65% of You Failed Level I of the CFA

by Johnny Debacle

But the glass is 35% full, as that is how many passed Level I of the CFA’s Guarantee of Future Investment Performance Exam. Now I know that 65% of you are dejected and feel beaten down by life, by the capricious nature of your cruel Chartered master and by the implied future whips of the 35% of your cohort who did pass Level I and will likely be your bosses very soon. But do not look so glum! You managed to crash the CFA site server and ensure that many people who passed will have their glory delayed. If you can’t win, make life worse for those who did! Also, drink heavily.

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  1. dash
    July 29th, 2008 | 11:24 am

    1st Merit Badge obtained.

    Now I can move on to my flagmaking badge,,

  2. Strattie
    July 29th, 2008 | 12:35 pm

    Well, at least I get a standing ovation in bed…

  3. July 30th, 2008 | 12:05 am

    Best way to avoid that disappointment is to not take it in the 1st place. No, I’m saving up for the swift kick in the nuts that is grad school (and the $80k/year bill that comes with it).

  4. July 30th, 2008 | 12:11 am

    MBA school: face-saver for CFA dropouts.

  5. Platinumfinger
    July 30th, 2008 | 3:51 am

    This makes mre think… The rates of peoples who pass decreases year after year – Do the guys a the CFAI want to prevent that in future more people pass and due to the more of supply in CFAs their value drop or is the human population, especially in finance getting dumber (although I suppose it’s quite impossible to be short in IQ)?
    I suppose it’s something of both – isn’t?

  6. Gin&Tonic
    July 30th, 2008 | 11:01 am
  7. To The Hilt
    July 30th, 2008 | 1:32 pm

    @ Platinum,

    what’s the pass rate on the TOEFL?

  8. Strattie
    July 30th, 2008 | 2:10 pm


    Try this:

    Pathetic failures of people that teach the kids (PRAXIS, the teachers certification exam).

    Pass rates lower then 50%:
    Citizenship Education
    General Science
    Reading Specialist
    Social Studies

    With Mathematics taking home the failure gold. Almost 50 math licensing tests had pass rates below 35% (100+ failures below 50%). With about 20 reading and English combined with pass rates below 35%.

  9. Size
    July 30th, 2008 | 2:33 pm


    That is truly so unbelievably pathetic!


    I wonder if the lower pass rate results from more people from more varied academic backgrounds taking the CFA. With the rising popularity of the CFA, I would think that a more diverse population is seeking the designation. I propose that in years past, the majority of test takers had academic backgrounds in finance and economics and the pass rates were higher. With the growing popularity, there are more test takers with academic backgrounds in other subjects for whom the tested subject is completely new and pass rates have declined as a result. Maybe?

  10. To The Hilt
    July 30th, 2008 | 3:20 pm


    I think you may be looking at it from the wrong angle.

    My take, despite the Institute’s claims to the contrary, is that they are intentionally holding down pass rates.

    Essentially, I believe the CFAI has reached a critical mass of charterholders, and now is sitting on a nice annuity stream of dues paid by those subs that allows them to cover overhead with a nice cushion.

    In lowering the pass rate, they create the illusion that attaining the charter means more than it actually does, creating in turn a lasting brand identity and a competitive moat of sorts. Ferraris don’t have to cost $250k, but would they be as cool (hint: they’re not really all that cool) if Angelica Hernandez and Gloria Nunez were parking their Scaglietti at 7-11 whilst they picked up their slurpees and cool ranch doritos?

    But I digress. This brand identity leads to more attempts, both from a greater number of candidates and from a higher average number of attempts required to attain the charter.

    The high fixed cost structure of the exam administration segment lends itself to high operating leverage, so the incremental EBITDA from each additional test taker is really high margin.

    These guys have it figured out.

    Recommendation: Long the CFAI.

    Catalyst: Adding China to the name. The valuation on this bitch would be somewhere in the infinity range using the Chinese Residual Income Model. You know, there are a billion people in China. That’s a lot of possible candidates.

    Disclosure: We and our affiliates are long the CFA Institute and may sell some or all of our shares at any time without prior notification.

