Managing your life savings is no easy project. Mistakes and large losses can move you farther away from your goals. So, hiring the right professionals matters. Learn about the CFA® advantage and how hiring a CFA® Charterholder vs. CFP® Certificant (or ideally, both) might be the right move for you.
Who’s Watching Your Money? Why Financial Credentials Matter
When it comes to your money, risk is everywhere. When the market is going up in a bull market, little attention is often paid to potential downsides. But as your wealth grows, is there anything more important than preserving what you’ve worked so hard to build?
That’s why when you hire a financial advisor, they should first be focused on preserving your wealth. Unfortunately, we don’t see as much of that type of risk management as is warranted. Instead, advisors are usually more focused on generating returns. Serious conversations on risk tend to happen most often after losses have already occurred. Is that okay with you? If you have significant assets, it should not be. That’s where professionals with advanced credentials can help you.
For example, working with a Chartered Financial Analyst (CFA®) is like the difference between working with an expert captain at the helm of your ship, or entrusting this critical role to just the average sailor with some untested amount of knowledge and training. Just as the captain uses their extensive knowledge and experience to chart the safest course through potentially treacherous waters, a CFA® Charterholder employs their deep understanding of financial markets and sophisticated investment strategies to manage your investments prudently.
Without this level of skill, the risk of making costly mistakes increases, just as a less skilled sailor might not understand or appreciate the influence of unforeseen currents or hidden reefs. In financial terms, a CFA® Charterholder helps you avoid the financial reefs that could sink parts of your portfolio, striving to protect your assets while also achieving reasonable growth over time. This professional guidance is essential to making better investment decisions.
What Is A Chartered Financial Analyst (CFA®)?
As you can see, once you’ve built substantial assets, a CFA® Charterholder can usually be of significant assistance. But what exactly does “CFA®” mean?
The nonprofit CFA® Institute administers the CFA® certification. Regarded by many as the most difficult financial services credential to attain, you can expect more in-depth analysis and risk management with less guesswork when working with a CFA® Charterholder.
To earn the CFA® designation, there are many steps a candidate must complete:
- First, every candidate must demonstrate prior work experience involving over 4,000 hours of hands-on experience with investment decision-making or adding value to the process (or equivalent education).
- To attain the credential, a candidate must pass the CFA® exam, which is not just 1 exam. It is comprised of three separate levels of testing.
- Each individual level of the CFA® exam given by the CFA® Institute requires an average of 300 hours of study before a candidate can sit for the level exam.
- Passing rates on the three exams are low; many who attempt the CFA® fail.
Those who become CFA® Charterholders are also subject to ongoing continuing education requirements.
Because the CFA® focuses on serious securities analysis, this credential is generally considered a must for commercial portfolio managers. By choosing a wealth manager who has attained this mark, you can help ensure you get the benefit of this expertise on your side. These investment professionals will be knowledgeable on risk management, asset management and financial reporting, which can help you build wealth using sound principles and methods.
What Is A Certified Financial Planner (CFP®)?
The CFA® is not the only well-known financial credential out there. The CFP®, or CERTIFIED FINANCIAL PLANNERTM designation, is also well regarded. Managed by the CFP® Board, this mark is not as focused on investment management. Instead, CFPs are focused on personal finances, which are, of course, also critical to your long-term financial health.
The requirements for becoming a CFP® Certificant are created and maintained by the Certified Financial Planner board. The CFP® program requires a significant amount of study covering the following wealth management topics:
- Financial planning
- Portfolio management
- Retirement planning
- Estate planning
- Tax planning
- Charitable giving planning
There’s nothing easy about becoming a CFP® Certificant. It includes education and experience requirements, where you must prove prior hands-on experience with financial planning. Then, once an individual passes the CFP® exam, they are subject to continuing education requirements to keep their knowledge up to date. The financial planner board of standards also maintains ethics requirements to help ensure CFPs follow the rules.
