How To Pass the CFA Level 2 Exam

Now that you have passed the CFA Level 1 exam and preparing for Level 2, you should be prepared for at least another 300 hours of study. So, it is important that you carry over your reading focus and healthy habits from Level 1 to Level 2 if you hope to crush the exams on the first attempt. As per the CFA Institute, the current pass rate for the CFA exam Level 2 stands at around 45%.

The first step toward knowing how to pass the CFA Level 2 exam is to understand the structure which is quite different from what you are used to for Level 1. Rather than multiple-choice questions, you must understand the concepts that apply to real-life scenarios. You will be given data, and charts from where you have to answer two to three sets of questions. If you are not thorough with the concepts, tackling the exam can be tough. Unlike Level 1, memorization will not help here.

Successful candidates typically go through the grind of 320 hours to get ready for exam day which works out to about 13 hours per week if you start your prep 6 months before the exam. Ensure that you do not include the last month here as that should be exclusively reserved for revision and last-minute practice.

Is CFA Level 2 Just A Continuation of Level 1

Do not make the mistake of assuming that Level 2 is just a continuation of Level 1 because it is not. Level 2 is a big step up in difficulty over level 1 and this should be realized at the beginning of your prep and not when you are halfway through. There is a huge volume of material to cover and hence there should not be any complacency on your part.
Let us get into the intricacies of this aspect now.

Several Level 2 concepts are based on Level 1

Many concepts that you will find in Level 2 are grounded in Level 1, the reason why study materials for Level 2 often have a Refresher booklet for Level 1. Hence, if one of your weaker topics of Level 1 is heavily weighted in Level 2, you should start studying earlier to improve your chances of passing.

Exam structure is different in Level 2

This is another area that proves that Level 2 is not a continuation of Level 1 and that you have to put in extra effort to get the hang of how to pass the CFA Level 2 exam. While Level 1 had 180 independent multiple-choice questions across 2 exams, Level 2 has 20-30 vignettes with 88 multiple-choice questions across 2 exams. A vignette or a mini case study has 4-6 questions to be answered.
Now what are the implications of this format?

• Less time to answer questions: Reading through a vignette which can often be two pages long eats up precious time, leaving you with less time to answer the questions as compared to Level 1.
• Interdependencies make the questions harder: Questions in Level 2 come in groups of 4 to 6 and many of them are interdependent too. For example, an answer to a specific question will depend on you getting the previous one right.
• Less topic diversity: Vignettes focus on a specific concept and hence the diversity in questions will be less than Level 1. There are only about 20-30 vignettes in Level 2 but almost 180 independent questions in Level 1. So, if you skip one concept while studying for Level 2 you could potentially miss 4-6 questions in the exam.

Cannot miss any topic

The weights of the topics for Level 2 are almost all equal which means that there is the possibility of the CFA Institute testing on any topic. Hence, studying for Level 2 must be thorough and you cannot possibly leave out any part of the curriculum.
All these prove that Studying for Level 2 is an altogether different ball game.

Understand the Mini Case Studies (Vignette) Format

Do not compare how to pass CFA Level 2 exam with what you have gone through in Level 1. As discussed above, the format of the exam is different and hence you have to strategize your study plan accordingly. The Level 2 structure is based on vignettes that test your concepts on various subjects to the fullest. This will be studied in some detail now.

A vignette is a mini case study that might consist of several paragraphs containing financial statements, tables, texts, charts, and data. You have to go through all this voluminous data, understand the concept behind it and zone in the vital aspects needed to correctly answer a question.

Hence, unlike Level 1 where you had to answer 180 independent questions and could afford to leave out a couple of them, here you will come up against a set of 4-6 questions based on one vignette. Leaving out even one means about 5% of the exam points and could be the difference between coming out successful or not.
Vignettes have created a world of difference between Level 1 and 2 study plans. Topic memorization will not help in Level 2. Instead, candidates have to show their cutting-edge abilities to dissect information, analyze it, and come to considered conclusions based on various data provided in vignettes. The focus is on how well you can link one concept to another.

