The Top Three Financial Advisor Certifications and How to Get Them

By sindhu sundar

There are generally two kinds of financial advisors: Those that have long strings of letters on their business cards after their names; and those that have even longer strings of letters. And for good reason.

From the CFA (Chartered Financial Analyst) to the ChFC (Chartered Financial Consultant) to the CLU (Chartered Life Underwriter), certifications can help enhance your FA career by signaling to clients and colleagues that you are a serious professional committed to excellence.

"The benefits here are threefold," said Kevin Keller, CEO of the CFP Board. "For the candidate there's a real sense of accomplishment in passing an exam that many people don't. It's good for the companies that hire them because we hear anecdotally that in large companies, certificants perform well in all the major performance metrics like client retention, and satisfaction. And thirdly, it's obviously good for clients, who're getting a higher quality of service."

Aspiring advisors are rising to the call, enrolling in droves in attempts to get an edge in a crowded field that caters to increasingly fickle and skittish investors.

Figures from the CFA institute indicate that registration for the Level 1 CFA exam increased by nearly a third in 2008, with the registration for the exam peaking at a 41 year high this year.

"There is this counter-cyclical relationship between education enrolment and the economy," says Bob Johnson, the senior managing director at the CFA institute. "It always increases during financial crises. People want to get as many arrows in their quiver as possible."

And yet, major certification examinations, including all three levels of the CFA exam, cost time and money to take and consistently have a fail rate hovering around 50% or more.

Given the career implications, the cost and likelihood of failure, the decision of which FA certification to go after is an important one. Experts say it depends on what you hope to specialize in. If you want to go into estate management, you should consider the CFP certification, whereas if your interest lies in executive compensation planning you might want to invest in a more specialized certification like the ChFC.

Regardless of your specialty, there are three certifications that every FA should consider: the CFA, the CPA (Certified Public Accountant), the CFP (Certified Financial Planner). These three are the most popular among FAs and also distinguish themselves with an emphasis on a strict code of ethics that is overseen and enforced by boards of professionals working in the field.

Here's the lowdown on each of these three certifications and how you can get them:



Chartered Financial Analyst (CFA)

What It Is: A certification course for analysts who want to increase their proficiency in accounting, investment analysis, economics and money management. Issued by the CFA Institute, the designation has been hailed as the "gold standard" in portfolio management by The Economist for the scope of its syllabus and the rigor associated with it. The certification is awarded only to those who pass three levels of exams, though passing even one level would be a plus for your resume, CFA holders say. Unlike other financial advisor certifications that have requirements that vary from state to state, the CFA certification is uniform and globally recognized.

Minimum Requirements: You must either be in the final year of your bachelor's degree course or have at least four years of finance work experience if you don't have a bachelor's. Study in an area within finance such as economics or accounting is advantageous, but having a bachelor's degree in an unrelated field doesn't automatically preclude enrollment. Johnson of the CFA institute calls it a "meritocracy" that allows any candidate to enroll regardless of age or field of study. "We don't ask your lineage, reference or make you write an essay," says Johnson. "We let virtually anyone in but you have to prove your way out."

Exam Structure: The curriculum, devised by a board of CFA charter-holders and CFA institute professionals, is split into Levels I, II and III. Level I is focused on ethical standards, while levels II and III are oriented around valuing securities and portfolio management, respectively. The Level I exam is offered twice a year in June and December, whereas Levels II and III are offered only in June. Tom Robinson, the managing director for education at the CFA institute estimates that successful candidates take 3 1/2 years on average to complete the exams and obtain the certifications. "You're going to need to be willing to put in the time it takes," said Robinson. "We're not looking to offer any short-cuts."

Pass Rate: The overall pass rate has steadily been under 50% over the last 5 years, with pass rates for all three levels last year averaging at 43%. The pass rate for the CFA Level III exam this year fell to an all time low, with 46% passing, compared to 49% last year.

Related: Could a Higher CFA Fail Rate Be a Sign of Stability?

Time: With six books totaling 2,700 pages of information to take in, the material requires a massive time commitment. The CFA Insititute estimates students spend approximately 300 hundred hours of study on each exam. The course is designed largely as self-study with material in the form of PDF files and e-books available on the CFA site for a fee of $40 per book.

Expense: The cost of registering for all three exams is $1,385, which includes a one-time Level I exam and enrollment fee of $480.



Certified Public Accountant (CPA)

What It Is: An advanced accounting certification that qualifies accountants for rigorous audit services in public accounting. The designation is awarded by the American Institute of Certified Public Accountants and unlike the CFA certification, the requirements for qualification vary from state to state.

"The best thing about the CPA credential is that it is valued in the marketplace," said Heidi Brundage, a technical manager at the American Institute of Certified Public Accountants. "When you tell people you're a CPA, they have this image that you're trusted. And that's worth every bit of effort."

Minimum Requirements: Candidates must have a bachelor's degree in Accounting or a related field in order to register for the exam. Qualifying for the CPA designation requires a further one to two years of accounting work experience under the supervision of a CPA with a valid license, depending on the state.

Exam Structure: There are four sets of exams, which are taken at separate sittings. The segments are broken into auditing and attestation, business environment and concepts, financial accounting and reporting and lastly, regulation. Each exam is either three or four hours long, with the total length of examinations coming up to 14 hours.

The CPA exam, which is slated to undergo more changes next year, adopted a computer based format in 2004, when it included a multiple choice section and a section for case studies known as "simulations." Simulations require the test-taker to go over real-life scenarios that test their written communication and spreadsheet skills.

Pass Rate: The cumulative pass rates for the various sections of the certification this year were roughly 50%, with many CPA holders attesting to the difficulty of passing the first time. "For me, it was a building experience...I didn't pass all four parts on the first try," said Brundage. "But it slowly built my knowledge."

Fees: First time applicants pay an application fee of $175. The four exams together cost $785.



Certified Financial Planner (CFP)

What It Is: A professional certification for financial planners that focuses intensively on areas such as estate, retirement and insurance planning. The designation is awarded by the American Institute of Certified Financial Planner Board of Standards Inc. The certification stands out not only for its difficulty of qualifying, but also in enforcing a strict code of professional ethics.

"Trust is very important," said Kevin Keller, CEO of the CFP Board. "The SEC now contemplates requiring fiduciary standard of care, but the CFP Board took those steps long before the meltdown." CFP holders who breach the stipulated code could find their certification revoked by the Board.

"The clear distinction here is that we are not a member organization," said Dan Drummond, director of public relations for the board. "Although we do care about our certificants, we are not in a position to respond to them. Our job is to benefit the public."

Minimum Requirements: Candidates must have a bachelor's degree in order to register for the exam, though it can be in any field. Keller reports participants from a wide ranging group of professions including teaching and dentistry. However, qualifying for the CFP certification itself requires at least three years of financial planning experience. "The goal of the program is not just to teach people to take the exam but to ensure that they have the foundation to do financial planning as a profession," said Drummond. "And it's not just about getting the certification, it's about being steeped in the tradition of investments and a holistic approach to planning."

Exam Structure: The exam is comprised of 285 questions and split into two parts. It takes ten hours over two days to complete and is conducted three times a year -- in March, July and November.

Pass Rate: The exam has average pass rate of 55% to 60%

Fees: $585 for the exam. But the certification needs to be renewed every two years, which costs $360.

Write to Sindhu Sundar




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