“Chartered financial analyst” (CFA) and “certified financial planner” (CFP) are common certifications for individuals working in finance, namely financial advisors. These are designed to tell a client (or employer) that the holder has received education in certain types of financial work. The certification processes require applicants to have different amounts of experience and education. Let’s go over what separates these two certifications so that you can choose the right one for you – regardless of whether you’re trying to find a financial advisor or you want to get certified yourself.
What Do Financial Advisors Do?
Financial advisors are experts in financial planning, investment management and other areas of financial services. They mainly help clients, which could be individuals, groups or other firms, achieve financial goals. Some financial advisors advise clients on a broad range of topics. Others will focus specifically on one financial topic or situation. For example, a financial advisor who’s also a certified public accountant (CPA) may focus on tax management. Some advisors also work with specific clients, like professional athletes or individuals creating estate plans.
In order to showcase their expertise in a tangible way, advisors may put in the work to receive advanced certifications. Two of the most common options are the chartered financial analyst (CFA) and certified financial planner (CFP) certifications. But what does it take to earn these titles, and how do they differ?
What Is a Chartered Financial Analyst (CFA)?
Financial professionals holding this charter designation have tested skills and expertise in portfolio management, investment analysis, financial reporting and specific business concentrations. With more than 178,000 active charter holders in 2021, this designation is globally recognized as a “gold standard” for financial analysis.
This designation is given by the CFA Institute, an international organization that specializes in certification programs for investment professionals. Candidates must pass three exams that cover a range of finance topics, including accounting, money management, security analysis, and others.
The institute says that candidates invest more than 300 hours of study to pass each of the three exams. Only 43% of those who take the first exam pass, while 45% and 56% pass the second and third exams respectively. In 2021, candidates pay a $450 one-time enrollment fee.
CFAs specialize in relationship and wealth management, credit analysis, trading, accounting, auditing and financial planning. They typically help clients make data- or research-based decisions on investments, estate planning and insurance product, among other short-term and long-term financial planning goals.
What Is a Certified Financial Planner (CFP)?
Financial professionals holding this designation are experts in different financial planning areas, including tax and estate planning, retirement and insurance.
The CFP designation is awarded by the Certified Financial Planner Board of Standards, Inc. (CFP Board), a nonprofit that sets and maintains standards for personal financial planning.
Candidates must pass the CFP Board exam and commit to ongoing annual education programs that test and maintain their skills and certification current.
CFPs generally help clients create a financial plan to manage investments, retirement, insurance and taxes. These professionals are held up to a high ethical standard and have a fiduciary obligation to make decisions that protect the financial interests of their clients.
CFA vs. CFP: What Are the Key Differences?
As we already covered, CFAs specialize in financial analytics. According to the CFA Institute, the two most common occupations for a CFA are portfolio manager and research analyst. Working with a CFA is common for people who want help with investing and asset allocation.
A CFP focuses on financial planning. Common occupations for CFPs include financial planner, wealth manager and financial advisor. While both of these certifications are common, CFP is the more common certification for a financial advisor because it is more tailored to financial planning with individuals.
If you’re looking for a financial advisor, you can be confident that someone with either of these certifications has gone through the work of understanding how to manage your finances. Inversely, if you want to bolster your resume with one of these certifications, the one you choose will depend on the kind of work that you want to do. You can learn more about the specific certification programs below.
General Requirements for Becoming a CFA
The CFA Institute administers the CFA certification program. In order to receive certification, you must become a member of the CFA Society and pay the annual membership dues.
Completing the CFA program requires that you have a bachelor’s degree (or an equivalent) and four years of professional work experience in an investment decision-making process. There are also three levels of exams that applicants must pass. Each level has a different focus and consists of multiple parts.
The first exam level tests basic knowledge and focuses on investment tools. The second level of exams focuses on asset valuation and emphasizes more complex analysis. Finally, the third set of exams focuses on portfolio management.
In general, CFA holders primarily work in occupations that center on investing. The certification is advantageous in occupations that relate to investing and portfolio analysis.
As a side note, “certified financial advisor” is a common misnomer for the CFA certification. Although this might sound like a logical title for a financial advisor designation, it is entirely inaccurate. So the next time you come across a CFA, remember that it stands for chartered financial analyst.
General Requirements for Becoming a CFP
The Certified Financial Planner Board of Standards oversees the CFP certification. Like the CFA program, applicants need to meet certain education and experience requirements. In order to earn the CFP, you need a bachelor’s degree and some college-level study in financial planning. Applicants must have 6,000 hours of experience with financial planning (or 4,000 hours through an apprenticeship program).
There is then an exam which takes place during two three-hour sessions on a single day. The multiple choice exam uses real-life situations to assess an applicant’s ability to use broad financial planning knowledge.
Overall, the CFP program is shorter and less-rigorous than the CFA program. If you think this could be the program for you, you can learn more about CFP certification requirements here.
How Do Other Designations Compare With CFA and CFP?
Financial advisors hold many designations that aim to serve clients in similar but different ways. As we cover earlier, a CFP can help you create a financial plan but others like a CFA can offer financial analysis for investments and portfolio management for individuals and corporations.
Many advisors have multiple designations, which allow them to specialize competitively in their focuses. Let’s take a look at other common certifications and how they can help with your financial needs:
- Chartered Financial Consultant (ChFC): Financial professionals holding this designation complete coursework in financial education. Like CFPs, they must further their education by earning additional credits after getting the ChFC designation. While ChFCs can overlap with CFPs in financial planning services, they can also stand out in modern financial areas as experts in estate planning for same-sex couples and employee benefits.
- Certified Public Accountant (CPA): This designation is common among tax preparers and accountants, and demonstrates that a financial professional has at least two years of public accounting experience and passed the Uniform CPA Exam. Advisors with this license can help clients optimize a tax plan to help reach investment and retirement goals.
- Chartered Investment Counselor (CIC): These financial professionals are high-level experts with proven investment counseling and portfolio management skills. CIC holders have at least five years of work experience at an Investment Adviser Association-member firm, where more than half of their job focuses on investment counseling and portfolio management. CICs are must re-certify annually and typically work with large portfolios.
CFA and CFP certifications are both common for financial advisors. For prospective clients, working with an advisor who has one or the other may not make a huge difference. Both certification programs teach applicants how to handle someone’s financial future.
If you are considering a career in finance and want to add a certification to your resume, then it’s worth figuring out exactly what you want to do. CFAs typically work more in the field of financial analytics and investing, while CFPs usually focus on financial planning with individual clients. Keep in mind that getting a CFA is also a longer process with more exams.
Tips for Finding a Financial Advisor
- Before working with a financial advisor, it’s a good idea to consider your goals and where you generally stand in regards to meeting them. Knowing what you already have can make it easier for an advisor to help you. SmartAsset’s financial advisor matching tool can help you find a financial advisor in your area. If you’re ready to be matched, get started now.
- We covered two common certifications in this article, but there are a number of others. For example, a CPA may be more helpful for tax planning and a chartered life underwriter (CLU) is probably your best choice for life insurance help. As you look around, be sure to check out this list of the top financial advisor certifications.
Photo credit: ©iStock.com/Portra, ©iStock.com/sanjeri, ©iStock.com/jacoblund