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Financial Advisor Credentials: CPA, CFP, or CFA?

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Financial Advisor Credentials: CPA, CFP, or CFA?  There are countless financial, investment, and tax related credentials out there, such as the CPA, CFP, and CFA.  Many a financial advisor has a string of letters after his or her name saying he or she is certified in ABC or a specialist in XYZ.  For the average person, it can be extremely confusing to know the ease or difficulty of attaining each of these credentials and what each really means.

In my opinion, the 3 most well known, recognized, and respected financial credentials that a financial advisor can earn in the areas of tax, investments, and financial planning, are the following:

  • Tax:  Certified Public Accountant – CPA
  • Investments:  Chartered Financial Analyst – CFA
  • Financial Planning:  Certified Financial Planner – CFP

I’m not saying that these are the only “good” credentials that a financial advisor can earn or that all others are worthless.  These are just the best known and respected in my opinion.

Certified Public Accountant – CPA

In the U.S., the CPA license is probably the most recognized of the three financial credentials.

The rigorous CPA Exam (actually 4 separate exams) tests candidates on topics such as taxes, auditing, financial accounting, cost accounting, and business law.

CPAs perform a variety of services including taxes, auditing, valuations, bookkeeping, and numerous other tasks.  Some are generalists and may perform a variety of services, while others may specialize in one particular area.

Many people assume that all CPAs do taxes but that’s not the case.  Every CPA had to know some tax basics in order to pass the CPA Exam.  Many probably took at least one tax course in college as well.  However, many choose to work and specialize in other areas.

For example, my brother is a CPA who has worked as a corporate controller, forensic accountant, and valuation expert.  He prepares his own tax return using TurboTax but probably wouldn’t be comfortable preparing anyone else’s tax return.

I am also a CPA but chose to specialize in providing tax, wealth management, and financial planning services to individuals and families.  However, if I were to try to get a job as a corporate controller, auditor, or a valuations practitioner I’d probably be in way over my head since I’ve never worked in these areas.

Even within tax, not all CPAs do individual taxes.  Some do a little of everything while others may choose to focus on corporate, partnership, international, transfer pricing, mergers & acquisitions, state and local, or other specialized area of tax.

Chartered Financial Analyst – CFA

The CFA credential is second to none in the finance and investment communities and is highly respected worldwide.

The CFA exam (actually 3 separate exams) is probably the most difficult of the 3 credential exams to pass.  Successful candidates oftentimes study 300 hours or more for each exam.  The CFA Exam covers topics such as investing, asset valuation, and portfolio management.

Like CPAs, CFA charter holders can also work in a number of different fields, including portfolio management, valuations, and corporate finance.

Certified Financial Planner – CFP

The CFP credential is the most popular and recognized financial planning credential in America.  Applicants must complete several requirements in order to receive the credential, including passing the CFP Exam.

Although, I’d say the CPA and CFA Exams are more difficult, the CFP Exam is nothing to sneeze at.  When I sat for the CFP Exam, I was already a CPA and had several years of work experience under my belt.  I expected to just waltz right through it, but was impressed by how difficult it was, the scope of information covered, and its real life application.

The CFP Exam tests applicants on every major area of financial planning, including tax planning, estate planning, investing, retirement planning, and insurance.  I learned way more about financial planning while studying for the CFP Exam than the CPA Exam (other than tax).

Many CFPs practice holistic financial planning, although some may focus on one particular area, such as insurance.

When to Use Each Credential

If we look only at the requirements to attain each credential, a CPA is most likely to know the ins and outs of tax and be the best overall business financial advisor (depending on what he or she specializes in).

Tax drives a fair amount of what we do in financial planning, it can be incredibly complex, and is the single largest annual expense for many people, so a CPA can be an extremely useful financial advisor and add a lot of value.

A CFA is likely to be the investing and finance guru.  If you are making complex and sophisticated investments, a CFA could be the financial advisor you need.

The CFP is likely to be the financial advisor with the most overall personal financial planning knowledge outside of investing and taxes.  He or she is probably knowledgeable about every important aspect of financial planning and can likely tie it all together.

Other Variables

Unfortunately, finding a financial advisor is not quite that simple.  Experience, education, and knowledge are other key determinations of skill and competency.  A financial advisor may have a credential but do very little work in that particular area.  Another financial advisor may not have any of the above credentials yet be very highly skilled.

Additionally, some financial advisors choose to obtain multiple credentials.  For example, I chose to become a CPA since I knew tax was incredibly important in financial planning and wanted to be a tax expert.  I also became a CFP since I wanted to be a financial advisor who could provide holistic financial planning advice to clients and understand how everything interrelates.  I know some financial advisors who hold all 3 credentials.

Limitations of Financial Credentials

I wish I could say that by using a CPA, CFA, or CFP you are guaranteed that your financial advisor will be competent, honest, and great to work with.  Unfortunately that is not always the case.  There are a few bad apples in every lot.

Although most financial advisors with these credentials are probably fine, some are no doubt incompetent, others are dishonest, and a few may even be criminals.  From time to time I hear about professionals who get their licenses and credentials revoked or are even thrown in jail.

Finding a Financial Advisor

If you need to find a financial advisor, do the appropriate research.  It’s great when advisors have credentials but it’s important to understand what those credentials mean and what their limitations are.   Credentials are just one of many factors that you should take into consideration when looking for a financial advisor.

WiserAdvisor is a free service that can help you find a local, pre-screened financial advisor that is appropriate for your needs.

Becoming a CPA, CFP, or CFA

If you are considering a career as a financial advisor, think about what services you want to provide, how you will obtain the necessary knowledge and skills, and whether becoming a CPA, CFP, or CFA would be appropriate.

Obtaining relevant and respected financial credentials can help boost your knowledge and skills, make you more attractive to employers, and give you more clout with clients and other professionals.

One of the best tips I can give you about passing the exams for these credentials and licenses is to use an appropriate review course provider.  That can make all the difference between passing and not passing.

Review courses can generally be purchased straight from the course provider or at a huge discount on Amazon:

What are your thoughts about hiring a financial advisor such as a CPA, CFA, or CFP?  Which do you prefer and why?  Do you hold any of these credentials?  Leave a comment below!

Image: Rido81/Bigstock


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