General question about Level II

Dear all, A week ago I took the Level I exam for the first time. Without wanting to sound too full of myself, I’m sure I aced the exam and I am now only waiting for official confirmation. I have a question for CFA Level II. A good friend of mine who is a really smart guy said he failed Level 2 for a second time. And he is not the type of person to be lazy and not commit. I also see the pass level for Level 2 exam (which is made up of already smart candidates who have passed Level I and I also consider them smart and dedicated). How hard would you say Level II actually is? Is it a lot harder than Level 1? How many hours would you need to spend to be sure you pass the exam? Does the knowledge from Level I help in Level II or practically it wouldn’t matter if you take a gap year between exams? I’m asking this as I am not sure if I want to take Level II immediately or spend a year that is relatively quiet. For Level I I studied between 250 and 350 hours and it was rather demanding - I work full time in fixed income so I have been studying mostly on weekends, took 2 weeks from work before the exam and an hour here and there sneaked from work. All this thing stressed me out quite a bit I think and also meant I could spend less time with my girlfriend, friends, at the gym, etc. So I am not really sure if I want to commit to Level II right after I passed on Level I. There are a lot of other things to consider of course but I wanted to know what you guys think. Thanks a lot!

First of all congrats on L1. I have a lot of respect for people who study to the point where they are sure they passed after taking it.

I personally found level 2 to only be slightly harder than level 1. The material is significantly harder but its not all new to you and you have some momentum so it evens out. In my honest opinion what makes L2 harder for most is added responsibility (since taking L1 i got married, was promoted to associate and work hours increased ~30%). I would imagine its a similar case for most so ppl have less time to study which is why alot of people around me failed L2. If you stay motivated and give it the attention it deserves you’ll be fine.

Time is money. So allocate your time where you think you’ll get the most return. If you have opportunities that are worth more in the short term than putting in the time now to pass L2 on the first go around then by all means sacrifice your studies and pursue them. But only you can measure that implied benefit - and you need to be honest with yourself.

You can’t really compare level 1 to level 2. In level 1, they gave you N, PMT, YTM, and FV. All you had to do was plug the numbers in your calculator and get the PV. In level 2, you’ll need to manually calculate bond prices using a binomial tree taking into account embedded options. It’s a whole different ball game. Level 2 also has a lot more qualitative stuff to memorize. I’d forget the level 1 euphoria, and prepare for a very difficult year ahead as you prepare for level 2.

I started studying for level 1 in September 17, passed December 17, and took Level 2 last weekend. Personally, I found Level 1 being so fresh in my head to be a huge advantage. A lot of concepts resurface in Level 2 as a base level of knowledge and its helpful to have. So even though the material is new, having the level 1 knowledge is crucial. For example, if you need to determine how an adjustment to the company’s pension plan affects an accounting ratio, your preparation in Level 2 will be 1 step instead of 2 steps compared to someone who forgot all the accounting ratios. That’s my 2 cents - keep the momentum going if you can cause all the time you spend re-learning level 1 concepts absolutely adds up, but if you have drivers in your personal life that are more important you’ll need to weigh that benefit cause taking a year off and passing Level 2 is still totally possible. Just know life only gets more complicated and you’ll find yourself needing to make bigger and bigger sacrifices professionally and personally.

I personally felt Level 2 was easier for me than Level 1. It is true that Level 1 is broad and Level 2 is just as broad but goes much deeper. As an analogy, I would describe Level 1 as pre-calc and Level 2 is physics. In pre-cal, they give you all the numbers and you calculate. If you know your formulas, you’ll get the answer right. In Level 2, knowing the formulas only gets you so far. You have to be able to apply the knowledge in addition to knowing the formulas to correctly answer the question.

Because I had no accounting, economics or statistics background, Level 1 was initially very challenging… So learning FRA, econ, quant and those other topics took time to understand. Once I understood the “basics” it got easier. When I started reading Level 2, I knew the “basics” and it just rolled over. Things clicked much faster as I felt a lot of L2 material comes directly from L1.

Approximately two months before the test on L1, I still felt very shakey on the material while two months out before L2 test, I felt extremely comfortable.

So it really depends on your background and what you like.

I did the December L1 to June L2 turnaround as well and would agree that there are areas where the material overlaps and it’s helpful to have it fresh. I also am married and have a 2.5 year old, so can attest that life only becomes more complicated and responsibilities outside of work become more ossified; in other words, finding time to study for the exam gets harder and harder. So my suggestion is to buckle down and get it out of the way if it’s truly a goal of yours to obtain the CFA charter.

That being said, L2 is more challenging than L1 in that the material is not as intuitive and is not as accessible compared to L1. In L1, you will see basically everything you’d see in an undergraduate finance course, with some added material in FRA, FI, and derivatives. L2 goes beyond that and into the deeper reaches of finance. To me it seemed like the material is much more focused on how do you take this information and actually apply it out in the real world. To put it simply, L1 is the basic foundation and L2 is the application. Application is always more challenging, because in reality, nothing is black and white. And the L2 exam is designed to test you on how you would apply the material in more real-world situations which requires you 1) know the material cold AND 2) figure out how you would manipulate the information to solve whatever problem you’re working on.

It is absolutely not insurmountable, but it will take time to get prepared and ready. Everyone is different, but I would expect around the same time commitment you had for L1 (~250-350 hours).

My Experience, When I took L1, I was in my first year working in private banking, and I had zero experience in finance. It was the most difficult exam I had ever taken (at that time I already obtained my CPA license). All topics except for FRA was a challenge. I spent about 300 hours studying for L1, but I didn’t absorb and fully understand the material. Even though I passed, I knew it was a waste of time to continue onto L2. Moreover, I thought it was far more important to develop my career.

So, I took a couple years off CFA to obtain a MBA degree and transferred from private banking to equity. For this year’s exam, I put in about 700+ hours and felt very confident. I have colleagues taking the exam as well, it’s normal to wake up at 4am to study for a couple of hours, go to work, then study for a couple of hours more on a daily basis. In other words, you won’t have a life. Hopefully your gf understands or it’s possible that you won’t have a gf after the exam is over.

Here’s a story of my friend, My friend is a CPA and has been working as an auditor at one of the big fours since he graduated from college. He has been wanting to transfer to M&A, so I suggested him to take the CFA exams because why not. He took L1 in December 2016, L2 in June 2017, and L3 last week. If a guy without a finance background can pull something crazy like this off, you can too.

This is spot on…

Thank you guys for the insight, really appreciated! Based on your input, I think pretty much everybody said the same thing:

  1. Level II is harder than Level I but it is still managable;

  2. Taking Level II right after Level I certainly is helpful as there is an overlap in the knowledge required to pass; and

  3. The amount of time required to successfully prepare for Level II can be compared to Level I.

Harder maybe but more interesting