What are the differences between a Chartered Financial Analyst (CFA) and a Certified Financial Planner (CFP)?
The differences between a Chartered Financial Analyst (CFA) and a Certified Financial Planner (CFP) are many, but comes down to the fact that a CFP works with individual clients to achieve their personal financial goals while a CFA focuses on investing in large-scale corporate situations.
Certified Financial Planner
A CFP helps individuals plan their financial futures. CFPs are not focused only on investments; they help their clients achieve specific long-term financial goals, such as saving for retirement, buying a house or starting a college fund for their children.
To become a CFP, a person must complete a course of study and then pass a two-day examination. The exam covers wealth management, tax planning, insurance, retirement planning, estate planning and other basic personal finance topics. These topics are all important for someone seeking to help clients achieve financial goals.
Chartered Financial Analyst
A CFA, on the other hand, conducts investing in larger settings, normally for large investment firms on both the buy and sell side, mutual funds or hedge funds. CFAs can also provide internal financial analysis for corporations that are not in the investment industry. While a CFP focuses on wealth management and planning for individual clients, a CFA focuses on wealth management for a corporation.
To become a CFA, a person must complete a rigorous course of study and pass three examinations over the course of two or more years. In addition, the candidate must adhere to a strict code of ethics and have four years of work experience in an investment decision-making setting.
As one of the few advisors who has achieved both certifications, I can say there are many differences however the one similarity is the focus on educating the advisor.
The differences revolve around the content in the programs.
The Chartered Financial Analyst has three levels in which Level 1 is given 2 times per year and Level 2 and 3 are given 1 time a year.
The CFA content revolves around:
- Economics – both Macro and Micro
- Financial Reporting and Analysis
- Equity and Fixed Income Valuation and Pricing
- Alternative investments
- Corporate Finance
- Portfolio Management
- Ethical Standards
- Quantitative Analysis
- Derivatives valuation and pricing
- Behavioral Finance
The Certified Financial Planner program has 7 classes and focuses on:
- General Principles of Financial Planning
- Ethical Standards
- Insurance Planning
- Investment Planning
- Income Tax Planning
- Retirement Planning
- Estate Planning
- Behavioral Finance
- Writing a Financial Plan
I thought the CFA was much more difficult and extensive than the CFP and dug deep into the technical knowledge of the subjects. When you finish the program you have deep knowledge and understanding of the subjects covered.
One aspect of the CFP that I especially liked is it that it went over the actual process of writing a financial plan, with examples and cases, rather than simply just the technical aspects of a financial plan.
I always love seeing people without a CFA charter answering questions about it. I wonder how they would feel about people without the CFP designation answering questions about the CFP program. They are both great programs, but they vary in subject matter and difficulty. I believe they compliment each other well, and it's possible to find investment advisers with both designations.
The CFP designation covers the categories below through 6 or 7 bachelor level classes. They give a great generalist level education in these topics. A specialist level would be an estate planning attorney, a CPA for income tax, and a CFA for investments.
- General principles of financial planning
- Insurance planning
- Investment planning
- Income tax planning
- Retirement planning
- Estate planning
- Interpersonal communication
- Professional conduct and fiduciary responsibility
- Financial plan development (capstone) course
The CFA program is very difficult with only around 20% of the people who attempt the designation ultimately being successful in achieving it. It takes several years for most people to finish as you only get one chance per year to take levels 2 and 3. Level 1 is now has two tests per year. The passing rates are 39-53% over the last 10 years on average. It is considered beyond masters level. The topics of that program are below:
Ethical and Professional Standards
Financial Reporting and Analysis
Portfolio Management and Wealth Planning
The difference is exactly what the names imply. The CFA (chartered Financial Analyst) is an analyst. The CFP (Certified Financial Planner) is a planner. CFA’s are usually employed by large mutual fund companies, hedge funds, or institutions that manage assets. They research a lot and analyze various investments for inclusion into portfolios. Typically, CFA’s just deal with the investment side of finance. CFP’s work with individuals to create a specific plan across multiple financial topics including cash management, insurance, investments, retirement plans, tax planning, and estate. Both of these designations are the top marks in the finance industry. The tests are extremely difficult and take dedication, commitment and lots of industry knowledge to successfully pass. The consumer of financial products that does not choose the DIY path should work with someone with either of these designations to ensure they are getting proper knowledge and advice.
A CFA looks at individual securities and tries to determine the intrinsic value vs. market value. Typically hired by buy or sell side product managers. There are three exams that one must past. A CFP is more like a generalist, knows some about a lot of different topics, hopefully as an investor you can find one that is independent from broker/dealers. I would focus on the Fiduciary Standard and that the financial professional I am working with eats their own cooking. Ask them, do they invest in the same stuff they recommend?