CFP vs. CFA: What You Need to Know
By Mike Obel | AUG 30, 2023
A financial professional can help you invest and manage your money, as well as plan a successful future for your family. Like many professions, there are various certifications that financial professionals can get, not only to further educate themselves, but to show to potential customers exactly what they can offer. Two of the most popular certifications for financial advisors are the certified financial planner (CFP) and chartered financial analyst (CFA) certifications. Some advisors even have both of them. Though certifications aren’t the only thing you should consider when picking a financial advisor to work with, they can certainly tell you a bit about what an individual advisor brings to the table. Consider working with a financial advisor as you create or update a financial plan.
Certified Financial Planner (CFP) Defined
A CFP is an expert in financial advising centered around planning, including areas like tax planning, estate planning, retirement planning, insurance planning and planning for education funding. Note that this typically doesn’t cover specific investing advice. While some CFPs certainly do work with investments, suggesting basic asset allocations, this is not an area directly covered by this certification.
The CFP designation is through the Certified Financial Planner Board of Standards, Inc. (CFP Board). This is a nonprofit that sets and maintains the standards for personal financial planning.
All CFP candidates must pass an exam set by the CFP Board. As time passes, they must continue to earn annual education credits in order to keep their certification current.
Chartered Financial Analyst (CFA) Defined
A CFA has an expertise in more technical areas of investment analysis. This includes portfolio management, securities analysis, financial reporting and business concentrations.
This certification is given by the CFA Institute, an international organization specializing in certification programs for professionals working in the investing space. There are three particularly rigorous exams covering a myriad of topics to attain the CFA title. These include accounting, statistics, money management and security analysis.
According to the CFA Institute, candidates generally spend more than 300 hours of study to pass the trio of exams. These are challenging tests all the way around. In fact, only 43% pass the first test, 45% pass the second and 56% pass the third and final exam.
Some of the areas CFAs specialize in include wealth management, credit analysis, auditing, accounting and trading. Clients can expect heavily researched advice on decisions around investments, estate planning and insurance products.
CFP vs. CFA: Which Is Best For You?
The first thing to remember is that these two certifications aren't the only thing to consider when picking a financial advisor. Not only are there plenty of other certifications beyond CFA and CFP, but there are many quality financial advisors who have no certifications at all. That said, if you’re looking at advisors and these two certifications pop up, here’s how you might decide which is right for you:
Ask yourself what it is you’re looking for in a financial advisor. If the main thing you want is someone to help you build a general plan for all your financial needs, a CFP is likely to have the skills and expertise you’ll want. They will be able to put together a plan for you considering different needs, from retirement plans to thinking about your estate. They can give you guidance on what insurance products you need, what types of accounts you should open and how much you should save. Most CFPs think holistically about your entire financial life rather than drilling down simply to your investment portfolio.
However, if, for example, you’re an active trader who depends on granular, technical analysis to make investment decisions, a CFA is maybe a better choice. A CFA will be more driven by quantitative factors, using research and data to make recommendations. CFAs focus less on how you can use the money you have to make your life work and more on building more wealth through investing.
If you want both of these services, you could look for someone with both designations. You may also want a firm where you have access to an entire team of advisors, with different individuals fulfilling your various needs.
Comparison of CFA & CFP Certifications | ||
Factor | CFA | CFP |
Focus of Certification | – Investment analysis and management | – Long-term financial, retirement and estate planning |
Experience and Education Requirements, Exams | – A CFA charterholder averages about 1,000 hours of study for all three exams and has four years professional experience. – Requires a bachelor’s degree or work equivalent. – Must pass three six-hour exams on economics, corporate finance, equity investment strategies, quantitative methods, financial reporting and analysis. | – CFP holders have 6,000 hours of professional experience in financial planning, or 4,000 hours of apprenticeship experience, among other requirements. – Requires bachelor’s degree. – Must complete financial planning coursework. – Must pass multiple-choice exam (taken in two three-hour sessions) on financial planning, education planning, insurance planning, income planning, estate planning, retirement planning and risk management. |
Fees and Salary | – The CFA Institute says a CFA charterholder can earn between $126,000 and $177,000. – Depending on the firm, average advisor fees could range between 1% and 2% of assets under management (AUM) annually. – They could also charge hourly fees ($100-$400) and fixed fees ($1,000-$3,000) for additional services. | – Average financial planning salaries range between $50,000 and $110,000, according to PayScale. – CFPs typically charge clients hourly ($100-$400) or fixed ($1,000-3,000) fees. – Many CFPs also focus on investing, which carries annual average AUM fees of 1% to 2%. |
Bottom Line
Certified financial planner (CFP) and chartered financial analyst (CFA) are two of the most common certifications for financial professionals. CFPs focus on planning, while CFAs focus on securities and market analysis. Both have advantages and disadvantages, and which is best for you will depend entirely on what type of services you are looking for.
Financial Advisor Tips
- A financial advisor can be your best asset in creating a sound financial future. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Check out our no-cost asset allocation calculator for help deciding on how much of your assets should be in equities, fixed-income securities, other securities and cash.
Photo credit: iStock.com/Delmaine-Donson, iStock.com/Hero-Images
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