What Is CFA Practical Skills Module (PSM) | How To Choose The Right PSM

The CFA Practical Skills Module (PSM) is a new part of the CFA Program designed to help you learn practical, hands-on skills essential for a finance career. These modules cover various topics, such as financial modeling, data analysis, and portfolio management, providing you with the tools and knowledge needed to succeed in the industry.

The PSM is important because it bridges the gap between theoretical knowledge and real-world application. By completing these modules, you gain practical experience that enhances your understanding of finance and makes you more attractive to employers. This practical training is crucial for developing the skills necessary to excel in your career.

The CFA Program has changed a lot recently. They switched to computer-based testing and updated the exam schedule. On 20th March 2023, the CFA Institute announced more changes to keep improving the program.

Understanding the Practical Skills Modules (PSM)

The Chartered Financial Analyst (CFA) exams have changed a lot since they started in 1963.

For those who don’t know, the CFA is a top qualification in finance. It has three levels, and each Level is known for being tough in its own way.

Why is it so well regarded?

Because each level has a huge amount of material to study and ends with a challenging 5-hour exam.

You either pass or fail each exam, and many people fail at least one level.

Only 35 – 45% of candidates appearing for CFA Level 1 pass the exam in the first attempt.

Historically, earning the CFA charter has brought not just personal satisfaction but also deep knowledge from completing the curriculum. It also serves as a mark of integrity in the investment profession, symbolized by the prestigious three letters: CFA.

However, there has been one historic drawback to completing the CFA Charter, The CFA curriculum has been criticized for being too theoretical.

While it is good that the curriculum covers the fundamentals of many financial topics in great detail, there has often been little focus on hands-on, technical applications.

However, in 2023, this changed completely.

This was the year the CFA Institute introduced Practical Skills Modules or PSMs for short.

The CFA Institute has described these new additions to each level (Levels 1, 2, and 3) with the following statement:

The CFA Program has been expanded to include practical, relevant skills training to provide candidates with on-the-job application of what they are learning in the curriculum. Practical Skills Modules are available for:

• Level 1 candidates: Beginning with the February 2024 exam
• Level 2 candidates: Beginning with the May 2024 exam
• Level 3 candidates: 2025 exams

But what skills do these PSMs offer? Let’s explore each of them in more detail.

CFA Level 1 PSM Modules

1: Financial Modelling

Financial modeling is an essential skill in finance, relevant to almost any role across the financial spectrum. Whether you’re involved in forecasting, valuating, analyzing financial statements, or making investment decisions, financial models are crucial tools. They help professionals create representations of a company’s financial performance, allowing for better decision-making and strategic planning.

Including financial modeling in the Practical Skills Modules (PSMs) is a significant enhancement to the CFA Program. It means that candidates will not only learn the theoretical aspects of finance but also gain practical, hands-on experience in building and using financial models. This practical training is invaluable as it prepares candidates for real-world scenarios they will encounter in their careers.

By mastering financial modeling, candidates can:

• Create detailed financial forecasts
• Evaluate investment opportunities more accurately
• Analyze the financial health of companies
• Make informed financial decisions

This addition to the CFA curriculum ensures that candidates are better equipped with the skills demanded by employers, making them more competitive in the job market.

The CFA Institute details the main goals for the modeling PSM:

• Learn best practices in financial modeling, including how to design effective models and analyze financial statements.
• Develop essential model schedules like revenue, costs, assets, taxes, working capital, debt, and equity.
• Master advanced Excel skills with expert guidance.
• Create a functional financial model in Excel ready for presentation.
• Solve typical financial modeling challenges.

Looking at the specific learning modules cover everything from beginner to advanced Excel skills. It’s worth pursuing if you want to excel in financial modeling.

Also Read – How are CFA And Financial Modeling Connected? Why Should You Study Both in the Same Course?

2: Python Programming Fundamentals

The second PSM available to Level 1 candidates is Python Programming Fundamentals.

This PSM taps into a crucial trend: the increasing use of coding languages in making investment decisions

Candidates will learn this essential skill using Jupyter. The key Learning Objectives include:

• Master Python fundamentals such as variables, data types, loops, functions, and conditional statements.
• Learn how to use Jupyter Notebooks for developing, presenting, and sharing data science projects.
• Utilise key Python libraries like Pandas for data wrangling and analysis, Matplotlib and Seaborn for data visualization, and Plotly Express for interactive visualizations tailored to financial contexts.
• Apply Python for advanced finance tasks including portfolio optimization, Monte Carlo simulations, and calculating portfolio returns, risks, and Sharpe ratios.
• Access real-world financial data using Pandas Datareader and the Yahoo Finance API in Python.

