards (IFRS) apply unless otherwise noted.”

While we share certain candidates’ feelings that this announcement came rather close to the June 2009 exam, we agree with the move in principal. After all, India, China, Canada and Japan are scheduled to make the switch to IFRS in 2011.

Keep checking in for more updates. 

Tata!

I get a lot of requests from my students (especially Level I candidates) to advise them on how they can optimize their performance on the exam. Most Level 1 candidates have never sat through a 6-hour exam ever before, and get intimidated just thinking about it. Here are some suggestions that I usually offer them. It is a good idea to read through these now and use them while you take mock exams in the weeks leading up to the exam so that they become part of your routine when you take the actual exam. 

1. Mark down the answer on the separate scantron provided immediately after solving the question. Don’t mark your answers on the question paper itself with the intention of marking them on the scantron once you have completed all the questions. My level III students last year told me that one of their fellow level III candidates actually made this mistake and ran out of time to fill in all her answers onto the scantron towards the end of the exam.
2. There is another lesson to be learned from this unfortunate level III candidate. So determined was she to fill all her answers on the scantron sheet that she continued penciling them in even after the proctor had officially announced the end of the session. Put your pencils down immediately when the proctor tells you to do so. This girl had her exam paper cancelled, and was apparently suspended from taking the exam for three years.
3. If you come across a question that you don’t know the answer to, try to make an educated guess. There are only going to be three choices for every question this year. If you can eliminate one option, you have a 50% chance of getting it right by choosing one of the other two. There will be difficult and tricky questions. Don’t let them intimidate you, and back yourself. If you have no idea what the right answer is, take a wild guess- there is no negative marking for getting a question wrong.
4. No one has ever got a 100% on this exam, so chances are that you won’t either. I think that the score required to pass the exam lies somewhere between 65% and 70%. It is perfectly human to get easy questions wrong. For example several years ago, on my level II exam, the value I was computing for the convexity of a bond wasn’t one of the options. I just couldn’t digest the fact that I wasn’t getting such a ‘gimme’ correct. I sat there and derived the convexity formula, pulled my hair out, told the proctor that the CFA Institute had it wrong and wasted no less than 15 minutes on that question. My ego just wasn’t willing to accept that I could get such an easy question wrong, so I refused to move on. Eventually, I ran out of time and did not get a chance to attempt the last question (but I did pencil in a wild guess). As I got up to leave for the two hour break after the morning session I asked a couple of friends if it was possible for the CFA Institute to not include the right answer among the choices. They had a good laugh and enjoyed their break, while I was left brooding over how I could have forgotten to square the change in yields in the denominator of the convexity formula!!
5. This takes us to the next tip- don’t discuss the exam with your pals especially during the break, because no good can come from this. Get a breath of fresh air, have a light snack, and try to relax and recharge your batteries for the grueling 3 hours ahead.
6. A lot of questions ask you to choose the most likely correct, most likely incorrect, least likely correct, or least likely incorrect statement. As you solve your mock exams, your first step should be to underline what exactly the question is asking of you. Look for the unique ‘true’ statement when the question asks you for the most likely correct and the least likely incorrect answer. Look for the unique ‘false’ statement when answering a question that asks you for the most likely incorrect or the least likely correct statement.
7. You have a minute and a half per question at level I. Keep track of time, and time yourself when you attempt mock exams. I always recommend that candidates purchase and solve the mock and sample examples that the CFA Institute makes available. I have seen a lot of questions in my time as a student and a teacher, and I assure you that the questions provided by CFA Institute offer the best practice.
8. Ethics is a very important part of the CFA Program at all three levels. Usually in ethics questions you will be able to eliminate one of the choices easily, but will have a hard time deciding between the other two. I find that ethics questions prepared by learning providers tend to be verbose and test individuals on their ability to keep track of what’s going on in complicated scenarios. The ethics questions that are asked on the actual exam tend to be very crisp, and the stories usually aren’t that long. However, this does not mean that you will be able to solve them quickly- it takes a fair while to think through most ethics questions. Purchase the CFA Institute mock and sample exams and see the difference for yourselves.
9. When solving questions related to financial statement reporting and analysis, make sure you make a note of whether the most recent year is given in the right-most column or in the left-most. The convention used in exam questions can be different from what some of you are used to. Making an arrow indicating the movement from the oldest to the most recent accounting period, will help you avoid careless mistakes in answering questions related to changes in accounting elements over the period.
10. My students tell me that on the Level I exam, they don’t use the calculator to answer as many questions as they had anticipated. CFA Institute comes up with really smart, conceptual questions that don’t involve too many calculations- unlike the ones available on most testing software CD’s and websites, which usually involve extensive calculations.
11. It is okay to skip a question as long as you come back to it later. If you don’t find the time to come back to it, make sure you make an educated guess. Make sure you have time at the end to make these guesses.
12. One of my friends in college once got a ‘C’ on a course that he was a whiz at. It turned out that on the final exam, he had skipped one of the questions (I still remember the number- it was question 67 out of 100) in the middle of the test, but he had not left a blank space on the scantron. So he fed the answer to 68 in the space he would have marked the answer to 67, and so on. Learn from his mistake- if you skip a question, make a note of it, and leave the corresponding circles blank. Make sure you answer the next question in the appropriate space.
13. If you think the answer to a particular question is ‘A’, make sure that you mark ‘A’ on the scantron. It is surprising how many times I have seen people make the mistake of not actually marking the option that they intended to mark.
14. As you correct your mock exams, count the number of questions that you get wrong because of careless mistakes, and aim to reduce this number with every mock exam that you take.

In the last few days leading up to the exam, you might want to take a look at the Level I Eleventh Hour Review Guide-260 pages full of definitions, formulas, bullets, summary tables and important relationships. The electronic version is mailed to you within 24 hours, and costs only $49.99. Samples are available on www.elanguides.com/samples.php

      Tata!