CFA^® Program Practical Skills Modules Guide

By: Kaplan Schweser

September 9, 2024

CFA Program Practical Skills Modules Guide

Practical Skills Modules (PSM) are short training modules that CFA candidates must complete before receiving their exam results. They cover a variety of CFA curriculum topics and typically take 10-20 hours to complete. This guide provides an in-depth overview of each PSM and highlights their importance in the CFA Program.

TABLE OF CONTENTS

PSM Overview

How to Choose Your Practical Skills Modules
Level I PSM Topics
Level II PSM Topics
Level III PSM Topics
When to Take a Practical Skills Module
PSM Frequently Asked Questions

What are the CFA Program Practical Skills Modules?

CFA Practical Skills Modules are training modules that CFA candidates must complete to get their exam results. They are intended to provide candidates with real world application of concepts related to the CFA curriculum.

Each PSM typically takes 10-20 hours to complete and if you don’t complete at least one at each exam level by the time your exam results are released, your exam attempt will be voided. PSMs are completion based; candidates will not receive a score. Candidates must complete at least one PSM at each level of the CFA program, but may complete more than one if they choose.

CFA candidates can expect to watch videos, read case studies, follow along with guided practice sessions, and answer multiple-choice questions.

Why CFA Candidates Need to Complete Practical Skills Modules

With the introduction of Practical Skills Modules, CFA Institute is keen to provide CFA candidates with best practices and hands-on training. The intent is to accelerate the development of skill sets that candidates will need to help prepare them to fill more advanced positions in the finance industry. The selected modules are directly related to the concepts they are learning in the CFA program curriculum.

Which Practical Skills Modules Are Best for Me?

The PSMs that you select during your journey through the CFA program depend on your interests, career goals, and current skill set, as well as the needs of your employer. There are five PSMs, which fall into four categories:

Practical Skills Module	Level I	Level II	Level III
Financial Modeling	✔		✔
Python Programming Fundamentals	✔	✔	✔
Python, Data Science & AI		✔	✔
Analyst Skills		✔	✔
Portfolio Development and Construction			✔

Python for Financial Analysts

Python is an open-source, versatile, easy-to-use language with powerful tools that is very popular among finance professionals. Its popularity in the finance industry continues to grow with some companies requiring their analysts to know Python.

Python enables analysts to gather and analyze data, perform statistical analysis, and create visualizations for informed decision-making. It offers an extensive array of libraries and modules that can handle a broad range of needs from data manipulation to machine learning. It’s used to build banking applications, optimize portfolios, enable financial forecasting, identify trends, develop trading strategies, build risk management models, and more.

All of this makes the Practical Skills Modules for Python a solid choice for any CFA candidate.

Financial Modeling

Financial modeling is a vital forecasting and planning tool used in multiple industries. It helps companies assess their current financial position and predict future financial performance, which is critical in making sound business decisions, such as:

business valuation
identifying investment opportunities
structuring deals
risk management
resource allocation
developing growth strategies

Financial models are used extensively in investment banking, private equity, corporate analysis, equity research, asset management, and the credit market. Analysts proficient in financial modeling are capable of complex projects, which can lead to more strategic roles in an organization. As such, developing skills in financial modeling will benefit the careers of most CFA candidates.

What is Financial Modeling? >>

Analyst Skills (Equity and Risk)

CFA candidates, who are interested in or currently working in the securities industry, both buy-side and sell-side, should consider the ‘Analyst Skills’ PSM. Skills in equity research and analysis are essential for professionals in this industry.

These analysts leverage their expertise to produce research reports, forecasts, valuations, and recommendations on investment opportunities in companies and stocks of interest to investment banks, institutions, and their clients.

Achieving the CFA charter is typically recommended for equity analysts who want to move up the career ladder. Selecting the Analyst Skills PSM further demonstrates your interest in equity research and analysis and provides an opportunity to analyze best-in-class practices of equity research analysts.

Portfolio Development and Construction

According to BlackRock, portfolio development and construction “is the process of understanding how different asset classes, funds, and weightings impact each other, their performance and risk, and how decisions ladder up to an investor’s objectives.” The purpose is to strategically allocate capital in order to capture opportunities and to improve portfolio returns. It requires a strong understanding and skill set in asset allocation, performance evaluation, risk management, diversification, volatility, fund management efficiency, and the investment time horizon.

