There are many professional designations in the financial arena. Two of the most well-known are the CFA and CFP. Both are widely recognized and respected financial credentials, but the education and experience associated with each one is a bit different.
If a financial advisor that you are considering working with has either or both credentials, it's important to understand what each one represents.
What is a financial advisor and what do they do?
Financial advisors have expertise across a range of financial areas including financial planning, retirement planning, investments, tax planning, estate planning, insurance and others. Some financial advisors may have specialized niches such as working primarily with clients who are doctors, educators, small business owners and a host of other niches. Others have practices that are more general.
Regardless of any niche or specialty, financial advisors are focused on helping their clients achieve their financial goals.
What is a Certified Financial Planner (CFP)?
The CFP designation is administered by the Certified Financial Planner Board of Standards, Inc. The CFP Board sets the standards for CFP certificate holders including the education requirements and any disciplinary actions taken.
In order to attain the CFP designation there is an exam that must be passed and there are work experience requirements. These experience requirements can be fulfilled before or after sitting for the CFP exam. These requirements include either completing 6,000 work hours of professional experience in an area related to the financial planning process or 4,000 hours of apprenticeship experience that meets requirements set by the CFP Board.
Prior to sitting for the exam, there are coursework requirements covering a number of topics, including:
- Professional conduct and regulation
- General principles of financial planning
- Risk management and insurance planning
- Investment planning
- Tax planning
- Retirement savings and income planning
- Estate planning
- Psychology of financial planning
- Financial plan development
The exam is a rigorous two part exam taken over a two day period. Beyond the exam there are ongoing continuing education requirements that must be fulfilled in order to maintain the advisor’s status as a CFP certificate holder in good standing.
The CFP Board also has an ethics requirement for CFP designation holders. This requirement includes a requirement that CFP professionals act in a fiduciary manner when dealing with their clients, always putting the client’s interests first.
CFPs will typically work under the umbrella of a Registered Investment Advisor (RIA) firm, including their own firm, a broker-dealer, a bank or inside of a CPA firm. They help their clients in a variety of ways including:
- Financial planning
- Retirement planning
- Estate planning
- Tax planning
CFPs might work with clients on an ongoing basis or on a one-time basis to prepare a financial plan or deal with a specific financial planning issue that they might have.
What is a Chartered Financial Analyst (CFA)?
The CFA designation is granted and administered globally by the U.S.-based CFA Institute. The CFA training and coursework provides a strong understanding of advanced investment analysis and real world portfolio management skills. Some have likened obtaining the CFA designation to getting a graduate degree in investing.
In order to obtain the CFA designation, candidates must pass three exams that cover an array of financial topics including money management, accounting, securities analysis and a number of others. The initial pass rate on each of these exams is below 50%.
While CFP professionals generally focus on providing financial planning and wealth management advice to individual clients, CFA holders often focus on investment analysis for institutions, money management firms and corporations.
CFA vs. CFP: What's the difference?
According to the CFA Institute, the two most common occupations for a CFA charter holder are portfolio manager and investment research analyst. Common roles for a CFP designation holder are financial planner, wealth manager and financial advisor.
This chart provides a comparison of the two designations.
Areas of focus
Education/experience requirements and exams
Bachelor’s degree or equivalent is required.
In order to attain the CFA designation, candidates must pass three six hour exams covering topics including economics, corporate finance, equity investment strategies, quantitative analysis, financial reporting and financial analysis.
On average, a CFA charter holder studies for about 1,000 hours to pass these exams and has four years of related work experience.
Bachelor’s degree is required.
Financial planning course work must be completed by candidates.
Must pass two exams that focus on topics including financial planning, taxes, insurance and estate planning, retirement planning, investments and a number of other topics.
CFP holders must also fulfill the experience requirement of either 6,000 hours of work in a financial planning related area or 4,000 hours in an approved apprenticeship role in the industry.
Other financial advisor credentials
Beyond the CFA and CFP designations, there are a number of other financial designations that financial professionals serving clients might hold. These include:
Certified Public Accountant (CPA)
This is a common designation among accountants and tax preparers. The designation is offered and administered by the American Institute of Certified Public Accountants (AICPA). In order to attain this designation, the Uniform CPA exam must be passed and the candidate must have at least two years of relevant experience.
CPAs are most often associated with accounting and tax work, but many have added financial planning and investment services to their practices. It is not uncommon for a CPA to also have the CFP designation or the PFS designation in addition to being a CPA.
Personal Financial Specialist (PFS)
The PFS designation is personal finance certification for CPAs that allows them to demonstrate their expertise in areas like personal financial planning and wealth management. It is offered by the AICPA.
PFS candidates study areas such as estate planning, retirement planning, investing, insurance and other areas of personal financial planning. Candidates for the PFS designation must be licensed CPAs and satisfy other requirements before earning the designation. There are also experience requirements to earn the designation, as well as an exam that must be passed.
The combination of the CPA and PFS designation can be a solid combination for CPAs looking to expand their accounting and tax practices in financial planning and wealth management.
Chartered Financial Consultant (ChFC)
The ChFC designation is administered by the American College and is an advanced financial planning designation. The ChFC program consists of eight courses each capped off by an exam consisting of 100 – 150 questions each. Much of the course work can also serve to satisfy continuing education requirements for the CFP designation.
In terms of the topics covered and the knowledge base required to earn the ChFC and the CFP, there are a lot of similarities. Holders of either or both designation are knowledgeable and the advanced training is a plus in helping clients achieve their financial goals.
One difference is that the CFP Board requires that CFP certificate holders act in a fiduciary capacity towards their clients. This is not a requirement given by the American College regarding holders of ChFC designation.
Chartered Retirement Planning Counselor (CRPC)
The CRPC is a graduate level designation administered by the College for Financial Planning. Holders of the CFP designation generally advise their clients in all phases of financial planning. The CRPC designation is focused on advising clients specifically on retirement planning.
Coursework for the designation must be completed within one year of enrollment in the program. The program is topped off with a final exam at the end of the program.
Chartered Alternative Investment Analyst (CAIA)
The CAIA designation is aimed at financial advisors who sell, manage, analyze or regulate alternative investments of all types. The certification is administered and issued by the Chartered Alternative Investment Analyst Association. A bachelor’s degree and one year of financial industry experience are required to sit for the exam. Alternatively, a candidate can have four years of industry experience.
The CAIA is a more specialized designation than the others described above but can be useful in working with clients who have an interest in these types of investments.
Both the CFA and CFP are widely respected professional designations and demonstrate a desire on the part of the designation holder to increase their knowledge and training in the financial services space. The same can be said of all of the designations mentioned above as well.
Designations and training are something to consider when looking for a financial advisor to serve your financial advice needs. However, this is just one aspect to consider. Be sure to understand the advisor’s experience in the industry, the types of clients they work with and how they are compensated for their services.