What’s the Difference Between a CFP® and a CFA?
By Travis McShane, CFP®, CFA
Most professions have specific educational and experiential requirements before an individual can practice in a given field. These requirements exist to establish a minimum level of competency and to protect the public from individuals who have not received sufficient training.
The public is generally familiar with the rigorous process to become a physician or lawyer in this country—a process that requires many years of undergraduate and graduate work, a comprehensive examination process, adherence to a code of ethics, and requirements for continuing education to maintain a license to practice, among other rules.
If we hold the professionals who handle our health and legal matters to these high standards, then wouldn’t it be a good idea to extend these standards to the professionals helping with our financial matters?
The term “financial advisor” is unregulated, so there are no minimum educational or experiential requirements to complete before calling one’s self a financial advisor. This is unfortunate because it places a burden on the public to determine whether a given “financial advisor” is qualified to provide professional advice to them.
Because of this lack of industrywide regulation, several organizations have emerged over the years to establish educational, ethical, and experiential requirements to use their respective marks.
Two well-respected organizations in the finance industry providing professional certification are the CFP Board of Standards and the CFA Institute, which govern the CERTIFIED FINANCIAL PLANNER™ (CFP®) and Chartered Financial Analyst® (CFA®) marks respectively.
The requirements to become a CERTIFIED FINANCIAL PLANNER™ practitioner are as follows:
1. Meet the education requirement
a. Attain a bachelor’s degree or higher
b. Complete a CFP Board-registered course of study that includes training in:
i. Professional conduct and regulation
ii. General principles of financial planning
iii. Education planning
iv. Risk management and insurance planning
v. Investment planning
vi. Tax planning
vii. Retirement savings and income planning
viii. Estate planning
ix. Financial plan development
2. Pass the CFP® exam, which is a six-hour, one-day test designed to assess the ability to integrate and apply a broad base of financial planning knowledge in the context of real-life financial planning situations
3. Meet the experience requirement
a. Three years of full-time relevant personal financial planning experience, or
b. Two years of apprenticeship experience under the supervision of a CFP® professional
4. Meet the fitness standards
a. The CFP Board maintains additional standards that may bar applicants from admission (e.g., felonies)
Once these steps are satisfied, CERTIFIED FINANCIAL PLANNER™ professionals can hold themselves out to the public as financial planners qualified to provide professional financial advice to clients. To maintain the certification, a CFP® professional must complete 30 hours of CFP Board-registered continuing education programs every two years to stay up to date and advance their knowledge.
The requirements to become a CFA charterholder are as follows:
1. Enroll in the program and study the established curriculum, which covers:
a. Ethical and professional standards
b. Quantitative methods
c. Economics
d. Financial reporting and analysis
e. Corporate finance
f. Equity investments
g. Fixed income
h. Derivatives
i. Alternative investments
j. Portfolio management and wealth planning
2. Pass Level I, Level II, and Level III of the CFA exam
a. Level I is offered in June and December each year and has a historical pass rate of 42% (1963–2018 exams)
b. Level II is only offered in June and has a historical pass rate of 46% (1963–2018)
c. Level III is also only offered in June and has a historical pass rate of 57% (1963–2018)
3. Satisfy the work experience requirement by having four years of professional work experience in the investment decision-making process
In general, the CFP® program is focused on comprehensive, personal financial planning, and the CFA program delves deeper into investment strategy, security analysis, and valuation. Most CFP® professionals work directly with clients, providing advice and guidance daily, whereas the majority of CFA professionals work with investment firms, doing research and managing portfolios.
Both credentials require a considerable level of study and several years of experience to acquire, with the goal of improving the quality of advice being given to the public. At our Orange County financial planning firm, our advisory team’s credentials include both the CFP® and CFA designations, as well as the Master of Business Administration (MBA) degree.
If you’re interested in reading more about these programs, you can follow the links below:
CFP® program: https://www.cfp.net/become-a-cfp-professional/cfp-certification-requirements
CFA program: https://www.cfainstitute.org/programs/cfa
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