Differences between a Chartered Financial Analyst and a Certified Financial Planner

Certifications exist in many industries that show the level of proficiency of industry professionals. The finance sector also has quite a few including the Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP). These certifications obtained by financial advisors inform potential clients or employers that the one who possesses them has been formally educated in a particular kind of financial work.

To acquire a certification, the process may require candidates to have several experiences, prerequisite knowledge, or education. We’ll be taking a look at what differentiates these two certifications for you to know which is the best fit for you, whether you want to get certified yourself or you want to get the right financial advisor.

What Kind of Work Does a Financial Advisor do?

A financial advisor is a finance professional that provides financial services to clients like investment management and financial planning based on their financial situations. To be allowed to provide such advice to clients, some countries require that financial advisors must have completed certain training and be registered with a regulatory body.

Clients that they advise could be firms, groups or even individuals that require their services to achieve their financial goals. Some financial advisors may specialize in a particular financial topic, while others advise clients on numerous topics.Additionally, some financial advisors may work with only a specific clientele, like real estate agencies or professional actors and actresses. An example of specializing is a financial advisor who is also a certified public accountant (CPA) that offers services only on tax management.

With these certifications, financial advisors are able to display their skills and education in a noticeable, yet professional way. Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP) are two popular options that financial advisors strive to obtain. Let’s take a look at the differences between the two and what one needs to do to earn them.

What is a Chartered Financial Analyst (CFA)?

A chartered financial analyst is an internationally recognized professional designation given by the CFA Institute that measures and certifies the competency and integrity of financial analysts. Financial professionals with the CFA designation have proven expertise and skills in investment analysis, specific business concentrations, financial reporting, and portfolio management. To obtain this designation, one must have passed three levels of examinations in areas like money management, accounting, ethics, economics, and security analysis.

Currently (in 2021), there are over 178,000 active charter holders of the CFA, which is known to be one of the most respected designations in the finance sector. It is considered to be the gold standard for financial and investment analysis. The CFA Institute has nine offices around the world, alongside 156 local member societies.

A minimum of 300 hours of study is recommended for each of the three examinations in order to pass. A great amount of discipline and extensive studying is also required as it is one of the most difficult sets of financial certifications. Anyone that desires to become a charter holder must have fulfilled the prerequisites of having a bachelor’s degree, passing the three substantially difficult examinations, and must have at least four years of relevant professional experience.

Just about 43% of the candidates that take the first examination pass, 45% of them pass the second examination and about 56% pass the third examination. To enroll for this certification in 2021, a one-time fee of $450 is required.

Chartered financial analysts help clients make decisions on estate planning and insurance products, investments, and other short-term and long-term financial planning goals that are research-based and data-based. They specialize in accounting, credit analysis, financial planning, relationship and wealth management, trading, and auditing.

What is a Certified Financial Planner (CFP)?

A certified financial planner designation is given by the Certified Financial Planner Board of Standards, Inc. (CFP Board). It is a nonprofit that establishes and maintains standards for personal financial planning. Financial advisors or professionals that have obtained it are specialists in several areas of financial planning like insurance, tax and estate planning, and retirement.

Applicants must pass the examination administered by the CFP Board and must be dedicated to annual education programs that test and maintain their skills. Certified Financial Planners are held to high ethical standards and are obligated to make decisions that will protect the financial interests of their clients. They specialize in managing insurance, taxes, investments, retirement, and creating a financial plan.

What are the main differences between a Certified Financial Planner (CFP) and a Chartered Financial Analyst?

i. The most common occupations for a CFA are research analyst and portfolio manager, according to the CFA Institute. Chartered financial analysts focus on financial analytics. Those that are interested in asset allocation and investing usually seek out the services of a chartered financial analyst.

ii. CFPs specialize in financial planning. The most common occupations that they are found in are: wealth manager, financial planner, and financial advisor.

iii. The certified financial planner designation is the more popular of the two certifications for financial advisors, because it is more tailored to financial planning with individuals.

You can be sure that anyone that has either of these designations is capable enough to manage your finances properly. However, if you are looking to obtain either of them yourself, then the one you select depends on the type of work that you want to do.

General Requirements for Becoming a Chartered Financial Analyst

For you to obtain a CFA certification from the CFA Institute, you have to be a member of the CFA Society and pay membership dues annually. To be eligible for a CFA certification, you must have a bachelor’s degree, and at least four years of relevant professional work experience in an investment decision-making process. As earlier mentioned, you must also pass the three levels of examinations administered by the CFA Institute. Each of the three levels concentrate on different areas of finance and investment.

Examination 1: This level concentrates on investment tools and assesses basic knowledge of the candidate.

Examination 2: The second level of examination involves more complex analysis and concentrates on asset valuation.

Examination 3: The last level of examination concentrates on portfolio management.

The CFA certification is beneficial in the line of work that involves portfolio analysis and investments, so they usually tend to work in occupations that center on investing.

It should be noted that a popular inaccurate term for the meaning of CFA is ‘certified financial advisor’. This is wrong and does not in any way depict what the certification stands for, which is ‘chartered financial analyst’.

General Requirements for Becoming a Certified Financial Planner

The organization that administers the CFP certification is the Certified Financial Planner Board of Standards and just like the CFA certification program, candidates are required to have a certain educational background and work experience. In the case of CFP certification, you are required to have a bachelor’s degree and some college-level study in financial planning. Additionally, you need 6000 hours of experience with financial planning, or 4000 hours through an apprenticeship program.

The examination that is used to assess candidates is done in just one day during two three-hour sessions. The multiple choice examination utilizes real-life situations to determine a candidate’s aptitude to use general financial planning knowledge. When compared to the CFA certification, the CFP program is less stressful and shorter.

Comparing Other Designations with CFP and CFA

Apart from CFP and CFA designations, other certifications exist that financial advisors can obtain to bolster their resumes and use to serve their clients in several ways. A CFP lets clients know that you are certified in financial planning, while a CFA informs the client that you are able to provide services related to financial analysis for portfolio management and investments for both organisations and individuals. A lot of financial professionals have multiple designations that they use as a competitive advantage. Here are a couple of other certifications and how they aid your financial needs.

• i. Chartered Investment Counselor (CIC): A CIC holder has at least five years of experience at an Investment Adviser Association firm, where a great deal of their jobs is concentrated on portfolio management and investment counseling. They are experts with verified portfolio management and investment counseling skills that work with large portfolios and they must recertify every year.
• ii. Chartered Financial Consultant (ChFC): A financial advisor with this designation has completed coursework in financial education and must further their education by obtaining additional credits after getting the ChFC designation. It is possible that ChFCs can intersect with CFPs in financial planning services but their services are made more prominent in modern financial areas by being experts in employee benefits and estate planning.
• iii. Certified Public Accountant (CPA): Certified public accountants are well versed in their understanding of taxes and can help clients create optimized tax plans to reach retirement and investment goals. It is a common designation among accountants and lets you know that the holder has passed the Uniform CPA Examination and has at least two years of experience in public accounting.

Which one is for you?

Both CFA and CFP certifications verify that the holders are well trained and have a good understanding of how to handle the financial futures of clients properly. These certifications help to instill confidence in clients seeking help regarding financial planning and investments. For those that are pursuing a career in finance, it is beneficial to have at least one of these certifications, depending on the kind of work you want to do. CFPs usually concentrate on financial planning with individuals as clients, while CFAs focus on investing and financial analytics. Obtaining a CFA is longer and more rigorous than obtaining a CFP, so pick the one that works best for you.