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The Chartered Financial Analyst® (CFA®) and Certified Financial Planner® (CFP®) designations are not fully understood by the general public. This column will help you better understand them.

Each of their governing bodies administers an examination program for qualified candidates and has a code of ethics and standards of professional practice which it enforces. "Financial" is word common to both designations, yet their focuses are very different.

The CFA Institute was founded by those working as securities analysts and other investment professionals. The CFA program measures the competence and integrity of investment professionals.

The CFP program was founded by those working in the insurance industry with a primary focus on insurance. The CFP program measures the competence and integrity of insurance professionals.

Following are descriptions of the CFA and CFP programs:



CFA Charter

To earn the CFA charter, described by many to be the global "gold standard" for investment professionals, candidates must sequentially pass three graduate level six-hour exams that are widely considered to be among the most challenging in the investment profession. Exams cover ethical and professional standards, equity, debt and derivative analysis, alternative investments, quantitative methods, economics, corporate finance, portfolio management, risk management, asset allocation and performance measurement.

In addition, individuals that have passed the third and final exam must also have a minimum of three years of experience in the investment industry (and four years after July 2007). Since the first exam was given in 1963, the average global pass rates are 47 percent for Level I, 52 percent for Level II and 68 percent for Level III. Only one in five who begins the CFA program succeeds in earning a charter. Those who do succeed take on average four to five years to complete the rigorous program.

The CFA program is administered by CFA Institute, a global, nonprofit membership association. It has more than 86,000 members (including around 75,000 CFA charterholders) from 130 countries and territories, and 134 member societies in 55 countries. Enrollment of CFA candidates is forecasted to be 128,000 in 2007, up from 116,000 in 2006. In 2006, slightly more than 50 percent of the candidates were from outside North America. The largest growth in candidates is in India, France, Germany, Australia, China, and Singapore. The United States has the largest number of CFA charterholders and a candidate growth rate of 21 percent.

Typical clients and employers of CFA charterholders include private clients, foundations, endowments, pension plans, mutual funds, banks, brokerage firms, insurance companies and others. Annually, CFA charterholders must sign a commitment to abide by the CFA Institute Code of Ethics and Standards of Practice.



CFP Certification

To earn the CFP certificate, candidates must meet certain education requirements and pass the CFP exam. It is scheduled to last 10 hours over a day and a half in the United States (one-day, six-hour test in Canada) and is offered three times a year. Major topics covered (and their weights) are general principals of financial planning (11 percent), insurance and risk management (14 percent), employee benefits (8 percent), investments (19 percent), income taxes (14 percent), retirement (19 percent) and estates (15 percent).

In addition, those who pass the exam and meet the education requirements must have at least two years of work experience in a financial planning-related position and meet the annual continuing education requirements. The CFP exam's average pass rate in North America is about 60 percent.

The currently named Certified Financial Planner Board of Standards, Inc. (CFP Board) was founded in 1985 by the College for Financial Planning and the Institute of Certified Financial Planners. The Board fosters professional standards in personal financial planning and establishes and enforces education, examination, experience and ethics requirements for CFP certificates. There are more than 45,755 CFP licensees in the United States and 15,211 in Canada (the worldwide total is more than 73,000). The CFP Board helped form the Financial Planning Standards Board to promote the internationalization of the CFP license and its code of ethics and standards. Laws vary from country to country and insurance products must conform to local laws.

Examples of common financial planning services provided (and insurance products used) for individuals include (a) identifying and reducing risks (using life, medical, disability, liability, property and other insurance policies), (b) analyzing and securing retirement (using annuities, long-term care and life insurance), (c) determining and providing for estate tax funding needs (using life insurance and trusts) and (d) funding children's college education (using a 529 plan).

Conclusion: Some CFA charterholders provide financial planning services and some CFPs manage investments. Regardless, a general rule is that if want an investment expert, select a CFA charterholder; if you want an insurance expert, select a CFP.



Next month: Investment Policy



Roger E. Muns, CFA and CPA, of Wealth Management, LLC, in Jackson, is president of Chartered Financial Analyst® (CFA) Society of Mississippi.


March 2007

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