This PSM is particularly beneficial for finance professionals aiming to integrate data analysis and coding into their decision-making processes. It equips candidates with practical skills to effectively analyze financial data, optimize portfolios, and make informed investment decisions using Python.

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CFA Level 2 PSM Modules

Moving on to the Level 2 modules, which will debut with the May 2024 exams.

At Level 2, there are three Practical Skills Modules (PSMs) available. One of these is the Python Fundamentals PSM, which we’ve already discussed and covers the same content as the Level 1 PSM.

However, Level 2 introduces two new PSMs. They are:

1: Analyst Skills

This module is an excellent choice for aspiring equity research analysts, focusing on the essentials of effective stock picking.

This module aligns closely with the CFA curriculum and is essential for those aiming to become brokers or equity analysts.

Learning Objectives:

• EPIC™ Framework: Identify materiality threshold, investment time horizon, forecasting ability, and consensus forecasting ability for stock analysis.
• ASPIRE™ Framework: Generate unique insights and improve forecast accuracy for critical stock factors.
• SHARE™ Framework: Develop precise price targets for stocks.
• TIER™ Framework: Create accurate stock recommendations.
• ENTER™ and ADViCE™ Frameworks: Persuasively advocate for stock recommendations.
• Enhance productivity through efficient time and information management.

This module provides valuable opportunities for both buy-side and sell-side equity analysts to sharpen their skills effectively.

2: Python, Data Science & AI

This Practical Skills Module (PSM) focuses on developing, presenting, and sharing data science and artificial intelligence (AI) projects, distinct from the Python Fundamentals module.

This module emphasizes the data-driven aspects of investment, delving into data analysis, visualization, and presentation rather than purely coding fundamentals.

Utilizing Jupyter Notebooks as its platform, this PSM aims to provide a comprehensive understanding of AI and data science applications in investment.

Learning Objectives:

• Use Jupyter Notebook for developing, presenting, and sharing data science and AI projects.
• Train and evaluate feedforward and recurrent artificial neural networks for regression and classification problems.
• Explore the theory, intuition, and mathematics behind artificial neural networks and deep learning.
• Evaluate machine learning models using key performance indicators (KPIs) for regression and classification tasks.
• Master techniques for feature engineering and data cleaning crucial for machine learning and data science.
• Utilize the scikit-learn library to build, train, and test machine-learning models with real-world datasets.

These additional PSMs, along with the Python Fundamentals module, complete the Level 2 modules, offering comprehensive skills development in Python programming, data science, and AI for investment professionals.

Also Read – Breaking Down the Cost of CFA in 2024 + Essential Budgeting Tips

CFA Level 3 PSM Modules

There are at total of 5 PSM Modules in CFA Level 3, four of them being – Financial modeling, Python Programming Fundamentals, Python, Data Science & AI & Analyst Skills,

While the details are still forthcoming, recent information from a CFA Institute webinar reveals exciting news for CFA Level 3 candidates preparing for the February 2025 exams: the introduction of the ‘Portfolio Construction’ Practical Skills Module (PSM).

Though specifics are currently limited, this PSM is anticipated to cover skills such as:

• Selecting asset classes and determining allocations.
• Evaluating client investment objectives and time horizons.
• Analyzing market trends to inform portfolio decisions.
• Creating balanced and optimal portfolio structures.

Further details about the Portfolio Construction PSM will be unveiled soon, offering candidates practical applications to bridge theoretical knowledge with real-world investment scenarios.

A Practical Skills Module (PSM) utilizes videos, multiple-choice questions, guided practice sessions, and case studies to enhance your practical skills. To obtain your exam result, completing at least one PSM at each Level 1s mandatory. You have the flexibility to start your PSM topic at any time after registration. Each PSM typically requires 10-20 hours to finish. For more information, please refer to the PSM Policy for comprehensive details.

To receive your exam result in the CFA Program, completing at least one Practical Skills Module (PSM) at each Level 1s mandatory. You can select your PSM topic after registration and must complete it before exam results are released. Each PSM typically requires 10-15 hours to finish.

If you fail to complete a PSM by the result release date, your exam outcome will be voided, and you will not receive a pass or fail result. To continue your progress in the CFA Program, you will need to register again, pay all applicable fees, and retake the exam at the same level.

