CFA® Charter and CFP® Certification
Where Do the Paths Differ?
Although both the Chartered Financial Analyst® (CFA) and the Certified Financial Planner® (CFP) are popular financial credentials, they have distinct skills and roles. Their primary distinctions are their areas of expertise and the clients they serve. CFA charterholders can work in a variety of financial roles, such as investment analysis, portfolio management, and wealth management. CFPs, on the other hand, frequently work in the financial services industry as financial planners, advisors, consultants, and wealth managers, focusing on assisting individual clients in developing financial plans, managing investments, and providing tax, retirement, and estate planning advice.
To make informed career decisions, it is crucial to have a clear understanding of the unique day-to-day activities and responsibilities of both CFP and CFA charterholder. This article provides valuable insights that can help you discern the differences between the two.
CFA Charterholder vs CFP Certification
To begin with, both credentials require different qualifications, training, and skill sets. The CFA designation is often considered more rigorous and specialized, requiring candidates to complete a series of three comprehensive exams focused on investment analysis, portfolio management, and financial markets. In contrast, the CFP designation requires candidates to complete a single comprehensive exam covering a broader range of financial planning topics, such as retirement planning, tax planning, and estate planning.
Due to these differences, CFA charterholders typically work with institutional investors, such as hedge funds, investment banks, and asset management firms, while CFPs often work with individual clients, helping them achieve their financial goals through personalized planning and advice. In terms of day-to-day activities, a CFA charterholder might spend their time analyzing investment opportunities, conducting research on financial markets, and managing investment portfolios. A CFP, on the other hand, might spend their time meeting with clients, creating financial plans tailored to their needs and goals, and providing ongoing support and advice to help them achieve their objectives.
Charter and Licensure
To obtain the CFA charter, individuals must pass all three levels of the CFA charter exam, meet the required work experience, and adhere to the CFA Institute's code of ethics and professional standards. This charter is granted solely by the CFA Institute. On the other hand, the CFP designation is a licensed credential granted by the Certified Financial Planner Board of Standards (CFP Board). Candidates seeking the CFP designation must meet specific education, examination, experience, and ethical requirements. This includes passing the CFP exam, holding a bachelor's degree, completing a CFP Board-registered education program, and having at least three years of relevant work experience.
Eligibility Requirements
To be eligible to sit for the CFA Level 1 exam, you must meet certain requirements. These include holding a bachelor's degree, having at least two years remaining in your undergraduate studies, or having an equivalent level of experience or higher-education. Lastly, everyone who plans to enroll in the CFA charter program and register for the exams for the first time must have an international travel passport. To become a CFA charterholder, a candidate must pass all 3 exams, fulfill the work requirements, submit letters of reference, and apply for membership. The CFP certification also demands extensive professional experience. This requires either 4,000 hours of CFP-compliant apprenticeship or 6,000 hours of professional financial planning experience. Prior to taking the CFP test, candidates must have completed the requisite hours of experience between five and ten years.
Exam Difficulty
The CFA charter exam is divided into three levels of difficulty: Level 1, Level 2, and Level 3. These exams are far more challenging than other high-stake professional exams, with an average pass rate of 46% as of November 2022. CFA charter exam topics are broadly categorized as financial concepts, portfolio management, financial analysis, and accounting.
| CFA Exam Year | Level 1 | Level 2 | Level 3 |
|---|---|---|---|
| 2013 | 41% | 43% | 49% |
| 2014 | 43% | 46% | 54% |
| 2015 | 43% | 46% | 53% |
| 2016 | 43% | 46% | 54% |
| 2017 | 43% | 47% | 54% |
| 2018 | 44% | 45% | 56% |
| 2019 | 42% | 44% | 56% |
| 2020 | 49% | 55% | 56% |
| 2021 | 31% | 41% | 42% |
| 2022 | 37% | 44% | 49% |
| Average | 41.10% | 45.70% | 52.30% |
Comparatively, the CFP is easier to obtain than the CFA charter. The historical pass rate has been above 60% and looking as recent as 2022, it is around 46%.
Salary and Career Paths
The CFA Institute states that charterholders typically earn more than their peers in the financial industry. Those with a bachelor's degree can expect a median total income of $162,500, while those with a graduate degree can earn up to $237,357, giving them a competitive advantage in the job market.
In contrast, an entry-level CFP can expect to earn a median total compensation of $50,892 with less than a year of experience. With 5-19 years of experience, this can increase to an average of $71,864 to $86,360. For those with extensive experience in the field, typically 20 years or more, the median compensation is $102,297.