This PSM is suitable for candidates interested in positions in investment management, portfolio management, equity research, and hedge funds. It’s a natural follow-on to the Portfolio Management Level III Specialized Pathway.

Level I CFA Practical Skill Modules Topics

There are two (2) Practical Skills Modules available to Level I candidates. Only one PSM needs to be completed by Level I candidates but both are recommended.

Financial Modeling Practical Skills Module

The Financial Modeling Practical Skills Module is where Level I or Level III candidates will learn how to build a three-statement financial model that demonstrates their ability to understand business issues, design best practices, and technical skills.

It is recommended that candidates have a basic understanding of the principles behind Financial Modeling or have finished studying the Level I Financial Statement Analysis topic before starting the Financial Modeling Practical Skills Module.

Learning Outcomes for Financial Modeling

The skills CFA Institute intends candidates to develop during the Financial Modeling PSM are:

Learning how to explore financial modeling best practices
Discovering how to build model schedules
Advancing Excel techniques
Building a working financial model in Excel
Solving common financial modeling problems

Python Programming Fundamentals Practical Skills Module

The Python Programming Fundamentals Module is available for Level I, Level II, or Level III CFA candidates. During this PSM, candidates will develop proficiency in writing Python code for financial-based data science projects using Jupyter Notebooks.

It is recommended that candidates have basic knowledge of the Level I Quantitative Methods topic before starting the Python Programming Fundamentals Practical Skills Module.

Learning Outcomes for Python Programming Fundamentals Module

The skills CFA Institute intends candidates to develop during the Python Programming Fundamentals PSM are:

Gaining expertise in Python programming fundamentals
Discovering how to use Jupyter Notebooks
Utilizing Python libraries like Pandas and Matplotlib
Optimizing portfolios using Monte Carlo simulations and Sharpe ratios
Using APIs to collect real-world financial data

Level II CFA Practical Skill Modules Topics

There are three (3) Practical Skills Modules available to Level II candidates. Only one PSM needs to be completed by Level II candidates.

Analyst Skills Practical Skills Module

The Analyst Skills Module is available for Level II, or Level III CFA candidates. During this PSM, candidates study best practices from successful equity research analysts and learn how to apply those best practices to their own practices.

It is recommended that candidates already know the principles behind Equity Investments and Financial Reporting and Analysis content from the Level II CFA curriculum.

Learning Outcomes for Analyst Skills Module

The skills CFA Institute intends candidates to develop during the Analyst Skills PSM are:

Identifying key metrics and the ability to forecast a stock’s performance
Generating insights from forecasts
Creating accurate price targets
Discovering how to make accurate stock recommendations using the TIER™ framework
Using ENTER™ and ADViCE™ frameworks to motivate others to act on stock recommendations
Improving productivity

Python, Data Science & AI Practical Skills Module

The Python, Data Science & AI Module is available for Level II, or Level III CFA candidates. During this PSM, candidates develop the skills to execute financial data science workflows using Python and Jupyter Notebooks by applying advanced machine learning techniques from forecasting EPS changes to sentiment analysis.

It is recommended that candidates already have a basic understanding of Python and CFA Level II Machine Learning topics.

Learning Outcomes for Python, Data Science & AI Module

The skills CFA Institute intends candidates to develop during the Analyst Skills PSM are:

Using Jupyter Notebook for data science and AI projects
Encoding and tokenizing text data
Training and evaluating neural networks for regression and classification
Understanding neural networks and deep learning theory
Assessing machine learning models with KPIs
Optimizing models with GridSearchCV
Mastering feature engineering and data cleaning
Using scikit-learn for building and testing models
Explaining linear regression and variable roles

Python Programming Fundamentals Practical Skills Module

The Python Programming Fundamentals Practical Skills Module at Level II is the same as at Level I. If Level I candidates didn’t complete this PSM then completing it at Level is a good idea.

Level III CFA Practical Skill Modules Topics

There are five (5) Practical Skills Modules available to Level III candidates. Only one PSM needs to be completed by Level III candidates.

