As you begin to explore the Certified Financial Analyst (CFA) certification and reviewing the pass rates for CFA Level 1, Level 2 and Level 3, it’s natural to ask the question, “Why is the CFA pass rate so low?”
First of all, the CFA exam is one of the toughest in the finance industry and is difficult by design. After all, if everyone passed it then the credential wouldn’t be worth all that much.
To explain why the CFA pass rate is so low, it’ll help to understand how the CFA exam is structured and graded. For this post, we’ll look at the key reasons the CFA exam is so difficult and why the pass rates are so low.
Contents
Overview of CFA Exam Structure
Here is what each level of the CFA exam entails:
- CFA Level 1 – 180 multiple choice questions, split between two 135-minute sessions, with an optional break in between.
- CFA Level 2 – 88 multiple choice questions, split between two 132-minute sessions, with an optional break in between. MCQs are presented in 22 separate vignettes
- CFA Level 3 – 44 multiple choice questions and 11 essay sets, split across two 132-minute sessions. MCQs are presented in 11 separate vignettes.
The general consensus is that
As you can see, the CFA exam starts as a straightforward multiple choice exam in Level 1, and gradually evolves into a more immersive question format, with Level 3 including 11 essay sets. By design, this requires candidates to demonstrate a progressively more thorough knowledge of the subject matter. While educated guesses and a little luck may help you pass Level 1, it won’t be as effective on the Level 3 exam.
In general, the CFA Level 1 exam is widely regarded as being roughly equivalent to a diploma level understanding of core financial concepts. Level 2 is regarded as being equivalent to a bachelor’s level degree, while Level 3 is considered more akin to a Master’s level understanding.
Is the CFA Exam Difficult?
The CFA Level I exam has the lowest pass rate, followed by Levels 2 and 3. However, most charter holders will tell you that Levels 2 and 3 are more difficult than Level 1.
Based on data released by the CFA Institute, roughly 15% of candidates that sat for Level 1 ended up passing the Level 3 exam. While this data includes some candidates who are in the middle of their CFA journey and may go on to pass level 3, the data clearly shows that less than 1 in 5 Level 1 candidates will ultimately earn their CFA charter.
So, what makes the CFA exam difficult?
As noted above, the CFA exam requires a progressively more comprehensive understanding of the subject matter as you progress through the program. The Level 2 exam introduces an exam structure that discourages memorization and requires a clearer understanding of the various concepts related to finance with questions in vignette form. Likewise, the Level 3 exam introduces essays alongside a structured MCQ response format.
To maximize your chances of success on the CFA exam, play the long game. Even if it requires a bit more time on the front end, take the time to fully understand the concepts tested in the Level 1 exam, as this will pay dividends when you finally need to knock out the Level 2 and Level 3 exams.
How is the CFA Exam Pass Rate Determined?
A major factor the CFA’s low pass rate is the Minimum Passing Score (MPS) as determined by the CFA Institute.
The exact MPS is never actually published by the Institute, but it’s calculated using a rigorous and thoughtful process each exam cycle. The MPS is effectively an exam curve that’s determined through expert analysis of each exam question, rather than being pegged to candidate scores.
Theoretically, the MPS provides a fairer grading than a cohort-based performance curve. The benefit is that it keeps the bar to passing the exam high and reduces the likelihood of a weak cohort diluting the pool of CFA charter holders.
Previously, calculating the CFA was simple – 70% of what the highest-scoring candidate achieved. If it was 90%, the MPS would be 63% and others would have to score this for passing. Now it is different though and is based on several workshops conducted by the CFA on the Angoff model. Here is the process followed presently for calculating the MPS:
- A group of CFA charter holders evaluates all the levels of the CFA exam and decide how the just-competent candidate fared, that is estimating the probability that this candidate will get a question right.
- The next step is checking the actual performance of the candidate and repeating the process of evaluation.
- The last step of taking a call on the MPS is done by the Board of Governors of the Institute after considering all the data placed before them and the recommendations of the Angoff workshop.
Why Was the CFA Pass Rate So Low?
Here’s a quick snapshot of the CFA exam pass rates for Levels 1 – 3 since 2015:
As you can see, the pass rates for each exam showed a slight increase in 2020 when candidates had more time to focus on studying, followed by a sharp downward turn in 2021.
Looking back, it’s easy to see why the CFA pass rates dropped. During the pandemic, many CFA candidates in the pipeline had their exams deferred, which likely messed up their timelines to prepare for the exam. Then, in 2021, the CFA Institute moved away from a paper-based exam to a computer-based testing (CBT) model. With this transition, the CFA Institute also expanded the number of times each exam is administered each year and reduced the volume of questions for each exam by 25 each.
While it’s not immediately clear what caused the reduction in passing scores during 2021, it’s fair to say that this combination of changes impacted the 2021 cohorts enough to put a dent in their performance.
As noted above, Keep in mind, the CFA institute doesn’t apply a fixed curve where a certain percentage of candidates pass the exam every year. Rather, it uses a benchmark score where candidates with a certain and consistent level of competency will pass only.
What Will Your CFA Pass Rate Be?
At the end of the day, the only pass rate that matters is your own. Understanding why the CFA pass rate is low should inform how you approach your own exam prep. Now that testing for each level occurs more frequently, take the time to chart out an exam timeline that fits your life, and don’t be afraid to take a little extra time to fully understand the subject matter, and hammer practice questions and mock exams as much as you can!
