A proliferation of financial designations has flooded the professional marketplace. The need for greater specialization brings an increased granularity to the profession and the evolution of financial markets. How useful a credential is to its holder and their employer depends upon one’s area of focus and the rigor and scope of the designation.

Certificates

A certificate is a document that confirms an individual has attained a specific knowledge set and is qualified to perform a certain line of work. Certificates can be attained through short-term courses or long-term academic programs. Certificates stand in contrast to licenses, which are a legal authority granted by a state allowing an individual the ability to perform a certain profession.

The usefulness of the different certificates varies depending on whether the financial services being provided are retail financial services or institutional financial services.

Retail Financial Services

Retail financial services providers such as financial advisors, registered representatives, and tax professionals deal directly with individual clients and generally require a license. What differentiates a financial services employee in a competitive job market if a license is a bare minimum to practice in one of these fields?

While natural ability and talent certainly help, getting the right label is quite important. Two certifications not required, but highly coveted for practice with wealthy clients, are the Chartered Financial Analyst (CFA) and the Certified Financial Planner (CFP).

Chartered Financial Analyst (CFA)

Once the preserve of institutional money management, the CFA charter is also sought after by private wealth managers looking for an edge in approaching an increasingly sophisticated clientele. A CFA charter holder must satisfy ethics requirements, have at least four years of appropriate work experience, and complete three difficult examinations in securities analysis and portfolio management.

Aspiring analysts must meet the following requirements to be eligible for enrollment:

• Have a bachelor’s degree
• A combination of 4,000 hours of work experience and/or higher education over at least three years. The experience must include teamwork, leadership, communication, critical thinking, analytical skills, time management, and professional judgment skills.

The CFA Institute’s Council of Examiners keeps the curriculum relevant to the challenges of the marketplace and the evolving body of knowledge. Preparation is through self-study. The curriculum is at the graduate level. Most financial service employers list a CFA charter as required or at least highly desirable. The cost for each CFA exam level in 2022 is $1,200, plus a $350 enrollment fee. There are three levels of the CFA exam. Annual national and local society dues apply as well for charter holders.

Certified Financial Planner (CFP)

Practitioners inclined to a more holistic approach to planning may pursue the path to becoming a Certified Financial Planner professional, of which money management is but one sleeve. Multidisciplinary in scope, the credential encompasses insurance, education, asset management, tax, employee benefit, and estate planning. To become a CFP professional, the candidate must:

• Be a college graduate.
• Complete financial planning coursework or the equivalent
• Satisfy a 6,000-hour work experience requirement (or 4,000 of approved apprenticeship experience)
• Meet professional conduct or ethical standards
• Pass a board exam that takes place in two 3-hour-sessions over one day.

CFP certification is often the route for fee-based financial planners who take a big-picture view of their clients’ finances.

Although most professionals are based in the U.S., the Certified Financial Planner Board of Standards has addressed global interest in the marks by delegating the administration of the exam outside of the U.S. to the Financial Planning Standards Board (FPSB). This non-profit organization sets standards for the exam in the various countries that administer it, as planning is very much a function of a nation’s tax code, financial and tax law, and regulation. The standard cost of the exam is $925 in 2022. Annual dues are required, and continuing education of 30 hours reported every two years is also required.

Chartered Life Underwriter/Chartered Financial Consultant (CLU/ChFC)

Among the oldest designations in the financial services profession, the Chartered Life Underwriter (CLU) and Chartered Financial Consultant are conferred by The American College. Both cover subject matter that significantly overlaps that of the CFP exam, though insurance underwriting is emphasized in the CLU designation. The difference is that to attain each, one needs to complete eight separate multiple-choice examinations on various subjects such as taxation, estate planning, and investment management.

Additionally, these two certifications are geared toward finance professionals interested in expanding their knowledge in specialized areas (with the CLU) or more advanced financial planning (through the ChFC). The total cost of the CLU is $2,260 for the three-course package and $3,500 for the complete five-course package. For the ChFC package, the price for the three-course package is $2,260, and for the eight-course package, $5,670.

Often, people obtain both certifications as many of the courses form part of both curricula and their combined pursuit costs little more than each individual one. A three-year work experience and continuing education are both required.

Certified Public Accountant (CPA)

Though technically not a certification, the certified public accountant (CPA) license is a powerful differentiator in tax preparation, business planning, and financial analysis. A CPA can represent clients before the Internal Revenue Service (IRS), typically a privilege reserved for attorneys or enrolled agents.

Additionally, certified public accountants often pursue significant operational roles in companies. These roles may be the chief financial officer (CFO) or the chief operating officer (COO). Finally, CPAs are well-versed in the double-entry system of accounting, making them highly proficient in financial statement analysis.

Institutional Services

With institutional services, the client is an institution such as an endowment or pension fund. Analysts in this sphere of professional practice focus on big-picture issues of security selection, investment policy, performance measurement, and risk management. These areas have been and continue to be the traditional preserve of the CFA charter holder. Yet, in the past 25 years, two credentials of note have arisen to address subsets of the investment world.

Chartered Alternative Investment Analyst (CAIA)

Administered and conferred by the CAIA Association since 2002, the Chartered Alternative Investment Analyst program grounds the candidate in the fundamentals and advanced study of managed futures, hedge funds, real estate, private equity, and credit esoterica (credit derivatives and structured products).

Candidates demonstrate their knowledge of products and their application over two levels, the former covering the terrain of products and the latter more advanced topics of study that build upon what the student learns at the first level.

An ethics component that borrows the CFA Institute’s Code of Ethics and Standards of Professional Conduct is a significant part of the exam. Each level is administered in September and March. The standard cost of each level of the two-level program is $1,795, plus a $400 enrollment fee. Work experience, education, and continuing education requirements apply.

Financial Risk Manager (FRM)

The Global Association of Risk Professionals (GARP) administers the Financial Risk Manager (FRM) program. It confers the Financial Risk Manager certification upon candidates who complete two levels of multiple-choice examinations in the discipline of investment risk management. Level I emphasizes the fundamentals of quantitative analysis, markets and products, valuation, and the risk and foundations of risk management.

Level II builds upon this foundation, focusing on market, credit, operational risks, risk management, investment management, and current issues in financial markets. Created in 1997, the credential has evolved from one to two levels in the past several years in response to the financial crisis of 2008, which is widely viewed as a risk management boondoggle.

FRM holders work for financial institutions, regulators, and consulting firms. The entire program costs $2,000 and can be completed within four years. There is a work experience and optional continuing education requirement.

The Bottom Line

To know what credential is most appropriate, professionals need to understand what they do or are aspiring to do. The right certification often helps close a knowledge gap and can lead to career and salary advancement. For the ambitious, more than one may be appropriate and a means to make oneself that much more marketable in the increasingly complex and evolving financial services profession.