CPA, CFA, or CFP®: Pick Your Abbreviation Wisely
Three of the best-known professional designations in the financial industry are certified public accountant (CPA), chartered financial analyst (CFA), and certified financial planner (CFP®). Each has a core career focus and points to its own professional path.
Below are details of the coursework and study each designation requires, what careers they typically lead to, and how much they pay.
Certified Public Accountant (CPA)
Most people know a CPA is a person who prepares tax returns. They certainly do that, but they can do much more as well. A CPA license is required to perform jobs including independent auditing, which is also known as public accounting.
- A CPA might handle the accounting needs of a public company or a hedge fund.
- A CFA can get you in the door of a Wall Street financial firm.
- A CFP might start a new business focusing on private investment planning.
In fact, a CPA license is not required to prepare tax returns. State laws govern the qualifications that are needed.
Requirements vary by state, but most require a bachelor’s degree with 120 semester hours as a prerequisite for taking the CPA exam.
To obtain the CPA designation, applicants must pass that exam, gain relevant work experience, and meet some additional educational requirements. The educational requirements usually consist of 24 to 30 semester hours in accounting, earned through a graduate or bachelor’s degree in business.
Many states also require a minimum of one or two years of accounting and/or auditing experience. Some states require as many as 150 semester hours to obtain the CPA.
Many students choose to pursue a master’s degree in accounting in order to fulfill their educational requirements.
The CPA Exam
The CPA exam is a high bar in its own right. Exams are owned by the American Institute of Certified Public Accountants (AICPA), which is the governing body of CPAs in the United States. The exam is administered by both the AICPA and the National Association of State Boards of Accountancy (NASBA).
The 16-hour exam consists of four sections:
- Auditing and attestation
- Financial accounting and reporting
- Business environment and concepts
In order to be as prepared as possible, those considering taking the CPA exam may want to also look into some of the best prep courses currently available.
The CPA Career Path
Undergraduate accounting students can get job offers long before they even graduate. Accountants are in demand and that is not expected to change in the near future.
According to the U.S. Bureau of Labor Statistics, employment in the field is projected to grow by 7% a year through 2030. The median pay was $77,250 as of 2021.
A CPA who wants to advance to a senior-level corporate position usually needs at least two to three years of experience at a major accounting firm.
For more ambitious job seekers, lucrative CPA positions are available in hedge fund accounting. The tougher accounting rules established with the Sarbanes-Oxley Act in 2002 opened many additional opportunities at public companies. The chief requirements for these positions are experience and an excellent educational background.
Those who are not anxious to climb the corporate ladder can find a position in virtually any city at a smaller accounting firm.
Chartered Financial Analyst (CFA)
The CFA carries a world-class reputation in the business community, and CFA charter-holders work in many countries around the world. The CFA program is very broad and might be more aptly described as the equivalent of a master’s degree in finance with accompanying minors in accounting, economics, statistical analysis, and portfolio management.
CPAs are hired by companies large and small in towns across the U.S. Most CFAs work for brokers or big banking institutions. Many CFPs go out on their own, working on commission for high net-worth individuals.
The CFA designation is not a legal requirement to perform work as a financial analyst, but it is one of the best ways to get a foot in the door to one of the most difficult fields to get into.
The best way to get a finance job on Wall Street is to get a Master of Business Administration degree from one of a handful of exclusive schools including Wharton, Harvard, and Stanford. The second best way is to earn the CFA charter and have good industry experience.
In some instances, a CFA designation is held in higher esteem than an MBA.
The CFA designation earned its reputation with a grueling process candidates must endure in order to earn a CFA charter from the CFA Institute.
The exam is open to anyone with a bachelor’s degree (or within 11 months of attaining one) and 4,000 hours of professional experience and/or higher education, but the only people with a realistic chance of passing are those who are serious about the field.
The CFA Exam
To earn the CFA charter, candidates must pass a roughly four and a half-hour exam at each of three levels. The first exam is available four times per year, in February, May, August and November. The second exam is offered in May, August and November and the third exam is offered in February and August.
The pass rates on the three tests are typically less than 55%, and if you fail the exam you must wait 6 months to take it again.
The three tests have overlapping material on subjects such as ethics and financial analysis. Generally, the first test covers broad financial principles, the second is an intensive exam on financial analysis and accounting, and the third covers portfolio management and decision-making.
While not nearly as numerous as CPA jobs, CFA-related jobs are generally more lucrative. CFA Institute’s Member Compensation Survey reports that the median compensation is about $177,000, including base salary and bonuses or equity sharing.
Their job titles include financial analyst, portfolio manager, chief investment officer, and portfolio manager.
Certified Financial Planner (CFP®)
Certified Financial Planner (CFP®) is the only designation of the three that is focused on investing. Those who earn it are trained financial advisors qualified to create and implement financial plans for investors.
Earning it serves as an extremely practical course of study for those wishing to work directly with individual investors.
CFP Requirements and Exam
The basic requirements for the CFP®, as specified by the CFP® Board of Standards, are a bachelor’s degree in any major, 6,000 hours of financial planning professional experience (or 4,000 hours of apprenticeship experience), and passing a 6-hour exam. The 6-hour exam covers investment planning, insurance, estate planning, risk management, taxes, and retirement planning.
With a few exemptions, applicants to take the exam must complete a set course of study in relevant financial planning areas. There are eight required courses that are conducted on college campuses nationally and take about nine months to complete. They include:
- Professional conduct and regulation
- General principles of financial planning
- Risk management and insurance planning
- Investment planning
- Tax Planning
- Retirement savings and income planning
- Estate planning
- Psychology of financial planning
People who benefit the most from the CFP® designation are usually those who want to work directly with individual clients.
There are opportunities nationally for people with a CFP®, but it is not necessarily the key to a high-paying job. It can be the key to an entrepreneurial role. Income potential is determined by the sales performance of the financial consultant, not by a salary scale.
How to Choose
In choosing which to pursue, ask yourself what kind of work you want to do, where you want to work, and if you want to work as an employee with a guaranteed salary or as an entrepreneur where the sky (and the basement) is the limit.
Of the three designations, only the CPA is governed by state laws in order to protect the public interest.
No matter which you choose, each of these three financial designations will provide ample professional opportunities in return for the time and energy spent to earn them.