We know the situation well: You want to plan for your financial future, but you need some help choosing the best investment strategy for your particular economic situation. A certified professional is certainly the right answer. Whether you are a private individual or a business owner, a Certified Financial Planner or a Chartered Financial Analyst can give you the advice and guidance you need to make your future fiscally sound.
Let’s take a look at which professional is right for you.
CFPs and CFAs
“Certified Financial Planner” and “Chartered Financial Analyst” are professional titles that require far more dedication and commitment than a “financial advisor” or “planner.” In addition, while it is possible to dispense financial advice without these specific designations, both titles indicate the individual has gone through a significant level of professional training. While it may go without saying, the more investment expertise an individual has in a certain area, the more valuable that person is to clients.
There are some areas of overlap between the CFP and the CFA. For instance, both titles require passing exams and acquiring a license, and both experts are skilled in building investment portfolios and strategies (an important factor in overall financial planning).
But the differences between CFPs and CFAs are significant—and the specific type of certification indicates the particular individual has certain areas of expertise.
So what’s the difference?
Chartered Financial Analysts are often large-scale portfolio managers or analysts at investment firms or money management groups (generally an “institutional” role), while Certified Financial Planners specialize in personal finance for individuals and small businesses.
CFAs usually have an in-depth knowledge of the investment industry and are sought after by professional money managers. CFPs, on the other hand, are adept at helping the average individual or family stretch its current income. CFPs are skilled at devising strategies that plan for a child’s education as well as ensuring that enough money has been saved for retirement.
While both professional designations mandate taking exams, CFA course requirements are more rigorous than those of the CFP.
Some of the responsibilities and requirements that separate the Certified Financial Planner from the Chartered Financial Analyst are shown below.
Certified Financial Planners
Stated in the most succinct way, Certified Financial Planners help individuals establish a vision for the future.
Certified Financial Planners sit down with a client and cover a range of fiscal topics. Their areas of application include a broad-based approach to life issues, such as retirement, taxes, education, insurance, and estate planning. Compared with CFAs, a CFP has a more generalized understanding of stocks, bonds, and other investments relevant to personal finance.
1. Must pass an exam.
2. Must pass a background check (no felonies and no security law violations).
3. Must pay an entrance fee.
4. Certification requires annual renewal and an affidavit process.
CFPs are proficient in the area of comprehensive personal financial planning. Individuals seek the advice of CFPs far more than do businesses. While CFPs are able to do business-related planning, they would not advise a small business how to run operations or how to grow their business.
Planning involves looking at the current financial situation of the client, which includes assets, income, savings, liabilities, and expenses.
CFPs will ask: What do you want to do financially? They will help identify and itemize goals and determine the best procedures to attain those goals. Often, the main objective is retirement planning.
This type of planning looks at several factors, including a determination of where income will come from (after an individual stops working). A CFP will look at goals and create a timeline. They will then match the timeline with income, savings, and resources to come up with a plan that works. One strategy of the CFP is to create a personal balance sheet, or a profit and loss table. It is especially important to put all this information down on paper. The act of putting it in writing will keep you disciplined (as opposed to just saying it in your head). Note: The process is not static. Things change over time (investments can produce varying results, markets may change), and the information should be analyzed on a continuing basis.
An important variable in this type of planning involves investment returns. The CFP will look at how the returns are doing. Based on the historical data compiled and the passage of time, the window of uncertainty gets smaller and smaller, and the outlook grows more certain.
Specific planning areas of a CFP
• Financial Planning and Consulting
• Insurance Planning
• Employee Benefits Planning
• Investment and Securities Planning
• Retirement Planning
• Asset Protection Planning
• Estate Planning
• State and Federal Income Tax Planning
• Estate Tax, Gift Tax, and Transfer Tax Planning
• Chartered Financial Analyst
1. Must pass three levels of exams in succession.
2. Must complete a university degree (or equivalent) and 48 months of qualified, professional work experience.
3. Must join the CFA Institute and apply for membership to a local CFA member chapter.
4. Must complete a professional conduct statement that adheres to the CFA Institute Code of Ethics and Standards of Professional Conduct.
CFAs are able to analyze individual companies and write high-level research reports. They are experts in buying and selling securities for portfolios, portfolio management, and retirement planning. When deciding whether or not to invest in a particular company, it is the CFA’s responsibility to meet with a company’s management, conduct interviews, and then analyze the obtained information. CFAs will create a report regarding the advantages and disadvantages of a potential investment and recommend whether or not to invest in that company.
CFAs function like quarterbacks and look at the big picture.
CFAs ask the tough questions. Does this mortgage make sense? Does this car loan make sense? Is your insurance adequate? What are the liabilities?
CFAs are interested in establishing, investing in, and managing a diversified portfolio. However, most CFAs do not work with individuals. Instead, they assist large companies and institutions, often managing billion-dollar portfolios.
Specific Areas of Responsibility for a CFA
• Research Analysis
• Tax Law
• Portfolio Management
The most important distinction between a CFP and a CFA is that Certified Financial Planners typically use their expertise to advise individuals about investing, financial aid, and retirement and estate planning, while Chartered Financial Analysts excel in corporate areas of investment portfolio management, tax law, analysis of Treasury bonds and securities, and an overall economic picture.
One of the most vital areas any individual or business should invest in is financial planning. Often, it is also one of the most neglected. Whether there is a significant amount of money involved or a limited budget that has to be used to the best advantage, choosing the right type of financial advisor is of paramount importance.
When investors are educated about the type of financial professional who will work best, they’ve taken the first step in securing a successful financial future.
We can help you choose the right financial planner for your situation. We have well-respected CFPs and CFAs who are eager to help you reach your personal goals for tomorrow and beyond.