If you are seeking a career in finance, three of the best-known professional certifications are certified financial planner (CFP), certified public accountant (CPA) and chartered financial analyst (CFA). While the acronyms sound similar, each career path has distinct differences in educational requirements, responsibilities and opportunities. If you know what is the difference between CPA, CFA, and CFP, you can make a clear decision on which path to take.
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Many people recognize the designation of CPA as one who prepares taxes. In addition, CPAs perform public accounting and internal audits. They must carry a CPA license except to prepare tax returns. Individual state laws govern the functions a CPA may perform.
Generally, applicants must have earned a bachelor’s degree with a minimum of 120 units. To have a CPA designation, the applicant must have relevant work experience, meet all educational requirements including continuing education, and pass the Uniform CPA Exam. Many states require up to 30 semester units in accounting and one to two years of accounting or auditing work.
The CPA exam takes approximately 14 hours and is divided into four sections:
- Financial accounting and reporting.
- Auditing and attestation.
- Business environment and concepts.
According to the U.S. Bureau of Labor Statistics, this career path is projected to grow up to 18 percent by 2016. Positions are available from small accounting firms to large investment banks.
Chartered Financial Analyst (CFA)
A CFA is recognized worldwide and is the equal to holding a master’s degree in finance with minors in economics, accounting, statistical analysis or portfolio management. While the CFA certification is not required to work as a financial analyst, it is an important component to pursuing that path.
The CFA certification is granted by the CFA Institute. While anyone with a bachelor’s degree may take the exam, the test is extremely difficult to pass. Applicants must pass three exams each lasting six hours. The first exam is taken in June and December. The other two are available only in June. Typically, the pass rates are less than 55 percent. Anyone failing the second or third test must wait an entire year to take them again.
All three tests cover materials in financial analysis and ethics. The first exam comprises broad financial principles, the second covers intensive accounting and financial analysis. The third test comprises decision-making and portfolio management.
Many CFAs work as financial analysts for institutional investors. A smaller percentage work for broker-dealers, and the rest work for government, universities and other areas of the private sector. According to the CFA Institute, the median salary for an equity portfolio manager in 2011 was $215,000. Business development officers earned in excess of $350,000 per year.
The CFP designation puts a professional on the investments career path. It is a practical study course for those students who wish to advise individual investors. The CFP certification trains students to design and implement financial plans for clients.
Requirements and Exam
In order to take the CFP exam, an applicant must have a bachelor’s degree, three years of experience in financial planning, and additional education in one of the following areas:
- Fundamentals of insurance planning.
- Financial planning: process and environment.
- Planning for retirement needs.
- Income taxation.
- Fundamentals of estate planning.
The exam is 10 hours long and covers insurance, investments, risk management, estate planning, and tax and retirement planning.
Most professionals with the CFP certification work directly with individual investors and clients. Generally, a CFP builds a private business, thus the salary range varies widely. Their potential income is tied directly to their ability to build and maintain a loyal clientele.
Of the three careers, only the CPA is governed by individual state laws. In choosing a career path, determine if you want to work as an entrepreneur or have the guaranteed income of an employee. Regardless of which you choose, each career is limited only by the time and energy you wish to put into them.