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What makes the CFA Level 3 Exam Different?



The CFA Level 3 exam is different

Level 1 was all about shallow plug-and-play problems. Level II drilled deeper into quantitative calculations and started to force you to read long passages and pick out the relevant information from them in order to structure your calculations.

Level 3 keeps and expands on L2’s passage + problem methodology.

In fact, the afternoon section is just like L2.

You will have still 10 vignettes or short passages and then six multiple choice questions asking you about the passage. Each question in the afternoon is therefore worth 3 points.

Generally candidates find the afternoon section to be easier than both L2 and the morning section of L3. That's usually because it's more familiar, they feel like they have more time, and/or they're more comfortable answering quantitative / calculation type questions. It also doesn't hurt that its multiple choice and you can always guess without penalty.

The Level 3 Morning Section is Structurally Different than Level 1 or Level 2

The morning section is typically the more difficult area of the exam. Why is this?

First, of course it forces you to write out answers. This introduces a new element to the exam. You need to learn what the graders are looking for in specific types of problems. There are specific phrases, keywords, and ways of writing out your answers that can make sure you earn a healthy number of points even if your answer isn’t completely correct (see our post on the math behind being a little less bad).

Most Candidates make the mistake of thinking of the morning section as a series of essay questions. It’s really a series of much shorter constructed response / bullet type responses consisting of somewhere between 8-12 questions. Each question in the morning is broken down into 2-5 smaller sub-parts that each require an answer.

Generally, the sub-parts fall into two categories.

  • The first category is actual written out responses. This can include calculations, descriptions, answering an IPS question and so on and so forth.
  • The second category of constructed response will provide a template and then ask you to select from a list of potential answers. This could be something simple like "agree" or "disagree" or it could involve choosing between multiple categories and then justifying why you chose that response.

The second reason the CFA Level 3 morning structure is so difficult for many Candidates is that you need to learn new time management and general exam taking techniques. You’ll get a chance to practice and get specific feedback on the problem sets, but ultimately you will need to get a feel for two things:

  • How much to write to earn full points when you KNOW the answer without wasting time
  • How to skip around problems to make sure you leave nothing blank

In short, knowing the material is not enough.

You need to know how to show what you know and you need to do it in a way that preserves the 1 minute = 1 point relationship (here’s a quick primer on 6 easy ways to lose points on L3)

To help you further understand the structure of the morning section we’ve written a more in-depth blog post. You can check it out at: https://gostudy.io/blog/Structure-of-the-Morning-Essay-on-CFA-L3

How is the CFA Level 3 curriculum different? 

The CFA L3 exam also has a slightly different lens when looking at the curriculum material. Specifically, L3 is about linking together financial management concepts and applying them to the real world.

The heart of this test is to get you to think like a portfolio manager. In fact, the entire curriculum tries to address what you need to know to manage other people’s money (see this blog post for more).

But what does that mean in practice?

  • First, before you even get to financial knowledge, it means you need to know how people think, feel, and react when building their investment strategy. This is why L3’s behavioral finance section spends so much time explaining deviations from the optimal, rational frameworks we’ve learned up to this point.
  • Second, you need to combine this understanding of your client’s unique mentality with the basics of asset allocation in order to build, monitor, and adjust portfolios and investment strategies. Keeping this 1-2 framework in mind can help you connect the material across each Study Session.
  • Finally, L3 is more about applied knowledge than Levels 1 and 2. Thus it shifts the emphasis away from narrow drill down questions and into broader more conceptual questions. This is reflected in the very broad topic weightings of the exam and the inclusion of the morning “essay” section.

To better understand the way the Level 3 curriculum material is organized you should check out or post on why the CFA morning exam IS the investment policy statement.

What Came Before Shows You What’s Next 

Finally (and we’ll return to this), Level 3 is about testing all the things you didn’t see in the CFA curriculum in L1 and L2.

Think about it. This is the capstone exam. After this you’ll be a CFA Charterholder. The CFA Institute wants to make sure you emerge a well-rounded financial professional. All of which means this is the time to think strategically about what you have been tested on and what you haven’t seen so much of.

L3 will fill those gaps and reinforce the most essential skills. To that end here’s a quick and dirty checklist of 15 key topics that are frequently tested.