There’s a big difference between what you think of the CFA charter as an initial applicant and what you’ll eventually realize as a CFA charter holder. While the difficulty level of the CFA level 1 exam is meant to be equivalent to any diploma level. And in case you are thinking that passing Level 1 will help you to sail through the other two, you are wrong. Many consider Levels 2 and 3 to be way harder than Level 1 though the jury is still out in this case.
Levels 1 and 2 are multiple-choice questions while more than half of Level 3 comprises of constructed responses (essay format). Studies by the CFA Institute show that about 50% of candidates who passed Level 3 passed the other two Levels on the first attempt while about 25% appeared in 4 exams.
Hence, if the exams are so hard, why is CFA worth it? This post will go focus on the Level 1 CFA exam only and how hard it is, the subjects that are the toughest, and the pass rates of the CFA Level 1 exam.
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Which CFA Exam is the Hardest?
It’s hard to tell which CFA exam is the hardest, as raw scores for each level inherently incorporate survivorship bias. The debate and the perception also rests on candidates’ strengths and weaknesses for specific topics. Here are the relative difficulties of each CFA exam levels.
- Level 1: This level statistically has the lowest pass rate of 41-42%, and the exam tests mainly for information recall. Many consider this to be the hardest CFA exam. On the flip side, Level 1 is easier to learn since many the concepts are not covered in as great of detail as they are in Levels 2 and 3.
- Level 2: This Level assesses the candidate’s ability to apply Level 1 skill sets to real-world scenarios. Information is presented in the form of data, tables, financial statements, and textual descriptions. Each set will have four and six multiple-choice questions. Hence, a deep understanding of the concepts is needed to pass this Level. Generally, CFAs feel this Level to be the hardest of the three.
- Level 3: There are two types of questions here. In the morning session, examinees must go through eight to eleven “constructed response” short-answer, open-ended questions based on a fact pattern. In the afternoon, there are 10 item sets with multiple-choice questions constructed and presented similarly to those in Level 2. These questions test the understanding of the topics and the candidates’ aptitude to explain the reasoning. Many CFAs think this is the hardest Level as it requires more thought to successfully answer the constructed responses. Regardless which CFA exam Level, the key to passing the CFA exam is to follow a structured study plan.
Analyzing the CFA Level 1 Exam Difficulty
As informed, this post will only focus on the CFA Level 1 exam difficulty based on various factors. Let us dive straight in.
How Hard is the CFA Level 1 Exam Subject-wise
While many aspects give a general standpoint that Level 1 is the hardest, this view can be very subjective. Rather, how complex or effortless Level 1 is depends on the strengths and weaknesses of the candidates about the subjects.
Typically, the hardest topics of the Level 1 exam are the following. It indicates is CFA Level 1 hard.
- Fixed Income: Readings in Financial Statement Analysis are theory-based and full of intricate terminologies. Moreover, areas like bond valuation are lengthy and a major portion contains complex formulas.
- Financial Statement Analysis: The challenging aspect of this subject is mastering and absorbing the abundance of information. What makes its assimilation especially hard is that the information is considered similar or different depending on whether they are reported under IFRS (International Financial Reporting Standards) or US GAAP (Generally Accepted Accounting Principles). This adds to the complexity of the topic.
- Derivatives: Understanding how options work can be a very challenging task, adding to the CFA Level 1 exam difficulty. Each option has exclusive characteristics, and mind you, there are many of them. How hard they can be may be understood with a word on options. They are also called contingent claims because the long will exercise the option and require the short to complete the transaction only if it is profitable for the long.
There are easy topics in CFA Level 1 exam like Portfolio Management, Corporate Finance, and Equity. Once you master the three difficult ones you should be able to walk through the Level 1 exams.
Pass Rates of the CFA Level 1 Exam
The pass rates can also be taken as a determining factor to answer how hard is the CFA Level 1 exam. However, it is not a straightforward equation, and many variables are involved in it.
Here are the CFA credential pass rates for all levels. If people think Level 1 is the easiest of the three, the pass rates say otherwise. Level 1 has recorded the lowest average pass rate over the last decade. Here are the twelve-year averages for the three levels from 2010.
- Exam Pass Rate for CFA Level 1 – 39%
- Exam Pass Rate for CFA Level 2 – 44%
- Exam Pass Rate for CFA Level 3 – 50%
Does this statistic that the pass rate is the lowest in Level 1 prove which CFA exam is the hardest? Even though it seems so, there is another angle here.
The low pass rate can be attributed to many unsuccessful candidates dropping out of the CFA program before reaching Levels 2 and 3.
The highest recorded pass rate for the CFA Level 1 exam is 49% in December 2020 and the lowest has been 22% for the July 2021 exam. Thus, there is a great variance between the two.
CFA Level 1 Pass Rates vs Candidate Volume
Now, let us check out the CFA Level 1 pass rates vis-à-vis the volume of candidates appearing for the exam. Without this parameter, the pass rates might appear to be skewed one way or the other.
Candidate volumes have steadily increased since 2015. This is because the CFA credential has gained in popularity among employers in finance roles. However, the pandemic changed all that, with the number of examinees dropping sharply.
Consequently, the pass rate which had touched an all-time high of 49% in December 2020 crashed in 2021 to some of the lowest pass rates recorded in recent years. Hence, while the pass rates are a factor to determine the CFA Level 1 exam difficulty, the volume of candidates appearing for the exam does play an important part in the pass statistics.
The Bottom Line
That brings us to the end of this discussion – is CFA Level 1 hard? The bottom line is for each candidate, the CFA Exam experience is a unique experience. Further, the CFA Institute focuses on various areas that need to be tested in each exam and hence the level of difficulty somewhat depends on the specific test taken by the candidate.
As an example, the Level 1 exam for a year may be objectively more difficult than the Level 2 of the same year depending on how the test is administered. It might be a completely different picture the next year.
Do not let the numbers discourage you. Yes, CFA Level 1 exam difficulty is quite high but once you become a charter holder it also answers your question about why CFA is worth it.
