Andrew Gluck

ContactAndrew Gluck is a veteran financial reporter and the founder and CEO of Advisor Products Inc., a marketing company serving 1,800 financial advisory firms.
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Is The CFA Designation Overtaking The CFP As The Pre-Eminent Designation For Providing Financial Advice To Individuals? edit
Tuesday, July 05, 2011 23:46

Whether financial planning will become the framework for client relationships over the next decade is a big unknown. Financial planning was on its way to becoming the way—the methodology for advising consumers in America. But the movement is stalled. 

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I’ve lately written about challenges to the CFP business model, the future of the CFP profession, and the financial planning movement in America.
 
Though the financial planning movement grew rapidly in the 1970s, 1980s, and 1990s, its future is less clear.
 
One complication is the length and severity of the economic downturn. While the CFP endured previous recessions the current cycle is longer and deeper. It’s eroded the middle class and shrunk the ranks of the mass affluent.
 
Making matters worse for the CFP designation is the growing popularity of the Chartered Financial Analyst designation.
 
 
 
Though the CFP has long been the most recognized and respected financial advice credential, CFAs have gained strength in recent years.
 
Growth in the two designations has been neck and neck over the past decade. About as many CFA wealth-advisors annually have entered the investment advice industry in recent years as CFPs.
 
 
 
Consequently, the direction of the independent financial advisor profession—toward the CFP or CFA designation—is likely to be decided in the decade ahead.
 
The stakes are high in this battle to become the most popular designation for financial advice professionals.
 
CFPs were on a roll for many years. In the 1980s and 1990s, the CFP designation was embraced by wirehouses as well as independent advisors. Now, however, wirehouse brokers seeking to professionalize have a choice other than the CFP designation.
 
The CFP Board’s focus on doing what it deems as best for consumers collides with positions of the wirehouses. For example, SIFMA, the trade group for wirehouses, opposes the CFP Board proposal to apply to brokers the fiduciary standard mandated under the Investment Advisers Act of 1940. That’s the biggest issue to face the finance advice business in many years.
 
As independent advisors have grown in number, the fee-only financial planner movement—represented by the Financial Planning Coalition—is no longer as important a force in shaping the direction of the independent advisor industry. A more heterogeneous advisor industry is taking shape, populated by CFAs as well as CFPs.
 
The nation’s 60,000 CFP licensees will not suddenly become extinct. But the CFP could permanently fade in importance and be overtaken by the CFA. It could be relegated to the No. 2 designation for retail clients.
 
The CFP-CFA rivalry is going to be major theme in shaping the independent advisor industry. CFAs are more focused on investing. Their clients don’t need budgets, college funding plans, and long-term cash-flow forecasts. The clients of CFAs need risk management, strategic tax advice, and estate planning, and financial planning is not nearly as important in their work as it is in the CFP’s approach.
 

This battle for preeminence between the CFP and CFA designations will be a big factor in the industry over the next decade.

 

Comments (10)

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rickf248
Certifications are pieces of paper that say we passed certain written tests. They are not titles and they are not job descriptions. An advisor's occupation is based on how they are paid, not what they say they do. An advisor who is charging an AUM fee is a money manager, not a financial planner.
Today, the preferred business model for many CFPs is to be paid by AUM. So it stands to reason they should be trained as a money manager and have a money manager designation, a CFA. It appears people in the business are figuring this our as your article eloquently addresses.
rickf248 , July 06, 2011
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mitchellkeil
Andy
You have written about this topic often over the past several months. Could you be more specific about the CFA designation. What level CFA are you referring to and it is your contention that the challenge is coming from anyone gaining the CFA designation at whatever level or certain types of CFAs. My aquaintance with CFA's would lead me to question your assumptions. Most CFAs I know either work for an institution, hedge fund, institutional money manager, or some other firm willing to pay well for their services and skill set. Many are quite capable number crunchers and back office types but few have the people skills that are required to deal with the public and with wealthy clients who are looking for real personal service and contact. Don't get me wrong. I am not saying that the CFA is a nerd designation or that a CFA can't do the public thing. It's just that my experience is that those who get CFAs of my aquaintance are not comfortable with client facing interaction and prefer working for someone or a firm as opposed to creating their own planning entity.
I know that I am going to stir up a hornet's nest with this post, but I just don't get your concern about CFAs challenging the CFp.
mitchellkeil , July 06, 2011
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Jeff
I recieved the CFA charter in 2004. The CFP Board lets you sit for the CFP exam (without taking the coursework) if you have the CFA designation. So in 2006, I sat for the exam and passed without studying. I think the CFP should beef up the curriculum and make it harder to pass. That will make the CFP designation more valuable. In my estimation, the CFA exams are about 20 times harder to get than the CFP. There is no question that the level of complexity of the CFA material is far more than the CFP. But the public knows more about the CFP so it's valuable to have both for marketing.

Now let's turn the focus from which of these "real" designations is better and shine a bright light on all the bogus designations out there! There are SO many designations that have NO standards. All you have to do is "pay a fee and you get a degree" to put 3 letters after your name. Let's tell the public about the crappy designations that dont mean anything.
Jeff , July 06, 2011
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rickf248
Mitchel
Sorry, but your off color comments about CFA's are just to much to stay quite. It sounds like your making excuses for not earning a CFA. That's understandable. As Jeff wrote, there is huge difference between the work and time it takes to earn a CFA charter and what it takes to earn a CFP certificate. The level of complexity in the CFA material is far more than the CFP.
rickf248 , July 06, 2011
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mitchellkeil
Rickf248
You may have noticed that I indicated that I expected to stir up a hornet's nest with my post. "Off color" indicates a comment that is at the least rude and more likely laced with profanity and the like. I don't think my comment qualifies as such. Did I make excuses for me? Please re-read my post and I hope you will also notice that I did not indicate my qualifications or interest in the CFA. What precisely is "understandable" to you?