  11. July 30th, 2008 | 3:30 pm

    I 100% agree with To The Hilt. It’s also pretty clear that they have made it harder, the actual material is more narrowly focused questions pulled from an ever broader required material. They definitely are managing the scarcity of CFAs and managing the brand itself. As a prospective CFA I find it obnoxious, but as a hopeful soon to be charter holder, I hope they make it even harder.

    You also have to factor in the economy, any of you who applied to business schools last year or are planning to this year would be well aware of the surge in applications that has happened and will happen again this year. More people with less jobs = more people with time trying to differentiate themselves. Applies to the CFA too.

  12. July 30th, 2008 | 4:38 pm

    Damnit Debacle, I’ll have none of your reality poisoning my dreams of getting a full ride to Wharton!

  13. Size
    July 30th, 2008 | 5:02 pm

    The Hilt & Johnny,

    No doubt you are absolutely correct – about both the CFA and Ferraris (never understood the appeal). I’ve been a holder of the CFA designation (which is the way we are supposed to say it, as they endlessly drilled into our brains on all three tests) for years. My work schedule interfered with studying for level II the first time, but I did notice the material was more difficult when I sat for it two years later. They’ve been expanding the derivatives and fixed income portion of the third exam for years now. The pass rate decreased steadily every year while I was sitting for the series.

    After all the aggravation, I’m now in a part of the industry where the CFA is utterly irrelevant. Yet, I still slap those letters behind my name every bloody chance I get.

    This is my anecdote. Good luck with your remaining exams, Johnny.

  14. Richard Roma
    July 30th, 2008 | 6:17 pm

    Talking about suuuuuuuper-saturation of a designation. Get a degree in mathematical finance if you really want to distinguish yourself (and get those CFA holders to get you some coffee!)

  15. Hans Mollman
    July 30th, 2008 | 8:52 pm

    CFA might be worth it, if you want to say things like “…in that space, going forward” and still be taken seriously. Otherwise, I don’t see the point in jumping through all these hoops.

    (Full disclosure: failed actuarial student)

  16. Size
    July 30th, 2008 | 11:14 pm

    You can’t get a degree in mathematical finance! Your boss who talks about “accretion” and “…in that space, going forward” will be totally discombobulated by your superior quantitative skills, won’t understand a word you say and will run you off before everyone realizes you’re smarter than he is and the powers that be give you his job.

    Or he’ll just be too intimidated to hire you in the first place. Unless you work for a shop like Renaissance or in derivatives trading, it’s all smoke and mirrors here on Wall Street. Keep your substance to yourself.

    Long CFA, short anything useful – like mathematical finance.

  17. johnny five fingers
    July 31st, 2008 | 6:37 am

    Pass rates
    Level I Level II Level III
    2003 42% 47% 68%
    2004 34% 32% 64%
    2005 36% 56% 55%
    2006 40% 48% 76%
    2007 40% 40% 50%

    Recent trends would suggest that the exam has not got any more difficult. The decrease in pass rate – most notably in Level I since 2000, most likely has to do with the increase in the number of numpties taking the exam. Bottom line is the exams could actually be a lot harder than it is, there is a huge level of depth that the exams could go into, however they tend to focus on breadth. In fact, from a personal perspective I have found the exams are getting easier (more basic with a lack of depth) having sat the 2004 Level I, 2007 Level II and Level III this year. (ill find out if this comment bites me in the ass in 3 weeks!)

  18. TexasHedge
    August 1st, 2008 | 4:59 pm

    17, 11…I sat for level III this June and it was harder than I thought it would be. I barely finished the essay part, but a ton of people I talked to at lunch didn’t even sniff the last couple of Qs. But maybe I just slacked in studying because everyone says L 3 is easier.

    /desperately hoping to have passed and never touch the material again.

  19. August 3rd, 2008 | 9:33 pm

    The CFA old timers (pre-2000) could never pass today’s exams, they just make it harder and harder so that their salaries stay high, less supply ensures prices paid (i.e. salaries) stay high.

  20. Dismal
    August 7th, 2008 | 11:07 am

    I actually agree with K. Robison that many of the CFA holders today who received their designations years ago would have much greater difficulty with today’s exams. It’s unfortunate because many of those who will be interviewing us underestimate the accomplishment.
    Conclusion: Short CFA old-timers, especially those having passed level III 10+ yrs ago.

  21. August 15th, 2008 | 1:16 am

    hey dismal,
    go f&ck yourself