CFAs vs. CFPs
CFAs and CFPs are both highly respected financial professionals. But they’re not the same. Learn more about their differences.
With all the professional labels and certifications in the finance world, it can be hard to know which ones are right for you. You’ll want to find a financial advisor who can put you on the track to reaching your goals.
Two designations you’ll often see are Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP). Though both are regarded as top-tier experts and have intersecting skills, they have their differences.
This article will provide some background on both CFAs and CFPs and outline their contrasts. We’ll also give you an insight into which one fits your needs.
What Is a Chartered Financial Analyst (CFA)?
CFAs specialize in investment analysis and portfolio management. They have training in several sophisticated areas of finance, including derivatives, statistics, alternative investment strategies, and more. They also uphold lofty professional and ethical standards and practice as fiduciaries.
To become a charterholder, candidates must complete a rigorous curriculum that runs the gamut of financial topics. They must also pass three exams (Levels I, II, and III). These have a reputation for being the hardest in the business, with average pass rates for all three tests falling below 50%. CFAs must also complete the following to gain their title:
- Earn a bachelor’s degree or equivalent from an accredited college or university (may also be in the final year of the bachelor’s program).
- Have an international travel passport.
- Accumulate 4,000 hours of valid work experience in investment decision-making.
- Have two to three professional references.
Because of the immense amount of time and effort CFAs put into earning their designation, they’re often known as the gold standard of financial professionals. According to the CFA Institute, there are more than 190,000 charterholders around the globe.
While CFAs may work as advisors, you can also often find them working within corporate entities performing tasks such as managing accounts, risk management, and analyzing investments.
What Is a Certified Financial Planner (CFP)?
CFPs earn a living helping people plan their short- and long-term financial future. Through the CFP Board, they pick up a well-rounded education that makes them experts in planning retirement, taxes, investments, estates, education, and more.
Certified planners agree to follow a highly structured and well-defined Code of Ethics and Standards of Professional Conduct. This ensures that they’ll act as fiduciaries, always placing your interests above theirs. It also details how they must handle themselves while working with clients, employees, and superiors.
Becoming a CFP requires the completion of four main requirements (often referred to as the “four E’s”):
- Education. Complete college-level coursework surrounding eight main topics, culminating in a capstone course where students create a financial plan, as well as earn a bachelor’s degree.
- Exam. Pass a six-hour, 170-question, multiple-choice exam, which includes all eight topic areas.
- Experience. Gather either 6,000 hours of financial planning-related work experience or 4,000 hours of apprenticeship under a CFP professional.
- Ethics. Sign a declaration to follow the Board’s Code of Ethics and Standards of Professional Conduct and undergo a background check.
Differences Between CFAs and CFPs
CFAs and CFPs are both reputable and competent financial experts that earn their roles from renowned organizations. They both work hard to go through a wide-ranging and difficult curriculum. And they also practice a fiduciary duty, upholding the highest level of trust and quality.
Despite all their similarities, however, the two designations have some distinct differences:
Areas of Focus
One of the main differences between CFAs and CFPs is their specializations. CFAs focus primarily on investment analysis and portfolio management. Their skillset makes them comfortable diving into the weeds, so to speak, and making data-informed predictions and measurements.
CFPs, on the other hand, provide holistic financial planning services. They work directly with individual clients and help them create comprehensive roadmaps relating to aspects like retirement, cash flow, estates, and even insurance. While they have a sweeping knowledge of the industry, it’s mainly in the scope of planning.
Types of Clients
The two also differ in the types of clients they attract. CFAs work either with individuals or within larger firms. Due to the in-demand, marketable skills charterholders hold, you’ll find them working as asset managers, research analysts, or investment managers at large financial institutions such as banks or investment firms. they may work in advisory roles but often do so for high-net-worth clients with larger portfolios.
CFPs, however, advise all kinds of clients. This includes people with high net worth, families, and regular folks.
Another way the two titles contrast is the process to receive certification. CFAs must go through a stacked curriculum that centers on subjects like economics, quantitative methods, and risk management, pass three challenging exams with low pass rates, and gather several thousand hours of experience. This is primarily why you’ll hear people discuss the designation as the equivalent of a doctorate or other postgraduate degree in finance.
The CFP program is almost as demanding but more straightforward. The CFP Board organizes the requirements into four categories. Like the CFA program, becoming a certified planner involves a tough curriculum and significant work experience. But it only includes one exam, as opposed to the three that CFAs must pass.
Both programs require a bachelor’s level of education and place a great deal of emphasis on ethical and professional standards.
Which Should You Hire?
Choosing between a CFA and CFP requires some thinking. Several factors could affect which one you decide to go with, including your needs, price range, and situation.
CFAs are good if you’re looking for a professional to help you manage your wealth or put together a portfolio. Specifically, as advisors, they typically work in investment management roles. But, because of their advanced skillset, they often only work with high-net-worth individuals.
You can also expect to pay quite a bit if you’re seeking a chartered analyst. Investment managers often use the assets under management (AUM) structure, where they charge you a certain percentage of the funds they must manage. They could also use a flat, hourly, or retainer structure.
CFPs are a better fit if you need help with several areas of your finances beyond your investment portfolio. As we’ve mentioned, they excel at analyzing the whole picture of your financial situation and then helping you hit your targets. Like CFAs, CFPs come at a premium. Expect to pay either an AUM, flat, hourly, or retainer structure.
For a more visual representation of the differences between the two designations, we’ve put together this comparison table:
|Chartered Financial Analysts (CFAs)
|Certified Financial Planners (CFPs)
|Typically focus on investment and portfolio management.
|Provides comprehensive financial planning services.
|Work with high-net-worth clients or larger firms.
|May work with wealthier clients, as well as regular people and families.
|Possess deep knowledge of investment analysis, quantitative methods, statistics, economics, and more.
|Hold a wide knowledge of several areas of personal finance, including taxes, retirement, estates, and insurance.
|Must pass three exams, learn advanced financial topics, and have a bachelor’s degree or equivalent.
|Must pass one exam, as well as an educational course of study.
|Have 4,000 hours of experience in investment decision-making before earning the designation.
|Have either 6,000 hours of personal work experience or 4,000 hours as an apprentice, both in the financial planning field.
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Frequently Asked Questions
Can someone hold both designations at the same time?
Yes, individuals can be a CFA while simultaneously holding a CFP certification. Since the two have different concentrations, earning both designations can make one an even more capable professional. People with both titles will have put in a ton of time and effort and have a larger repertoire than most financial professionals you’ll run into.
Is a CFA worth it as a personal financial advisor?
CFAs are very valuable if you need to manage a complex portfolio or situation. They have superior skills in all the difficult areas of finance and are often in high demand. If you see one available for the right price and your situation fits the bill, it may be worth it to consider one.
Do CFAs or CFPs follow ongoing professional development requirements?
While both typically continue learning after earning their designation, the two have different requirements. The CFP Board requires certified planners to collect 30 hours of continuing education every reporting period (two years).
Those with the CFA charter aren’t required to complete any ongoing professional requirements, but the CFA Institute says they encourage them “to record at least 20 credits” each year. The organization says this can help charterholders “stay current with changing practices and evolving industry demands.”
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