I wanted to know what level CFA Andy was commenting on and still do. As I am sure you know there are 3 levels and each is more difficult to attain than the prior level. Would you disagree that most CFA's are not in public facing relationships through their employment? Would you disagree that the skill sets involved seem to motivate most CFAs to seek employment in high paying positions with Hedge Funds, Institutional Money Managers and the like? You seem to ignore my comment that the CFA is not a nerd designation or that some CFA's can do the public thing. My only comment with I think you might find issue with is the one in which I say that CFAs, of my aquaintance, are not really comfortable with interacting with the public. They seem more comfortable out of the publice eye. "Of my aquaintance" would seem to indicate the limit of my comment.

And as to Jeff's comment that there is a huge difference between the work and time it takes to get a CFA designation, I completely agree. There is no comparison between the two on that metric.

I think it is a conversation worth having whether there is some erosion in the popularity of the CFP mark and the implications for the profession of financial planning and those members of the public seeking advisory relationships. But I want to clearly understand the terms of the discussion. The CFA Institute merely "estimates" the numbe of CFA designees who seek employment in the private wealth management environment. Conversations based on a self interested entity's estimates really are not worth having. Once again, I would certainly like to know how many of these "estimated" CFAs are in client facing relationships, marketing, product development, investment research and the like. The terms of the debate do make difference wouldn't you agee?
mitchellkeil , July 07, 2011
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edgjii
The FDA just announced that the demand for apples is under pressure from a rising demand for oranges. While apple growers won't soon switch to planting orange groves, their heated rivalry won't be ending anytime soon.

Apples have been a long-standing staple emanating from the leadership of Johnny Appleseed. But of recent times, the apple community has experienced stagnation. Affordable healthcare has made the apple a day prescription obsolete. The attempt by apple growers to create a low cost alternative to rising medical costs is no longer needed.

Oranges, while slightly different from apples, have successfully aligned themselves with sports and sunny states. The rise in popularity of independent natural food markets has also helped bolster the simplicity of oranges over the often confused varieties of apples.

No one knows for sure how this will end but one thing is for certain, when comparing apples to oranges, one doesn't need to have all the facts, just an opinion.

edgjii , July 08, 2011
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rhj
I have the CFA charter and the CFP designation. I cannot meaningfully contribute to the conversation reagarding which is "better." But regarding the CFA charter, understand that there aren't three CFA "levels." There are three exams (which indeed are called Levels I, II, and III), and a candidate must pass all three exams (and meet other requirements) to earn the charter. There is only one type of CFA charter. A candidate may accurately represent that s/he has passed exam Levels I, II, or III, but cannot refer to him-/herself as a "Level II CFA," for example, as there is no such thing.
rhj , July 10, 2011
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Jeff Weiand
This has to be one of the most riduculous questions ever raised. And as someone so eloquently pointed out above, why in the world would anyone ever even think of comparing the CFA with the CFP (apples and oranges)? The only thing they have in common is the fact that they are both very reputable in their own way. Beyond that, anyone who has earned either or both knows how distinctly different they are and the purpose they serve. So the ultimate question is, what is the perception of the non-practicing "media types", ie., Mr. Gluck as well as the general public? Perhaps there is some confusion there which does not surprise me. But to pose this comparison to a group of Advisors is just one the most absurd questions I have ever heard. Preeminence is not defined by the growing number of designees by comparison. There's a rapidly growing number of financial products and a push to hire to fund managers, wholesalers, and fund reps and I applaud and enjoy working with those who have earned their CFA. So I'm not at all surprised by the growing numbers. But if I need financial planning advice, you better have your CFP.
Jeff Weiand , July 11, 2011
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agluck
The apples and oranges distinction is lost or unimportant to consumers. Their main concern is investing.

To deny a problem in the CFP business model, challenges from competing designations, and the changing character of the financial advice profession is ridiculous to me.

Please read other stories I've written on this issue that are linked above to understand the broad trends and foundation of my thesis.
agluck , July 11, 2011
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meridianfinancial
The fact that their main concern is investing is exactly why they need and advisor. A real advisor is not just a portfolio manager but a wealth manager which includes estate planning, life insurance, LTC, analyzing retirement packages that include life insurance, annuities, healthcare, options strategies, when to take SS, funding for education, the best way to finance college etc..... Everyone comes in the door thinking it is all about investments but the other areas are just as important. Dying without a will or not having a healthcare proxy, not keeping your beneficiaries up to date. It is the advisors job to educate their clients that help them with ALL of their financial needs not just their investments. Anything otherwise is malpractice in my opinion. I am a CFP and have passed levels I & II of the CFA designation. While the CFA has given me a much deeper underatnding of markets and portfolio management and does allow me to do an excellent job for my clients the more important skill is communication. I am more of an analytical type which I have to temper. it is not one over the other. The knowledge gained by both is important but there is no substitute for experience. Whoever provides excellent client service and results will do well no matter what their credentials.
meridianfinancial , July 11, 2011

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