CFA versus CFP

If you’re new here, you may want to subscribe to my RSS feed. Thanks for visiting!

A reader wrote in to ask two related questions.

One, is the Chartered Financial Analyst (CFA) or the Certified Financial Planner (CFP) designation more difficult to obtain?

Two, which is the more valuable designation?

Interesting questions that I shall try to answer.

Apples and Oranges

First, be aware that the CFA and CFP designations usually attract different students.

The CFA tends towards those interested in financially analytical careers. For example, investment analyst, portfolio management, and corporate treasury functions desire CFAs.

The CFP designation is geared towards people wanting to provide financial planning advice to individual clients.

There is some overlap, but the differences are significant.

If you want to analyze securities or manage mutual funds, the CFA is the better program.

If you want to develop long-term financial plans for individuals, the CFP program would be preferable.

That said, as building investment portfolios and strategies is important in overall financial planning, the greater ones investment expertise the more valuable you can be to clients.

Second, I would say that the CFP designation is more country specific than the CFA.

To provide proper financial planning, one needs to understand the tax laws and regulatory environment applicable in ones country or region. Someone with a CFP designation in Australia should know Australian laws. But they likely will not have detailed knowledge of Canadian rules. An Australian wanting to move to Canada would need to re-qualify in Canada.

The CFA designation is more portable. There are some jurisdiction issues to know, but the fundamentals of financial analysis are quite universal. There would be less concern hiring an Australian CFA for a Canadian position than in trying to relocate an Australian CFP to Canada.

So whether one designation is more difficult to attain should be secondary to what career path you wish to pursue.

Third, the personalities of those seeking CFA or CFP designations often differs.

I think the CFA designation attracts more analytical people. You need to like accounting, statistics, and analysis for many CFA related positions.

The CFP designation usually requires more people skills. The ability to work closely with clients who do not have strong financial knowledge. Possessing the soft skills is an asset for the CFP holder. Less of a need with CFAs.

Of course, this is not a hard and fast rule. And I am certain some would say that I am neither analytical nor a people person. Yet I hold both designations.

More Difficult?

I can only give you my view  on this. Others may have had a different experience.

Both designations require a fair amount of time and effort by candidates. This is good for clients as tough disciplines tend to produce better caliber professionals.

To obtain a CFA designation, candidates must pass three separate exams and accrue 48 months of approved work experience. Each exam is six hours in length and shifts from multiple choice in Level I, to mini-cases in Level II, and mini-cases and essays in Level II. The CFA Institute states that successful candidates report spending an average of 300 hours preparing for each exam.

In contrast, the CFP program in Canada requires completion of two exams. The Financial Planning Examination Level 1 is four hours in length with multiple choice questions. The Financial Planning Examination Level 2 is six hours long and made up of short and long answers.  In addition to the official exams, candidates now must complete an approved study course by Capstone and accumulate three years of relevant work experience.

As both designations focus on different areas, personal aptitudes may make one designation seem less difficult.

While you need to put in the hours for both programs, I would say that the CFA requires more work. At least it did for me.

When I undertook the program, the raw amount of material covered was enormous.

I also found that having strong finance and accounting skills were important. Candidates are expected to have these prerequisite skills. If you do not, then you have to essentially learn twice as much to pass the different levels.

I think the competition level may be greater in in the CFA program. You are competing against students from around the world. Also, CFA candidates require post-secondary education, normally a bachelors degree or higher, so most exam writers will have an educational background in finance. I do not believe that CFP candidates require university degrees, which might lessen the academic backgrounds of fellow students in the program.

More Valuable?

Again, this goes back to what your career plans are.

If you want to develop financial plans, with emphasis on insurance, budgeting, and tax-deferred retirement portfolios, the CFP designation should be more valuable.

If you want to move to the Cayman Islands and work for a hedge fund analyzing investments and creating portfolios, the CFA designation is much better.

If you do want to work with individual clients, there are other designations you may wish to consider.

I will provide a link to a couple of articles in my next post and add another option I think is useful.