Whether you're searching for a good career path or just curious about the different financial credentials, this article will help guide you through three of the best known professional designations in the financial industry: Certified Public Accountant (CPA), Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP®). Each of these three has a core career focus, and although their abbreviations often sound interchangeable, each designation gives you something unique. Follow along to discover how much coursework and study each designation requires, what careers they typically lead to and how much you could make.
Certified Public Accountant (CPA)
For most people, a CPA is best known as the person who prepares tax returns. CPAs certainly do that, but they do much more as well. A CPA license is legally required in order to do particular jobs, such as public accounting (independent auditing). However, one does not require a CPA license in order to prepare tax returns. State laws govern what CPAs can and cannot do with their license.
Requirements vary by state, but in general, in order to sit for the CPA exam, applicants must have a bachelor's degree with 120 semester hours. To obtain the CPA designation, applicants must pass the Uniform CPA Exam, gain relevant work experience and meet additional educational requirements. Overall, additional educational requirements usually consist of 24 to 30 semester hours in accounting, earned through a graduate or bachelor's degree in business. Many states also require a minimum number of one to two years accounting and/or auditing experience. Some states may require 150 semester hours to obtain the CPA.
Aside from the experience requirements, a CPA license usually takes about 18 months to complete beyond the educational requirements. Many students choose to pursue a masters degree in accounting to fulfill their educational requirements.
Although classroom requirements are a major requirement, the CPA exam is a difficult task in its own right. Exams are administrated by the American Institute of Certified Public Accountants, the governing body of CPAs in the United States. The 14-hour computerized exam consists of four sections:
- Auditing and attestation
- Financial accounting and reporting
- Business environment and concepts
Many undergraduate accounting students receive job offers long before they graduate. Accounting is an in-demand field and is projected to continue to be so. According to the U.S. Bureau of Labor Statistics, employment is projected to grow 18% between 2006 and 2016; this amounts to nearly 226,000 new positions. For CPAs wishing to advance to senior-level corporate positions, two to three years of experience at a major accounting firm is crucial.
For those seeking gainful employment but not wishing to climb the corporate ladder, there are numerous positions available in every city for accountants at small accounting firms and practices. For more ambitious job seekers, lucrative CPA positions are available in hedge fund accounting and Sarbanes-Oxley-related work. The chief requirements for these positions are experience and an excellent educational background.
Chartered Financial Analyst (CFA)
The CFA reputation in the business community is world class, and CFA charterholders work in many countries around the world. The CFA program is very broad, and might be more aptly described as the equivalent of a master's degree in finance with accompanying minors in accounting, economics, statistical analysis and portfolio management. Although the CFA designation is not a legal requirement to perform work as a financial analyst (the cornerstone CFA job), it is a great way to get a foot in the door for one of the most difficult jobs to crack.
By reputation, the best way to get a finance job on Wall Street is to get a Master of Business Administration degree from one of a handful of exclusive schools including Wharton, Harvard and Stanford. The second best way is to earn the CFA charter and have good industry experience. In some instances a CFA designation is even held in higher esteem than an MBA.
The CFA designation (granted by the CFA Institute) earns its reputation mainly due to the grueling process candidates must endure to earn the CFA charter. While the exam is very democratic and open to anyone with a bachelor's degree, the only people with a realistic chance of passing are those who are serious about the field. The three general requirements to earn a CFA charter are to pass three exams, have an undergraduate degree (in any subject) and have three years related work experience in the financial area.
To earn the CFA charter, candidates must pass a six-hour exam for each of three levels. The first exam is available twice per year (in June and December) and the next two are only available in June. The pass rates on the three tests are typically less than 55%, so if you don't pass the second or third exam, you must wait one year to take it again.
Each of the three tests has overlapping material such as ethics and financial analysis. Generally, though, the first test covers broad financial principles, the second is a very intensive exam on financial analysis and accounting, and the third exam covers portfolio management and decision making.
According to the CFA Institute, 49% of charterholders work for institutional investors as in-house analysts, 16% work for broker-dealers, and the remaining 29% work for universities, the government and other areas. While not nearly as numerous as CPA jobs, CFA-related jobs are perhaps more lucrative. CFA Institute's 2011 Member Compensation Survey reports that the median compensation for an equity portfolio manager is $215,000, with business development officers topping the ranks with a median of $350,000.
Certified Financial Planner (CFP®)
The Certified Financial Planner (CFP®) is the only designation of the three focused on investing. It provides an extremely practical course of study for those wishing to work directly with individual investors. The focus of the CFP® is to train financial advisors to create and implement financial plans for investors.
Requirements and Exam
The requirements for the CFP®, as specified by the CFP® Board of Standards, are a bachelor's degree in any major, three years financial planning experience, other educational requirements (see below) and an exam. The 10-hour exam covers the following: investments planning, insurance, estate planning, risk management, tax and retirement planning.
In order to take the exam, one must complete a prescribed course of study - unless exempt - in relevant financial planning areas. These six required courses take about nine months to complete and are conducted on college campuses nationally. They are:
- Financial planning: process and environment
- Fundamentals of insurance planning
- Income taxation
- Planning for retirement needs
- Fundamentals of estate planning
People who benefit the most from the CFP® designation are those who usually work directly with individual clients. Opportunities exist nationally for people with the CFP®, but it is not necessarily a key to a high-paying job, as opposed to the CPA designation. There is no typical salary with the CFP®, as it helps gain client credibility in what is essentially an entrepreneurial position. Income potential is determined by the sales performance of the financial consultant, not by a salary scale.
The Bottom Line
Of the three designations, only the CPA is governed by state laws (to protect the public interest). In choosing a designation to pursue, ask yourself what kind of work you want to do, where you want to work, and if you want to work as an employee with a guaranteed salary or an entrepreneur where the sky (and the basement) is the limit. No matter which you choose, each of these three financial designations will provide ample professional opportunities for those who spend the time and energy to earn them.