How Level 3 is different from Level 2?

By Dr. Bruce Kuhlman, CFA, CAIA - Level 3 Manager 

First of all, I’d like to congratulate all new Level 3 candidates! Passing the Level 2 exam was no simple task and by doing so you showed your ability to stand up to and conquer a difficult test in an unfamiliar format. 

At Level 1 the questions were all multiple-choice and divided into groups by topic area. Each Level 1 question is more or less a stand-alone question; each tests a separate concept about the topic. 

At Level 2 you were introduced to the item set. The item sets were also multiple-choice, but unlike the Level 1 multiple-choice questions, they were all related and answered according to information provided in a vignette.

At Level 3 you will see an afternoon composed of ten item sets, just as you did at Level 2. The primary difference between item sets at Levels 2 and 3, however, is that the Level 3 item sets can cover one or several study sessions. In addition, CFA Institute says it is appropriate for Level 3 item sets to include “double jeopardy” questions in which the answer from one question is needed for the solution to the next; if you miss the first one, you (probably) miss them both.

At Level 3 you will also see Constructed Response Essay questions. The morning section of the exam will be comprised of several (10 to 12) multi-part essay questions. The individual parts of the essay questions can require text (word) answers or calculations. (I’ll post another blog on answering essay questions. You can also gain insight into answering essay questions in our Secret Sauce and Essential Exam Strategies and in our Practice Exam books which give “exam answers” as well as discussion answers.)

Almost without exception candidates have told me that they finished the day feeling they performed well in the morning (essay) but had difficulties in the afternoon (item sets). Again almost without exception, when they received their scores their actual performance was the reverse of what they expected.If you are like me, you found Level 2 to be very challenging, primarily due to the difficulty of the material. 

Level 3 is challenging for different reasons. The material in the Level 3 curriculum is, for the most part, rather interesting and not all that challenging. In fact, because of your financial experience, you might find yourself relating to a lot of the Level 3 curriculum. On essay questions in particular, this can actually be troublesome for several reasons: I often say (jokingly) that there are three possible answers to every CFA exam question: (1) the “real world” answer; (2) the “text book” answer; and (3) the “CFA answer.” Only one answer will earn you the points…the CFA answer. You must give the answer provided in the CFA curriculum, regardless of how you “do it” at the office.

At Level 1 you soaked up material and then regurgitated it when required on the exam. Level 2 is similar but the material is harder. However, you were tested on the material in much the way it was presented in the curriculum. For example, you learned how to value a forward rate agreement and then the question asked you to value a forward rate agreement. 

At Level 3 the material is presented in text-book fashion, just as with the other levels, but you might not be asked a single topic in each question. For example, you’ll probably need to pull together your knowledge of (at least) Study Sessions 3, 4, and 7 (Behavioral Finance, Private Wealth Management, and Asset Allocation) in a single case in the morning section of the exam. That applies to the afternoon section of the exam as well, and there are many different possible combinations. 

Level 3 is fun and interesting. In many cases, it’s what you do for a living. The problem with that is that you tend to develop a “that makes sense” attitude and don’t truly learn the material. This is troubling because under the time and emotional pressures of the exam, some of that common sense material starts looking like the language of some ancient, lost civilization.Your “that makes sense” attitude leads you to assume that when the time comes you’ll be able to say exactly what you want to say (or better, exactly what the grader wants to read). You must be able to answer all essay questions thoroughly in a neat, orderly fashion and do so in as little time as possible. Try it sometime…it’s not as easy as you might think.Please…let’s hear from you! If you’re a new Level 3 candidate, tell us about your strategy for success on the 2008 Level 3 exam. If you’re a returning (i.e., experienced) Level 3 candidate, you might have some helpful hints for your fellow candidates. For example, you might share what you did last time and intend to do differently this time.