The only Practical Skills Module that is unique to Level III is Portfolio Development and Construction. All the other modules are available at Level I or Level II so completing this PSM at Level III is a good idea

Portfolio Development and Construction Practical Skills Module

The Portfolio Development and Construction is available for Level III CFA candidates only. During this PSM, candidates develop the skills to develop, implement, and manage an institutional investor portfolio.

It is recommended that candidates taking the Portfolio Development and Construction Practical Skills Module have a solid understanding of the principles of portfolio management or have completed CFA Portfolio Management curriculum topics at Level I and Level II.

Learning Outcomes for Portfolio Development and Construction Module

The skills CFA Institute intends candidates to develop during the Portfolio Development and Construction PSM are:

Creating an Investment Policy Statement
Evaluating investment performance using benchmarks, Modern Portfolio Theory (MPT) statistics, and efficient frontier analysis using ETF portfolios
Exploring MPT and diversification, use Excel’s Solver for Mean-Variance Optimization (MVO)
Analyzing and optimizing portfolio performance with CME and backtesting with Strategic Asset Allocation (SAA)
Conducting sensitivity analysis with scenario evaluations and Monte Carlo simulations using historical data for Tactical Asset Allocation (TAA)
Assessing portfolio performance against objectives, evaluating financial metrics (returns, risk, Sharpe, and Sortino ratios), reviewing TAA impacts, hedging currency risk, and communicating insights to stakeholders

How to Prepare for CFA Practical Skills Modules

To prepare for a CFA Practical Skills Module, candidates are encouraged to meet the prerequisites for each module. Candidates can start a PSM any time after registering for an exam window, but CFA Institute encourages candidates to come prepared with some familiarity of the topic.

For example, at Level I, there are two Practical Skills Modules for candidates to choose from:

Financial Modeling
Python Programming Fundamentals

In the Financial Modeling PSM, you will be asked to use Excel to build a financial model. In the Python Programming Fundamentals PSM, you will be asked to perform portfolio optimizations in Python.

Go with your strengths and choose the one that you feel most comfortable with at Level I. Python Programming Fundamentals is available at all three Levels whereas Financial Modeling is only available to Level I and Level II candidates.

Assess your baseline knowledge of the Level I CFA Program curriculum with a free CFA diagnostic exam

When to Take CFA Practical Skills Modules

CFA candidates can take a Practical Skills Module anytime after registering for an exam window. The requirement is that candidates must complete one PSM at each level in order to receive their exam results and move on to the next level,

Consider that Practical Skills Modules take about 10-20 hours to complete. The average time CFA candidates spend preparing for an exam is 300 hours. Therefore, taking a Practical Skills Module shortly after sitting for an exam is the best route and can help avoid burnout. And doing so will not distract you from your exam preparation.

When Do CFA Exam Results Come Out? >>

Where to Find CFA Practical Skills Modules

Candidates can find CFA Practical Skills Modules in their CFA Institute candidate portal under the “My PSMs” account section. The same module cannot be completed at multiple levels so at each exam level a new PSM must be chosen.

How to Confirm You’ve Completed CFA Practical Skills Modules

Candidates will receive an email confirming they have completed a CFA Practical Skills Module. If they don’t receive a confirmation email they can also check in their CFA Institute account under the “My PSMs” section. In that section of their account, they should be able to see which Practical Skills Modules they have completed.

Frequently Asked Questions

Below are answers to some commonly asked questions about CFA Practical Skills Modules.

Which CFA Program Practical Skills Modules are the Hardest?

No CFA Practical Skills Module is harder than the other. It all depends on your previous experience and knowledge of the CFA curriculum. CFA charterholders should be comfortable with all of these topics so if one topic seems harder than the others that is a sign for you to focus on that topic area or skill.

How Long Does a CFA Program Practical Skills Module Take to Complete?

CFA Practical Skills Modules take candidates about 10 - 20 hours to complete so you might be able to complete them over one weekend.

What Happens If You Don’t Complete a CFA Program Practical Skills Module?

If you don’t complete one Practical Skills Module at each CFA level before your exam results are released your exam results will be voided and you will be required to sit again at the same level to advance to the next level.

When is the Deadline for Completing a CFA Program Practical Skills Module?

The deadline for completing a CFA Practical Skills Module is before your exam results are released. Exam results are typically released 5-8 weeks after you sit for an exam but that timeframe is variable, so it’s best to get your PSM finished well before that time.