CFA candidates flunked the ‘21 exam in droves — could it happen again?

Pass rates for those taking the Chartered Financial Analyst (CFA) exams tanked in 2021, reaching a record-setting low. It’s a phenomenon that’s led to a lot of hand-wringing among current and future candidates for the charter who wonder if the three-level exam was just "too hard" that year or whether disruptions caused by the pandemic, or other reasons, factored into the dramatic decline. 

And it was dramatic. In the years leading up to 2021, pass rates on the CFA Level 1 exam hovered around 42% to 43%. However, in 2021 that number fell precipitously to 25% in May, to 22% in July, to 26% in August, and to 27% in November. Level 2 exam pass rates also dropped significantly, with just 29% of test-takers passing in August 2021. Level 3 also saw a significant dip: while pass rates have historically been in the 54% to 56% range, only around 40% of test-takers passed the last exams.

For its part, the CFA Institute is adamant that the increase in lower grades was not related to the exams themselves and that the tests were not altered in any way to make them more difficult. Rather, the main culprit was COVID-19 restrictions that caused tests to be postponed, or which caused test-takers to reschedule, according to Chris Wiese, managing director of credentialing at the institute. That, he explained in a video released by the Institute, in addition to the fatigue and stress affecting most people in that pandemic year, led to erratic study habits, which contributed to poor performance. 

But in our view, there’s an even more likely explanation. U.S. financial sector deal flow reached an all-time high last year. That meant that many of the financial professionals taking the test, including portfolio managers, private wealth managers and equity research analysts, had to grapple with much-increased workloads, leaving them with precious little time to study for exams that typically require more than 300 hours of preparation in order to excel. 

Could it happen again this year? Deal flows show no signs of slowing in 2022. According to a report from pay consultancy Johnson Associates, Wall Street is set to see the most significant bonus increases since 2009. This is good news after a pandemic-ridden 2020 saw activity slow and, therefore, year-end incentives drop. But the sharp and continuing rebound in business activity has translated into unprecedented workloads for Wall Street professionals in a competitive job market. Given this, candidates may once again not have the time and energy needed to put in those study hours, ultimately leading to continued lower pass rates across all levels of the exam. 

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Hunkering down
The CFA Charter has always been a highly coveted credential in the investing world. Sectors with the highest proportion of CFA-qualified employees include asset management (22%); accounting and finance (12%); investment banking M&A (10%); wealth management (6%); equities (6%); private equity (6%); and risk management (6%), according to efinancialCareers.  

Although the average salary for the holder of an MBA is higher — around $135,000 compared to $93,000 for a CFA — so is the time and monetary investment associated with earning an MBA. MBA Programs cost anywhere from $50,000 to $200,000 and take an average of two years to complete. 

On the other hand, getting a CFA certification costs approximately $3,000 — assuming you pass all exams the first time — but requires an enormous amount of independent study. Candidates for the CFA exam must master 3,000 pages of material and demonstrate their ability to analyze companies' financial statements; evaluate equity, fixed income, derivatives and alternative investments; and demonstrate proficiency with quantitative methods and economics. Candidates showcase these skills in the exams through various scenarios, cases and concepts. According to the CFA Institute, successful candidates spend an average of 323 hours preparing for their CFA exams. 

Given the extended dealmaking boom, candidates may need to reevaluate their study and test-prep strategies. In this effort, digital tools like those made by my company and others enable short bursts of study; encourage active, adaptive learning; track progress and highlight areas where extra attention is needed. We also recommend that candidates take more mock exams, which can also help give students higher overall levels of confidence in their preparation for taking the actual exam. 

Steps like these should improve overall CFA exam pass rates and help more candidates take a step forward in their careers.