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CFA vs CFP: What Is The Difference?

Many finance professionals wonder whether they should become a Chartered Financial Analyst (CFA) or Certified Financial Planner (CFP)

Both the Chartered Financial Analyst and the Certified Financial Planner participate in market and investment analysis, and long-term financial planning. Both credentials are valuable proof of one’s high level of professional education and competence, and an important component of anyone’s Curriculum Vitae. But what exactly are the differences between the two credentials? We will answer just that question.

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What Is The Difference Between CFA and CFP?

There are several key differences between a CFP and a CFA. The main difference is the types of clients who seek their services. A CFP works with individuals and smaller businesses, while a CFA works with larger investment firms.

Whether you plan to become a Certified Financial Planner or a Chartered Financial Analyst, you will need to earn a bachelor’s degree and pass the certification exams for your desired career.

CFA Program

For the CFP exam, you will need to complete some coursework before you’re allowed to take the test. The required coursework may seem redundant to some of your undergraduate studies, but it is designed to help you focus on specific study areas, and retain information that is covered on the exam.

On test day, you will take a 170-question test. There is a mix of questions associated with various case studies as well as stand-alone questions. For the CFA, you’ll be taking a series of exams. You must pass each level of exam criteria before moving on to the next level.  After taking and passing all three exams, you will have earned your certification.

A Certified Financial Planner, or CFP, works with individuals, families, and small businesses to develop plans and strategies for their financial future. This means they are not solely focused on investments, but also on helping their clients reach their goals for long-term financial security and retirement.

These goals can include building a retirement fund, buying a house, insurance needs, or even funding a child’s future college tuition. A CFP must complete a course and earn a passing grade on a one-day exam.

A CFA, or Chartered Financial Analyst, is an analyst that more exclusively works in larger company and corporate settings. Large investment banking firms and hedge funds employ CFA’s to assist and advise on the raising of capital, and to act as go-betweens on mergers and acquisitions.

Mutual fund and hedge fund managers will also often employ CFA’s to provide internal financial feedback on corporations that are outside the investment industry. The main focus for a CFA will generally be corporate investment and wealth management for large firms.

CFP vs CFA Difficulty

The Short Answer

The easy answer is that the CFA exam is much more difficult than the CFP. Not only is the CFA a more intensive exam, the time and study preparations are much more extensive and cover a much wider depth and breadth of material.

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The CFA exam contains 3 levels that are each taken on separate days. The CFP, on the other hand, is a single multiple-choice test taken on one day.

What Makes The Exam So Difficult?

The main reason the CFA exam is so challenging is that it is designed to test on a very wide variety of content from many areas of financial advising and investment. The CFA tested topics include:

  • ethical & professional standards,
  • quantitative methods,
  • economics,
  • financial reporting and analysis,
  • corporate finance,
  • equity investments,
  • fixed income,
  • derivatives,
  • alternative investments, and
  • portfolio management.

The CFA exam has a remarkably small portion of test takers that pass all three sections.  Historically, only 11% of testing candidates pass all three levels of the exam and earn their certification.

Each level of the test requires about 300 hours of dedicated study time, meaning by the time you are done with all 3 levels it is entirely possible you have invested almost 1000 hours into studying for the exam.

To further increase the time commitment, a failed test cannot be retaken for 6 months, so successfully completing the CFA exam can be a lengthy ordeal.

In order to even begin the process of applying to take the CFA exam, you will need to:

  • Have earned a bachelor’s or equivalent degree, or be enrolled in a bachelor’s degree program and be in the final year of the program. An alternate prerequisite would be four years of experience in a relevant work field, or a combination of university and relevant work that have a combined total of 4 years.
  • Take and successfully pass Level 1, Level 2, and Level 3 of CFA exam.
  • Pay $275 and sign an ethics code to join CFA Institute.
  • Provide evidence to the CFA Institute of full-time employment for a minimum of 4000 hours of investment decision-making responsibility. This requirement can include work experience from before and after the exam.

CFA vs CFP Salary

As you can imagine, due to the differences in difficulty that comes with earning the certification, as well as the work involved in each specialty, CFA’s and CFP’s have vastly different average salaries.

The average salary for both professions will vary depending on where you live and work. Salaries vary widely between large and medium cities, as well as geographical locations in the United States and financial hubs worldwide.

CFA exam

Becoming a CFP is certainly a smart career move if you are good at math and communicate and relate well with people. The test is easier than many other certification exams and the pay is more than the national median.

Before bonuses, CFP’s can expect to earn on average about $67,272. This salary works out to approximately $30 an hour.  However, nationwide many CFP’s report and annual income of around $50,000, while on the high end many report incomes of approximately $120,000 annually.

If you are seeking a higher paying career, becoming a CFA may be the route you wish to further investigate. The annual median base salary for CFA charterholders is approximately $180,000. That is before any extra compensation, such as bonuses and commissions. On the high end, including bonuses, CFAs can make up to $300,000 per year.

Conclusion

In the final analysis, for those that have a passion for the financial industry becoming either a certified CFA or a CFP are both great career moves. Both certifications are highly respected, well compensated, and set you apart from others in your field.

FAQ

What is the difference between CFA and CFP?

The short answer is that the main difference between CFP’s and CFA charterholders is the nature of their work. A CFP works with individuals and smaller businesses, while a CFA works with larger investment firms.

CFP or CFA, which is better?

The answer to the question of whether a CFP or CFA is better totally depends on what you want out of your career. CFP’s work with individuals, families and smaller businesses on wealth management, while CFA’s work with larger investment firms. Also, CFA’s earn more.

Should I get my CFP after CFA?

Earning your CFP after your CFA isn’t a bad idea. It obviously depends on the type of work you plan to do, but getting your CFP is generally much easier than earning your CFA charter.

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