While the CFA® is more focused on high-level financial analysis and investing, the CFP® designation is more generally suited to personal financial planning. As you can probably see, both are important as your wealth grows.
What About A CPA?
At this point, someone usually asks about the Certified Public Accountant (CPA) credential. What’s the difference between CPAs, and CFAs and CFPs?
A CPA is predominantly recognized for expertise in accounting and tax-related matters, typically focusing on audits, financial statements, and tax planning for individuals and businesses. The CPA mark is difficult to obtain as well, requiring passage of a multi-level uniform CPA exam.
For tax preparation, you’ll probably want to work with a CPA or EA (enrolled agent). These professionals help clients with both the preparation of taxes and strategies to minimize taxes. However, both a CFA® Charterholder and a CFP® Certificant can help individual clients as well in planning and finding tax strategies, too. So, really, it’s not an either/or proposition; you’ll want a financial advisor and a CPA, most likely.
CFA® Vs. CFP®: What Are The Key Differences?
It can often be difficult to distinguish between a CFA® and a CFP®. But here’s what you need to know.
The CFA® credential is synonymous with in-depth investment expertise. Professionals with this designation are equipped to offer sophisticated guidance on portfolio management, investment analysis, and financial markets—ideal for those with larger amounts to invest. CFA® holders can usually help you find and implement more sophisticated strategies, as well as ways to hedge and protect existing wealth.
Conversely, a CFP® Certificant offers comprehensive financial planning services. This includes strategizing for retirement, education funding, estate planning, and insurance. A CFP® Certificant helps ensure that all financial aspects of your life are aligned with your long-term personal and professional goals. While both designations are held in high esteem, the choice between a CFA® and a CFP® should be matched with your specific financial objectives, whether they’re investment-centric or holistic financial planning.
As The Stakes Get Higher, Why Not Hire Both?
As your wealth increases, really, you need attention from both sides of the aisle. At Holland Capital Management, your main contact is both a CFA® Charterholder and a CFP® Certificant, which allows you to take advantage of the full range of expertise. That is ideal, especially for high-net-worth individuals seeking more sophisticated wealth strategies.
Other Types Of Financial Professional Credentials
There’s no shortage of credentials out there to choose from. When it comes to lesser-recognized marks, however, proceed with caution. That’s because there are many that are more marketing than substance.
While the designations mentioned in this article (the CFA®, CFP® and CPA) all require applicants to fulfill stringent requirements, study and pass difficult exams, other designations may only require attendance at a training session and passing a multiple-choice exam.
So be sure to check out other credentials before relying on them. The financial regulator FINRA has more details and a lookup table where you can read about any designation you’re interested in.
Frequently Asked Questions
What Credential Is Best For Retirement Planning?
There is no single answer for this, as again, you need both investment expertise and financial planning knowledge. Ideally, get help from both by choosing a firm that has both sides covered. Another option is the Chartered Retirement Planning Counselor, which is another designation focused on retirement planning.
What Do Credentials (CFA® And CFP®) Mean For A Financial Advisor?
Of course, there are some financial advisors out there with none of these credentials who may be great at their jobs. But here’s the key: do you want to risk your money to find out? Looking for respected credentials is a great first step in screening financial advisors. For example, looking for the CFA® charter means you are talking with someone who has proven they have a very strong knowledge about investing and managing wealth. Then, looking for a CFP® certification means that the individual has studied and passed the CFP® exam. This indicates they should have a strong grasp of topics related to personal financial planning.
If they don’t have the credentials, how can you adequately assess their skills?
What Else Should You Look For In A Financial Advisor?
As noted, looking for these credentials can be a great initial screening device to identify knowledgeable professionals. But don’t stop there. Experience matters too. Ideally, look for an advisor who has years of experience helping others with similar needs to yours. Ask about investment philosophy. Does the advisor prefer mutual funds or do they invest your money via individual stocks (which can help you minimize expenses and maintain control of tax implications)?
