Although the pass rates for Level III are higher than for Level II, a lot of people believe that Level III is the hardest, probably because of the essay section. So how do you prepare for that?
The first thing to recognize is that, despite the name, you’re not expected to write an essay. All it means is that the answers are free-form as opposed to multiple-choice. CFA Institute provides invaluable resources to prepare for this new unfamiliar answer-format, including corrected exams from previous years.
Today, I am going to focus on how to best use those resources to your advantage.
Start by downloading the Previous Exam Questions and Guideline Answers and reading the Tips for Taking the Essay Exam in the Candidate Resources section of the CFA Institute website.
These questions are the real deal, so don’t waste them by using them too early in your studies. You want to save them until you’ve practiced enough using EOC questions and prep providers’ practice exams. However, it is a good idea to read through one of them to know what to expect.
You might be able to get your hands on more practice exams than the three or four provided by CFA Institute. Keep in mind that the curriculum is ever evolving, so the older the practice exam, the less relevant it is. I really wouldn’t recommend using practice exams that are more than three or four years old as portions might be confusing or deprecated.
2. Have A Question-Answering System
Although it isn’t multiple choice, the questions still follow a pattern, especially the Investment Policy Statements (IPS). Like a pilot running through the same standardized checklist, no matter what airport the plane is taking off from, you need a system you can apply to work through any question.
- Carefully read all the questions in the set so you know what to look for
- Circle/underline the command words (describe, identify, compare…)
- Carefully read the supporting text and underline information/data that will help you answer the questions identified earlier
- Points are proportional to the time recommendation, use it to gauge your answer
- Know where to answer. If there is a template, use it so you don’t waste valuable time repeating words from the template
- Clearly label your answer (Question 1, 2, 3, – A., B., C., etc.)
- Answer the question. If you don’t know the answer, save it until the end. Most of the questions are independent, so not knowing the answer to question A shouldn’t keep you from answering the questions that follow.
3. How to Actually Answer the Question
I can’t stress this enough: keep your answers short and to the point. As long as the meaning is clear, the use of short bullet-point sentences and common abbreviations/symbols is acceptable and even encouraged.
Generally speaking, CFA Institute isn’t trying to trick you. If there are several possible answers, go for the one that is the most obvious/plausible. You won’t win any points for being creative. On that note, don’t try to impress the grader by introducing information from outside the curriculum or that is irrelevant to the question. There are no bonus points and if it’s incorrect, you might even lose points.
Make sure to show your work for all calculations if the question asks for it, as partial credit is often awarded for correct formulas, even if the final result is incorrect.
4. Don’t Play Games
Unlike Levels I and II, you won’t be able to fake it if you draw a blank. If you have a guess, jot it down and move on to the next question. Hopefully, you’ll come up with something better by the end of exam. Either way, trying to bluff your way out of it is not going to save you, as the grader will see right through it.
Make sure your intent is clear and your answers unambiguous. Cross out any sentences you don’t want the grader to consider, as they won’t choose the best one for you. If you’re faced with a decision, make sure your choice is clear and the supporting argument matches your choice. You won’t get any credit if you try to hedge your answer, so be bold.
5. Know How to Grade Your Answers
Admittedly, this is more art than science. Use the guideline answers provided by CFA Institute (or your prep provider if you’re using their mock exams) to evaluate your answers. Your answers don’t have to match word for word, but the idea should be expressed clearly. If your answer isn’t in the answer key, it might still be correct but it’s unlikely that you would get credit for it if there are other, stronger arguments.
When in doubt, you should err on the side of caution and give yourself partial or no credit. Being overly optimistic will come back to bite you during the real exam, so be conservative when grading your own work but don’t let it discourage you. If you have a study buddy, consider swapping copies and grading each other’s work if it helps you be more objective.
It is important that you learn from your mistakes. Make sure you understand why your answer is incorrect and how to reach the correct solution. As each situation is different, rote memorization of past answers won’t help you.
Do you have more CFA essay tips? Let us know in the comments below!