Given that the variation in CFA charterholder and CFP's salaries falls under a vast financial spectrum, a typical range of averages might not fully offer the whole picture. Here's a table mentioning the individual CFP vs. CFA charterholder salaries for some top-tier roles:
| CFA Charterholder Career Path | |
|---|---|
| Top 5 Roles | Average Salary |
| Buy-side research | $83,660 |
| Consulting | $87,660 |
| Investment banking | $115,000 |
| Risk management | $96,630 |
| Corporate executive | $197,840 |
| CFP Certification Career Path | |
|---|---|
| Top 5 Roles | Average Salary |
| Lead adviser | $163,000 |
| Personal financial planner | $127,000 |
| Client services adviser | $97,000 |
| Associate adviser | $68,000 |
| Wealth management adviser | $125,000 |
Pros and Cons
Both the Chartered Financial Analyst (CFA) and the Certified Financial Planner (CFP) designations are highly respected credentials in the financial industry, indicating a high level of expertise and professionalism. While both designations can provide significant benefits, there are also some drawbacks to consider. It's important to weigh the pros and cons carefully before deciding which certification to pursue.
- Big Investment Firms: Acquiring employment with some of the most well-known names in finance will be easier with the CFA certification.
- Finance Knowledge: mastering the curriculum will help you build a solid foundation of financial knowledge and abilities to help you achieve your long-term professional goals in the financial sector.
- Salary: Typically, CFA charterholders receive higher pay for the same position than those who do not have the CFA charter. A CFA charterholder’s salary can range from $52,000 to $154,000 annually.
- Connections: There are already over 100,000 charterholders in 130 countries throughout the globe. The benefit of worldwide recognition is that a charterholder can be more easily transferred across the markets.
- Expertise Credential: The CFA certification is the gold standard of finance and carries enormous weight in the business and financial worlds. Anyone who recruits portfolio managers, pension fund managers, hedge fund managers, or Fund of Funds (FOF) professionals is familiar with the CFA Institute and its charterholders.
- Program Duration: It will take four years to complete the exam and collect a minimum of 4,000 hours of work experience within 36 months.
- Difficulty level: The CFA charter exam is tough to pass because of its comprehensive and lengthy content. As per CFAI’s historical data, spanning 10 years, the average pass rate was only 44%.
- Expensive: The cost of the three CFA charter exams, assuming three straight passes with no required travel to the testing center, is between $2,600 and $4,000.
- Cumbersome: Even if you pass all three levels, there are still additional requirements, such as fulfilling work requirements. Summer, part-time, and internship work do not qualify, nor does managing your assets.
- No job guarantee: Consider alternative issues before enrolling to jumpstart a stagnant career. As with any certification, the CFA charter doesn’t ensure you get every job you apply for.
PROS
- Low start-up costs: Getting started as an independent financial consultant will not require a large initial investment. License fees and other expenses are unavoidable but modest compared to other businesses.
- Not difficult or expensive: Pass rates for the CFP exam vary from 62 to 66%, indicating that the exam is not very difficult. And the cost to get certification is $825, which is much less than the CFA charter.
- Flexible Schedule: Once an adviser has established a customer base, flexible work hours are possible, creating a good work-life balance. You can tailor your schedule to meet the hours during which you are at your most productive.
- Unlimited earning potential: Their revenues are determined by the quantity of new business they acquire and the number of commissions or fees they generate each year. They have the opportunity to make as much or as little money as they are capable of.
- High Growth Industry: From 2020 through 2030, the BLS predicts that there will be an average of 21,500 vacancies for personal financial advisers per year. Replacements for employees who are relocating or retiring are a significant factor in the number of job opportunities projected this decade.
CONS
- Lots of stress: Due to the potential volatility of the financial market, a job as a financial advisor would always be fraught with stress. During market downturns, advisors must constantly manage their clients’ anxieties and emotions.
- Continuous Prospecting: Obtaining customers is the most difficult aspect of becoming a successful financial counselor. When the adviser ceases prospecting, new business dries up. Until they have a substantial customer base, advisers must continually advertise themselves and their expertise in pursuit of new clients.
- Willpower needed: Financial advisers won’t achieve success if they lack the discipline and determination to work the hours. At times, the demands of one’s job take precedence over everything else, and not everyone is adept at managing this shift smoothly.
- Compliance regulations: You’ll need a license, and you’ll need to remember to renew it annually. Financial advisers must keep up with constantly changing regulatory requirements to protect their clients against malpractice. This may be both time-consuming and costly.
- Lots of hard work to get going: At the beginning of this career, there is a lot of uncertainty, so financial advisors must be willing to work hard to succeed in the long run. It’s not uncommon for new financial advisors to consistently work more than 50 hours per week.
Ultimately, the decision between the CFA® Charter and the CFP Certification will depend on your career goals, interests, and strengths. If you're interested in working in investment management or asset analysis, the CFA® Charter may be a better fit. If you're passionate about providing comprehensive financial planning services to clients, the CFP Certification may be the way to go.