Ethics are critical. Find out if the financial advisor will act as your fiduciary, meaning they will always put your interest before theirs.
Always check a financial advisor’s record on the FINRA broker check website. Look for any negative marks or customer complaints.
How Many Advisors Hold The CFA® Designation?
According to the CFA® Institute, administrators of the CFA® program, there are about 190,000 CFA® charterholders worldwide.
CFA® And CPA: How Can I Ensure They WIll Work Together?
When you hire a financial professional, you should look for one that will collaborate with your tax professional. So if you’re looking for a CFA®, just ask: will they, with your permission, work directly with your tax professional to help you get better results?
Same with a CFP® Certificant, you’ll want to make sure they will happily work with your accountant. That way, you’ll have less headaches and better chances for strategies that can improve your results.
What’s The Difference Between A Stockbroker Vs A CFA® Or CFP®?
Stockbrokers are usually those financial advisors primarily paid on commission. Unless they hold one of these advanced credentials, they may not offer as in-depth of a service as a CFA® Charterholder or CFP® Certificant. Be aware this compensation model also may create more conflicts of interest, so be sure to investigate the details prior to hiring them. Remember, it’s best to work with a fiduciary, meaning someone who is obligated to always put your interests first. If in doubt, ask and get it in writing! If someone won’t willingly provide that, that may be a valuable red flag to keep looking.
Can The CFP® Board’s Records (Or The CFA® Society) Help Me When Choosing An Advisor?
When selecting a financial advisor, utilizing resources such as the CFP® Board’s records or the CFA® Society can be beneficial. These organizations maintain comprehensive databases that can help you verify the credentials and disciplinary history of potential advisors.For instance, the CFP® Board’s website allows you to confirm whether an advisor is certified and in good standing, providing an additional layer of reassurance about their compliance. Similarly, the CFA® Institute offers a directory to verify the charter holder status of financial analysts, ensuring they have met the rigorous education, experience, and ethical requirements.
Utilizing these resources ensures that you engage with a financial advisor whose credentials are not only legitimate but also aligned with your financial needs.
How Hard Is The Exam To Become A CFA® Charterholder?
You can rest assured that if you hire someone who has is a CFA® charterholder, they have passed the level i exam, level ii exam as well as the level iii. Each of these is seperate and extensive, requiring about 300 hours of study for level 1 alone.
These stringent requirements for becoming a CFA® Charterholder can help ensure that you’re getting someone serious about proper wealth management. In that way, the CFA® helps to weed out those less likely to have the commitment you need to help grow your wealth effectively.
In addition, the CFA® program requires significant work experience, helping to ensure you hire someone with the capabilities to handle your needs.
What Are The Specific Benefits Of Hiring A CFA® Charterholder For Asset Management?
Hiring a CFA® Charterholder provides specialized expertise in financial analysis and investment strategy. These individuals are trained to offer detailed market insights and sophisticated risk management tactics, making them ideal if you have a significant investment portfolio and you are striving to maximize returns while mitigating risks.
How Does A CFP® Enhance Personal Financial Planning?
A CERTIFIED FINANCIAL PLANNER™ (CFP®) excels in developing comprehensive strategies for personal financial issues, such as retirement planning, educational savings, estate planning, and more. They can help you ensure that all your financial activities are aligned with personal long-term goals.
Key Takeaway
Choosing the right financial advisor is pivotal, especially as your financial landscape becomes more complex and your assets grow. Whether you opt for a CFA® Charterholder’s deep dive into investment strategies or a CFP®’s broad approach to overall financial health, or perhaps a combination of both, depends on your specific financial goals and needs.
At Holland Capital Management, you can get the best of both worlds. Our relationship manager, Chad Holland, holds both advanced credentials. He’ll then coordinate a team of specialists to help you develop the right strategies to maximize your wealth.
