Should My Investment Advisor Have a CFA or a CFP?

By C.R. Manske, CFP® of Manske Wealth Management
Research and Fact-Checking by Elijah Lopez

Choosing to partner with the correct investment advisor can make a large impact on one’s financial future and part of that decision is an evaluation of his/her credentials. At first glance, some licenses may appear similar, but understanding the nuances means accepting that certain credentials are better tailored to particular tasks. The CFA® (Chartered Financial Analyst) and CFP® (Certified Financial Planner) are two of the most recognized designations in finance. While they are certainly related, they actually cater to very different personalities and professions in the investment world. When choosing between investment advisors with the CFA and the CFP, it is important to remember which designation focuses on analyzing institutional data and which one focuses on individual financial planning.

CFP1

 
According to The CFA Institute, the Chartered Financial Analyst credential is designed for professionals who want to pursue a career in institutional investment analysis, investment decision-making strategy, and institutional portfolio management. While a few of the careers that utilize the CFA involve direct and regular interaction with paying customers, the stereotypical CFA focuses on internal-only analysis and research. In this common scenario, he/she doesn’t connect with outside clients while working on complex calculations and charting. There are three tests that must be passed to obtain a CFA designation and they involve analytical skills, research skills, and ethics. The Level 1 CFA Test has questions over professional and ethical standards, a few basic analysis questions, and includes a few questions over basic investment tools. The Level 2 CFA Test has questions over asset valuation and makes test-takers perform complex analysis. Finally the last, Level 3 CFA Test, requires candidates to apply all they’ve learned and successfully manage a portfolio from the point of view of an institution such as a mutual fund. All in all, the Certified Financial Analyst designation is truly not easy to obtain. According to E-Financial Careers, only 42% of people who begin taking the CFA tests actually pass and earn the credential.

CFP3

On the other hand, the Certified Financial Planner’s board certification caters to those who wish to be successful, client-facing, financial planners. The training to earn the CFP involves solving individual, real-life financial problems and examining how to directly assist people with the accomplishment of their personal goals. The career options for a CFP professional are very specific because a CFP is uniquely prepared for a lifetime of client service in accordance with very rigorous, board-enforced, standards involving everything from investment analysis to ethics. The CFP test has a 61.5% pass rate and all together the multi-part CFP exam focuses on 8 different domains which include the following:

  • client planner relationships
  • gathering information necessary to fulfill the engagement
  • analyzing a client’s financial status
  • developing recommendations
  • communicating recommendations
  • implementing recommendations
  • monitoring recommendations
  • practicing with professional and ethical standards.

 
CFP2

After reviewing this eight-part list, it is easy to see how this certification, along with the CFP Board’s focus on maintaining competence and enforcing high standards, helps create top-quality, personal financial planners.

While the CFA and CFP designations might appear similar, they cater to two completely different parts of the financial industry. It is helpful to understand the underlying skill sets and personalities involved in each when looking to hire an investment advisor. It’s certainly possible that a CFA could be an excellent and empathetic financial planner, just like it’s possible that a CFP could excel at in-depth financial analysis. The norms, however, are often just the opposite because of the nature of the focus and culture behind each curriculum. In conclusion, the CFA and CFP are difficult and honorable designations to achieve and they both offer proof of a valuable financial expertise.

 
christopher-manskeChristopher R. Manske, CFP® is owner and operator of Manske Wealth Management. His firm offers investment advice that focuses on monthly client communication. The firm’s dedication to keeping clients and other advisors informed differentiates the team from the rest of Wall Street. In an industry in which clients feel a lack of regular contact from their advisory team, Manske Wealth Management lives up to its slogan: “Every client, every month.” Learn more at Manske Wealth.

Leave a Reply

DON'T MISS OUT! Get Texas Home and Garden email updates. SIGN UP