The Financial Industry Regulatory Authority, FINRA, lists more than 200 professional designations in use within the financial services industry. If that weren't daunting enough, 121 of them begin with the letter C. It's a convoluted conglomeration of certifications, to say the least.
Two of the most common and most commonly confused financial certifications are the chartered financial analyst, a CFA and the certified financial planner, known as a CFP. While they may be similar-sounding acronyms, the CFA and CFP are two very different designations.
The primary difference between a CFA and CFP is in who they work with and the type of work they do.
A CFA often works with corporate clients on the investment analysis side, while a CFP works with individual investors in building a financial plan. That said, there is a lot more that separates a CFA from a CFP, and knowing the difference between a CFA and CFP is important for financial advisors considering which certification to get as well as individual investors looking for a financial advisor.
What is the CFA certification?
The chartered financial analyst designation is a global certification administered by the U.S.-based CFA Institute. The institute says it designed the CFA program to give participants a "strong understanding of advanced investment analysis and real-world portfolio management skills."
The CFA "is usually compared to obtaining a post-graduate degree in finance and investing, like law school or med school for investors," says Aaron Leaman, a chartered financial analyst and principal and chief investment officer at Signature Financial Planning.
While there are a number of career paths CFAs can take, they're more likely to be focused on investment management and all the research that entails. The most common job titles for CFAs include portfolio manager, research analyst and risk manager, according to the institute.
"CFAs are most likely to work on the buy-side in large-scale corporate situations such as mutual funds, hedge funds and large investment firms," says Corbin Blackwell, a certified financial planner at Betterment. "Their day-to-day duties typically include actively managing portfolios, researching equities, and buying large portions of securities."
To become a CFA charterholder, you must:
- Have or be about to complete a bachelor's degree, or have an equivalent combination of full-time work experience and/or higher education.
- Have an international travel passport so you can enroll in the CFA exam.
- Pass the three CFA exams.
"The CFA exams are legendarily among the most difficult tests that anyone can take on any topic," Leaman says. They are three six-hour exams taken separately and sequentially. Level I is offered in June and December of each year. Levels II and III are available only in June.
"The fastest anyone can complete the process is 18 months, with most people requiring two or three years," Leaman says. This is in part due to the fact that many don't pass on their first attempt.
The average pass rate ranges from 41% to 53% on the various levels, according to the CFA Institute. "That means that over half the people who take the test each year fail, and therefore must wait a full year to try again," Leaman says.
The CFA Institute doesn't offer any formal CFA exam study programs, either.
"They simply send out the books, which are typically in the range of 4,000 to 5,000 pages in December, and test-takers are expected to show up in June ready to take the exam," Leaman says. To pass the CFA exams, he says "strong math skills, the ability to retain and recall vast amounts of information and the self-discipline to study" independently are all necessary.
What is the CFP certification?
The CFP is a professional designation for financial planners administered by the nonprofit CFP Board. It focuses on more holistic financial planning as opposed to the investment management focus of the CFA. In addition to investments, the CFP exam covers savings, income planning, risk management, insurance, taxes and estate planning.
Most CFPs "help individuals, couples, and families prepare their financial futures," Blackwell says. This could mean saving for retirement, buying a home, starting a college fund or any number of financial goals. As such, a CFP's day-to-day duties would be as varied as their clients.
"For example, one client might need investment management advice, while another client may need help with estate planning, and another client might require a mixture of personal cash flow management, tax planning, and insurance advice," Blackwell says.
CFPs typically work for a registered investment advisor (RIA), brokerage firm, retail bank or start their own financial planning practice, Blackwell says.
Like the CFA, there are extensive requirements to become a CFP. In addition to an education and work experience requirement, CFP applicants must pass the CFP exam. This is a 170 multiple-choice question test taken in two three-hour sessions. The pass rate for the CFP exam hovers around 60%. Unlike the CFA, the CFP exam is offered regularly, so if you don't pass the first time, you can retake it fairly quickly. But be warned: There's a lifetime maximum of five attempts.
CFA versus CFP: What's the difference?
While both have steep education and examination requirements, there are stark differences between the CFA and CFP:
- The CFA focuses on investment management while the CFP is designed around holistic financial planning.
- The CFA exam covers topics such as quantitative methods, economics, financial reporting and analysis, corporate finance and complex equity investing strategies. The CFP exam covers topics such as general financial planning, education planning, risk management and insurance planning, retirement savings and income planning and estate planning. Both place a strong emphasis on ethics.
- CFPs typically work with individual clients and their financial plans while CFAs often work at larger corporations on the research or analysis side. "With that said, lots of CFAs meet and work with clients and their plans all the time and many CFPs do an excellent job creating and managing investment portfolios for their clients," Leaman says.
- CFAs are typically involved directly in the trading of assets like commodities, currencies and derivatives; while CFPs will often outsource day-to-day trading to investment or portfolio managers so they can focus on building a financial plan for their clients.
- CFPs "benefit from strong people skills and the ability to know a little bit about a lot of different topics," Leaman says. CFA seekers are better equipped with a more analytical mindset and a fondness for math.
Ultimately, the easiest way to understand the difference between CFAs and CFPs may be through the perspectives of the certification holders themselves, Leaman says: "CFAs all think – probably correctly – that they're smarter than everyone else. CFPs all think – again probably correctly – that they're more compassionate and client-focused than everyone else."
For investors looking for a financial advisor, all of these things are valuable. "So in the end, clients can't really go wrong either way," he says.
Other financial advisor credentials
While the CFA and CFP are two of the most recognized financial advisor credentials, they are just the tip of the credentialing iceberg. Other common credentials financial advisors can obtain include:
- Certified public accountant (CPA)
- Chartered financial consultant (ChFC)
- Chartered alternative investment analyst (CAIA)
- Chartered retirement planning counselor (CRPC)
Certified public accountant (CPA)
A CPA is the designation obtained by accounting professionals and tax advisors. It is administered by the American Institute of CPAs, known as the AICPA.
To become a CPA, you must complete your state’s education and experience requirements as well as pass the CPA exam, which involves four four-hour tests within 18 months. Some states also require passing an ethics exam.
While not directly tied to investment management, getting your CPA can help financial advisors broaden the scope of their business by demonstrating knowledge of tax accounting principles.
Chartered financial consultant (ChFC)
Administered by The American College, the eight-course, self-study ChFC program is designed to address challenges faced by practicing financial advisors and teach real-world financial planning strategies. Each course is capped off with a final exam that must be taken at a Pearson Vue testing center. The exams range from 100 to 150 multiple choice questions to be taken within a two- to four-hour time limit.
As a bonus, the first seven ChFC courses also fulfill the CFP education requirement.
In addition to completing the ChFC course, to become a ChFC you must have at least three years of full-time experience.
Chartered alternative investment analyst (CAIA)
The CAIA is a global certification for financial professionals who manage, analyze, sell or regulate alternative investments. It's issued by the Chartered Alternative Investment Analyst Association.
To become a CAIA charterholder, you must have your bachelor’s or an equivalent degree plus more than one year of financial industry experience or have four years of industry experience. You’ll then need to complete a self-study program and two CAIA exams.
Chartered retirement planning counselor (CRPC)
The CRPC designation is a graduate-level certification administered by the College for Financial Planning. While CFPs advise clients on all stages of their lives, CRPCs focus on providing retirement planning guidance.
The CRPC coursework can be taken on your own or through a live-streamed online course. In either case, you must complete it within one year of your enrollment date. You are also required to test at least once every six months during your studies to demonstrate you’re making progress in your course.
The CRPC course is capped off with an 80-question, closed-book final exam.
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