If you’re an investor shopping for a financial advisor, the dizzying array of credentials may seem daunting. You’ll frequently run into advisors who have earned the chartered financial analyst (CFA) and certified financial planner (CFP) certifications.
What do those credentials mean for you, as a client, and what do they tell you about the advisor’s expertise?
It’s easy to confuse the CFA and CFP designations, but they are different certifications with often different career paths, though some aspects may overlap.
The CFA designation is prevalent among portfolio managers, investment analysts and other professionals in asset management and finance. When you find an advisor with the CFA credential, that person may have begun his or her career at a fund management company or large financial institution, and later shifted over to the advisory business.
The CFP designation, on the other hand, was developed specifically for the investment advisory and financial planning industry. You’ll find more advisors with the CFP credential.
“Certified financial planners mainly help individual clients with their financial goals,” says Eric Croak, a certified financial planner at Croak Capital in Toledo, Ohio.
Here’s what you need to know, as a client, about the CFP and CFA designations:
— CFP or CFA?
— What is the CFP certification?
— What is the CFA designation?
— What do the credentials mean for an advisor?
— Alternative career paths for CFPs and CFAs.
CFP or CFA?
CFPs, Croak says, look at the client’s whole financial picture, which includes budgeting, taxes, pensions, investments and more, and create a detailed plan for their finances. CFPs often own or work at registered investment advisory (RIA) firms, although they can also work for larger investment firms or even fund management companies.
“Chartered financial analysts focus more on investment analysis and managing portfolios,” Croak says. “They usually work with big clients like investment firms, banks and big companies.”
A big part of a CFA’s job is thorough research and analysis to help institutional clients make investment decisions.
Zaneilia Harris, a certified financial planner at H&H Wealth Management in Upper Marlboro, Maryland, says she pursued the CFP credential to enhance the services she could offer to clients. “To do this, I had to take classes in investments, estate planning, insurance, taxation, retirement planning and financial planning before I could sit for the exam,” Harris said in an email.
She said it took her about two years to finish all the classes. Harris had already been working as a licensed advisor for a decade, so she had logged plenty of experience in the field.
What Is the CFP Certification?
The nonprofit CFP Board oversees the process to obtain the CFP credential. The CFP Board’s requirements include:
— In addition to completing the financial planning coursework through a Board-registered educational program, applicants must hold a bachelor’s degree or higher, in any discipline, from an accredited college or university.
— There’s a bit of wiggle room on the requirement for a bachelor’s degree, though: Aspiring CFPs have five years from the date they pass the CFP exam to complete the bachelor’s degree requirement.
— Applicants must complete all the coursework before sitting for the CFP exam.
— Applicants must pass a 170-question, multiple-choice test, administered in two three-hour sessions in one day.
— Those who pass the CFP exam must also meet experience requirements, which may consist of working directly in financial services in some capacity, or even as a financial instructor or financial journalist.
— The CFP Board has an ethics requirement. Those holding the credential must adhere to high ethical and professional standards for the practice of financial planning, and to act as a fiduciary when providing financial advice to clients.
As of mid-2023, the pass rate on the CFP exam stood at 67%, the highest in eight years.
What Is the CFA Designation?
The CFA Institute, a nonprofit like the CFP Board, administers the process of awarding CFA charters.
Requirements to earn the CFA designation include:
— Passing exams for three levels.
— Completing work experience requirements before, during or after participation in the CFA program.
— Experience must be directly involved with the investment decision-making process, or inform or add value to that process, such as being a research analyst.
— Submitting two or three professional references. References are asked to comment on the applicant’s work experience and professional character.
— CFA candidates must have or soon complete a bachelor’s degree.
— Applicants must have an international travel passport.
— The CFA exam process is notoriously difficult. According to the CFA Institute, in November 2023, the level one pass rate was 35%. In August 2023, the level two pass rate was 44%, and the level three pass rate was 47%.
What Do the Credentials Mean for an Advisor?
Clark Kendall, founder and CEO of Kendall Capital in Rockville, Maryland, holds both the CFA and CFP designations.
When describing the differences between the two, he says, “The simple answer is the CFP adds value helping clients determine if they have enough money to retire, should they pay off mortgage and debt first, should they contribute to retirement, 529, health savings account or taxable accounts.”
The CFA, he says, “adds value when determining the client asset allocation, taking into consideration interest rates, economic growth and valuation of various markets.”
Most importantly, Kendall added, the CFA helps the advisor determine all of these factors while taking into consideration the client’s age, health status and retirement income, as well as family circumstances, such as whether the client is married, single, or wants to pass assets to children or grandchildren.
It’s not uncommon to see overlap between the types of clients that CFPs or CFAs might work with. That’s particularly true at an RIA, where a CFA has made a career shift to working directly with retail clients and perhaps added the CFP designation to his or her credentials.
In general, says Brandon Renfro, a certified financial planner at Belonging Wealth Management in Longview, Texas, “The CFA charter is focused on investments and covers accounting and economics as they relate to investments and investment management.”
In an email, Renfro adds, “The CFP, on the other hand, is a broad financial planning credential. Although it addresses investments, it doesn’t dig as deeply into technical aspects but approaches it from the perspective of how investments fit within a personal financial plan.”
Alternative Career Paths for CFPs and CFAs
CFPs who aren’t currently licensed as financial advisors or planners can use their credentials, as well as their knowledge and experience, in other ways. For example, CFPs can work as financial educators or writers.
The same is true for CFAs, some of whom leave the field of asset management and become educators or financial newsletter writers.
In both cases, it’s not necessary to have current securities licenses to continue using the professional designation.
“As a CFP professional, even though I’m not actively advising clients at the moment, I still find great value in keeping my CFP designation,” says Jeff Rose, founder of Good Financial Cents.
Good Financial Cents is not an RIA, but instead is an online company that teaches people actionable wealth-building strategies. Previously, Rose was an RIA owner.
Rose says the CFP credential solidifies his reputation as an expert in the field, but it’s also a source of personal pride for him.
“It stands as a testament to my hard work and dedication, especially since it was the most challenging exam I’ve ever faced and required the longest study period I’ve ever committed to,” he says. “It’s more than just a title; it’s a symbol of my commitment and expertise in financial planning.”
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CFP vs. CFA: What’s the Difference? originally appeared on usnews.com
Update 01/18/24: This story was previously published at an earlier date and has been updated with new information.