Starting from the February 2024 exam for Level 1 candidates and the May 2024 exam for Level 2 candidates, Practical Skills Modules will become a requirement. Level 3 candidates will need to complete PSMs starting with the 2025 exams.

Also Read – CFA Scholarships – Types, Eligibility & Application Process

Explanation of the Flexibility in Changing the Selected PSM

Completing a Practical Skills Module (PSM) at each exam level holds significant importance in the CFA Program. These modules provide practical, hands-on experience that complements the theoretical knowledge gained from the traditional curriculum. By engaging with PSMs, candidates develop skills directly applicable to real-world scenarios in the finance industry, enhancing their readiness for professional challenges.

Steps to Request a Change in the Chosen PSM

Candidates have the opportunity to complete multiple Practical Skills Modules (PSMs) at each exam level, offering a chance to broaden their knowledge across various topics relevant to their career aspirations. You can stop pursuing a particular PSM Module at any given point in time. The CFA Institute requires you to complete 1 PSM Module only, so if you start a PSM Module today, decide to stop it after a few weeks and switch to another module, make sure you finish the other CFA PSM Module.

Clarification on the Requirement for Candidates Pursuing the CFA Charter on or after January 1, 2024

Candidates have the option to complete additional PSMs beyond the mandatory one. These supplementary PSMs cover various topics relevant to each exam level, offering candidates the opportunity to expand their knowledge and gain practical skills essential for success in the investment industry.

How to Choose the Right PSM?

Choosing the right Practical Skills Module (PSM) is crucial for enhancing your skills and advancing in the CFA Program. Consider the following factors when making your decision:

• Interests: Select a PSM that aligns with your interests in finance and the specific areas of expertise you wish to develop.
• Needs: Assess your current skill set and identify areas where you need improvement or additional knowledge.
• Career Goals: Choose a PSM that supports your career aspirations, whether you aim to specialize in financial modeling, data analysis, or other aspects of finance.

When deciding on a PSM:

• Choose a module that resonates with your interests in finance and technology.
• Consider which skills are most beneficial to your current role or desired career path.
• Align your choice with your long-term career objectives, aiming to acquire skills that will make you more competitive in the finance industry.

Selecting the right PSM will not only enhance your understanding and application of finance concepts but also prepare you for real-world challenges in your professional journey.

Also Read – CFA Jobs & Salaries In India After CFA Level 1, Level 2 & Level 3

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Choosing the right Practical Skills Module (PSM) is important for CFA candidates. Each PSM provides specific skills that are valuable for your career in finance. It’s crucial to pick a PSM that matches your interests and career goals. This decision helps you prepare effectively for the CFA exams and builds skills that are relevant in the finance industry.

FAQs

Q. Is the Practical Skills Module (PSM) mandatory for the CFA Program?

Yes, starting in 2024, the Practical Skills Module (PSM) is mandatory for the CFA Program. While PSMs are not graded themselves, candidates must complete at least one PSM at each exam level (Levels 1 and 2). Your exam results will not be released until the mandatory PSM is completed.

Q. Can I Change the Chosen PSM After Submission?

Candidates have the option to complete additional PSMs beyond the mandatory one. These supplementary PSMs cover various topics relevant to each exam level, offering candidates the opportunity to expand their knowledge and gain practical skills essential for success in the investment industry.

Q. What are the benefits of completing the Practical Skills Modules (PSMs)?

Completing PSMs enhances practical skills alongside theoretical knowledge, preparing candidates for real-world applications in finance. They provide hands-on experience in areas like financial modeling, Python programming, and data analysis, crucial for career advancement.

Q. Are the PSMs graded?

No, PSMs are not graded. However, completion of at least one PSM per exam level is required to receive your exam results.

Q. How long does it take to complete a PSM?

Each PSM typically takes between 10 to 15 hours to complete, depending on the complexity of the module and individual learning pace.

Q. Can I take multiple PSMs for the same exam level?

Yes, candidates have the option to complete multiple PSMs for the same exam level. This allows them to broaden their knowledge across different topics relevant to their career aspirations.

Q. Are the PSMs included in the CFA exam registration fee?

No, PSMs are separate from the CFA exam registration fee. Candidates need to enroll separately for each PSM they wish to complete.

Q. Are CFA PSM modules compulsory to pass the exams?

Yes, starting from 2024, completion of at least one PSM per exam level is mandatory to receive your exam results. If a candidate fails to complete the required PSM, their exam result will not be released.