Vignettes have made the exam materials more complex as intensive studies are now required to get a grip on very complex concepts. Topics like binomial options valuation, Black–Scholes–Merton, swap valuation, binomial options valuation, and CDS valuations can be very difficult, to say the least after the experience of straightforward introduction to Level 1 subjects.

How to Study Level 2 Prep Courses

The course content for Level 2 is huge and you must do plenty of reading. You should also invest in a prep course to be guided through the pitfalls of probably leaving out some concepts or understudying. All this can cost you dearly in the long run.

There is a lot of reading to do in Level 2 so it is wise to block off several months as study time. You need to read the content and highlight your weak areas for further studies and revision later. Moreover, watch video lectures closely as that will help you understand the concepts of the various subjects. To optimize your study materials, keep the weights of the exam topics in mind for extensive reading and prioritize your weak areas as you go along.

While going through the prep course, focus on Ethical and Professional Standards that carry the maximum weight followed by Portfolio Management, Financial Reporting and Analysis, Equity, and Fixed Income. Lower down on your reading list of course materials will be Derivatives, Economics, Alternative Investments, Corporate Finance, Valuation, and Quantitative Methods.

As you prepare with practice questions, allot about 12-18 minutes per vignette depending on the number of set questions. And most crucially, implement deadline times for practice questions to simulate the real exam scenario.

Check that Your Study Plan Realistically Works

You need a solid study plan for your Level 2 exams since it is thought to be the most difficult of the three levels. But the plan will come to naught if it has not been created keeping realistic parameters in view. You must ensure that your study plan is accurate and that it works.

The main hurdle to a study plan being feasible is the time that you can spend on it keeping your lifestyle and commitments in mind. On average, you will need about 328 hours of study time though 350 hours is preferable in 4 months, taking into account the volume of curriculum to be covered. While it is challenging if you have a full-time job, target a minimum of 2 hours of study time on weekdays and 5 hours on holidays.

The goal is to consistently carve out 20 hours a week. Explore ways to do so – arranging to leave 1 hour earlier from work, studying on your long commute, working from home on certain days to save commute time, or studying before and/or after work. The possibilities are limitless, you only have to make sure that your study plan is feasible.

Your CFA Level 2 Mantra – Practice, Practice, and Practice

There is no substitute to practice and still more practice if you want to crack the Level 2 exam the first time around.
In between your reading schedule, take practice sessions and mock exams. For each mock exam, set aside about 4.5 hours to write and an equal time to check. With a busy work schedule, aim to complete the exams in one day and check the answers in the next. Or you can even practice half an exam one evening and grade it the next. Between both writing and grading, finish at least one mock exam in a week along with your study time.

With a bit of speed, you can complete 5-6 mock papers from various study providers in a month. The variety provided by different exams will sharpen your skills and prepare you well for D-Day as you will know what to expect in the exam. Buy practice exam courses, it will be dollars well spent.

Take One Week of Study Leave Before Exam Day

Take the last week off before exam day. It will be greatly beneficial and help you focus on the upcoming exam better.

The most critical effect is that it will take your mind off problems and worrying issues that might crop up at the workplace. Additionally, you can save a lot of commute time daily, precious stretches that can be better utilized in studying.

On the study front, use this time to revise and proactively go through practice exams. You can also bunker down uninterruptedly and catch up on your studies if you are behind schedule or need to strengthen your weak areas. Be assured, this extra time at this juncture can sometimes become the thin dividing line between success and failure and answer your question about how to pass the CFA Level 2 exam.

Summing Up

Following these tips will ensure you are as prepared as possible for Level 2 of the CFA exam. It can be very challenging to crack the exam but the tips given here on how to pass CFA Level 2 exam should steer you in the right direction and give you a head start in preparations.