If you’ve read anything about the financial advising industry, you’ve surely noticed the overwhelming number of acronyms. Every financial advisor has their own suffix attached to it and separately they can all be very confusing. We’ve discussed CERTIFIED FINANCIAL PLANNER™s (CFP®s) and how they tilt their practice toward individuals and families.
6 Reasons to Hire a CERTIFIED FINANCIAL PLANNER™ But what about the other designations? Financial advisors work with all different types of entities, including businesses, charities, and college endowments. Today, we’ll differentiate three different types of advisors: Certified Public Accountants (CPAs), Chartered Financial Analysts (CFAs), and Chartered Financial Consultants (ChFCs).
What is a CPA?
Certified Public Accountants (CPAs) are fiduciary advisors like CERTIFIED FINANCIAL PLANNER™s(CFP®s), What Does a CERTIFIED FINANCIAL PLANNER™ Do? but they have a different type of specialty and background. A CPA needs to complete a bachelor’s course load with a full 120 hours, but they also need an additional 30 hours of qualified graduate-level coursework to be eligible for the CPA designation. A Master’s degree isn’t required, but many CPA candidates go that route to hit their mandatory 150 hours.
CPA candidacy is verified by the American Institute of Certified Public Accountants (AICPA), who also administer the dreaded CPA exam. If you thought the CFP exam was a strenuous test,
wait until you see the CPA version. The exam consists of four different sections, each taking four hours to complete. Candidates can take the exam over the course of 18 months, but must score at least a 75 in each section to pass. The four sections are:
- Auditing and Attestation (AUD)
- Business Environment and Concepts (BEC)
- Financial Accounting and Reporting (FAR)
- Regulation (REG)
All CPAs begin as accountants. One of the key factors facing CPA candidates is the varying levels of experience and education required by different jurisdictions for participation in the exam. Generally, 1-2 years of professional experience under a CPA is required to take the exam, but each state has different rules. CPAs also have continuing education requirements, which again vary by state.
As you can probably guess, CPAs are employed mainly by business entities for help navigating investments, taxes, regulation, and accounting. Certified Public Accountant (CPA) | What is a CPA
Additionally, CPAs can work for government accounting offices, nonprofits, or go into business for themselves. CPA specialties include taxes, auditing, financial forensics, and valuations.
What is a CFA?
Chartered Financial Analysts are another branch in the fiduciary tree and the process of earning a CFA designation is equally strenuous. CFAs focus mainly in the investment aspect of financial advising and often work as the investment officer for corporations or endowments. Math is a crucial point of emphasis – CFAs aren’t working so much with individual clients on a variety of needs, but instead build portfolios, measure risk, and assist with wealth planning.
The CFA Institute is in charge of handing out designations and the exam required to pass is one of the toughest in finance. Candidates need a bachelor’s degree in finance, accounting, or something similar from an accredited university. The degree program must be completed before the entire CFA exam can be taken.
The CFA exam is a doozy. It’s actually three different exams in one, each focusing on a different component of investment, risk management, and corporate finance. Candidates must take all three levels in sequential order – passing the previous level is required to take the next level. Each level has its own process; here’s how it breaks down:
● Level I – Two multiple choice sessions of 2 hours, 15 minutes each. Session one focuses on ethics, quantitative methods, professional standards, and economics. Session two will test candidates on stocks, bonds, derivatives, alternative investments, and portfolio management.
● Level II – Only available after completion of Level I. Like the first part, this section consists of two sessions of 2 hours, 15 minutes each. But Level II will provide the candidate with a series of vignettes (ie. short stories) followed by multiple choice questions about each individual vignette. The goal of Level II is to provide real-life examples that a CFA candidate may encounter and assess how well they’d do, given the particular predicament. A total of 88 questions must be answered on Level II.
● Level III – After completing Level II, candidates move on to the final level. This exam is another four- and half hour marathon split into two 2-hour, 15- minute blocks. Like Level II, the exam consists of a series of vignettes followed by questions about the particular situation in the vignette. But in Level III, the question format varies between multiple choice and written assessment. Most answers will need to be in essay format, though. A total of 8 to 11 vignettes comprises the exam.
Passing the CFA exam is difficult. Only 42% of candidates have passed Level I on average in the last decade. Because of this, the CFA is a rare designation and advisors holding this certification often work high up the corporate ladder as Chief Investment Officers or portfolio managers. Other common job titles for CFAs include risk analysts, research analysts, and consultants.
What is a ChFC?
Now here’s a wrench in the works, a lower-case letter in an acronym! ChFC stands for Chartered Financial Consultant, which looks a lot like the CFA designation at first glance. But ChFCs actually have more in common with traditional CERTIFIED FINANCIAL PLANNER™s(CFP®s) than CFAs and the coursework needed for each is remarkably similar. The one difference is the presence of a Contemporary Applications of Financial Planning course, which ChFC candidates must complete.
Unlike the other certifications we’ve discussed here, the ChFC isn’t handed out by a non-profit organization. Instead, the private American College of Financial Services is in charge of administering ChFC designations. Another major difference is the examination process. Prospective ChFC candidates may delight in learning there’s no comprehensive, stress-inducing exam that must be completed following the education requirements. Instead, ChFC candidates are tested following each of the eight courses required for education fulfillment.
ChFCs must also complete continuing education requirements to the tune of 30 hours every two years. Some of the common issues ChFCs help clients with include retirement and estate planning, tax planning, and special needs financial planning, such as helping clients with disabled children or non-traditional families.
Certified Financial Planners® at Advanced Retirement Strategies
Working with a Certified Financial Planner® is an excellent investment of your time and money. With the high standards for CFP certification, you’ll know you’re getting the expertise and knowledge of a highly-trained and educated professional who will always act in your best interests and with the loftiest ethical standards.
The team of retirement planners and investment advisors at Advanced Retirement Strategies in Bountiful, Utah includes two Certified Financial Planners® who specialize in helping diligent savers with $250,000 or more of investment and retirement assets (not counting your primary residence) prepare for and then transition into retirement.
If you’re looking for a CFP® to help you live the retirement you have dreamed of, contact us today.