The Alphabet Soup of Financial Certifications
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The Alphabet Soup Of Financial CertificationsNovember 26 2010 | Filed Under Bonds,Economics,Hedge Funds,Insurance,Investing Basics,Options,Retirement,Technical Analysis
If you have trouble telling the difference between a CFA, CFP, CIC, ChFC or any of the other
financial certifications, you're not alone. How do you sift through this alphabet soup to find the best
financial professional for you? Here we look at the nine most popular designations with a brief
explanation of the education and expertise each designation signifies and the kind of work done by the
professionals holding them.
Certified Financial Planner (CFP)
Those with theCFP designation have demonstrated competency in all areas of financial planning.
Candidates complete studies on over 100 topics, includingstocks,bonds, taxes, insurance, retirement
planning and estate planning. The program is administered by theCertified Financial Planner Board of
Standards Inc. In addition to passing the CFP certification exam, candidates must also complete
qualifying work experience and agree to adhere to the CFP Board's code of ethics and professional
responsibility and financial planning standards. (For more on obtaining the CFP designation, click
here.)
Afinancial plannerworks with individuals to help them understand their options and make financial
decisions suited to their personal financial situation and goals. Since, because of the nature of their
work, a lot of trust is placed in these individuals, theCFP Boardposts information on the financial
planning process and current licensees, allowing clients of CFPs to verify if their financial planners'
designations are in good standing. The last thing anyone needs is to choose a CFP whose certification
has been revoked.
Chartered Financial Analyst (CFA)
This designation is offered by theCFA Institute(formerly the Association for Investment Management
and Research [AIMR]). To obtain theCFAcharter, candidates must successfully complete three
difficult exams and gain at least three years of qualifying work experience, among other requirements.
In passing these exams, candidates demonstrate their competence, integrity and extensive knowledge
in accounting, ethical and professional standards, economics,portfolio managementand security
analysis. (For more on obtaining a CFA designation, clickhere.)
CFA charterholders tend to be analysts who work in the field of institutional money management and
stock analysis, not financial planning. These professionals provide research andratingson various
forms of investments. (For more on the different types of analysts, see the articleAnalyzing The
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Analysts.)
Certified Fund Specialist (CFS)
As the name implies, an individual with this certification has demonstrated his or her expertise in
mutual fundsand the mutual fund industry. These individuals often advise clients on which funds to
invest in and, depending on whether or not they have their license, they will buy and sell funds for
clients. TheInstitute of Business and Finance(IBF), formerly known as the Institute of Certified Fund
Specialists, provides training for the CFS, and the course focuses on a variety of mutual fund topics,
includingportfolio theory,dollar-cost averagingandannuities.
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The knowledge these CFS designees hold is kept current through their continuing education
requirements.
Chartered Financial Consultant (ChFC)
Individuals with the ChFC designation have demonstrated their vast and thorough knowledge of
financial planning. The ChFC program is administered by theAmerican College. In addition to
successful completion of an exam on areas of financial planning, including income tax, insurance,
investment and estate planning, candidates are required to have a minimum of three years experience
in a financial industry position.
Like those with the CFP designation, professionals who hold the ChFC charter help individuals analyze
their financial situations and goals.
Chartered Investment Counselor (CIC)
Given by theInvestment Counsel Association, this is a designation that CFA charterholders who are
currently registered investment advisors can study for. The focus of theCICprogram is portfolio
management. In addition to proving their high-level expertise in portfolio management, these
individuals must also adhere to a strict code of ethics and provide character references.
Individuals who hold the CIC charter tend to be some of the major players in the financial world, such
as those whomanage large accountsand mutual funds.
Certified Investment Management Analyst (CIMA)
This designation focuses onasset allocation, ethics, due diligence, risk measurement, investment
policy and performance measurement. Only individuals who areinvestment consultantswith at least
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three years of professional experience are eligible to try to obtain this certification, which signifies a
high level of consulting expertise. TheInvestment Management Consultants Associationoffers the
CIMA courses.
Individuals who hold CIMA designations are required to prove their expertise through continual
recertification, which requires CIMA designees to complete at least 40 hours of continuing education
every two years.
CIMA designation holders tend to have careers with financial consulting firms, which involve extensive
interaction with clients and the management of large amounts of money.
Chartered Market Technician (CMT)
To achieve this designation, an individual must pass three exams offered by theMarket TechniciansAssociation (MTA)and agree to adhere to the MTA code of ethics. Individuals with the CMT
designation have a demonstrated expertise in the field oftechnical analysis. Often CMTs will work for
hedge fundsand money management firms.
Certified Public Accountant and Personal Financial Specialist (CPA and PFS)
Those holding theCPAdesignation have passed examinations on accounting and tax preparation, but
their title does not indicate training in other areas of finance. So, those CPA holders who are
interested in gaining expertise in financial planning in order to supplement their accounting careers
need to become certified as personal finance specialists (PFS). The PFS designation is awarded by the
American Institute of Certified Public Accountantsto those who have taken additional training and
already have a CFP designation.
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Chartered Life Underwriter (CLU)
This designation is issued by the American College, and those who hold it work mostly as insurance
agents. The CLU designation is awarded to persons who complete a 10-course program of study and
20 hours of exams. The course covers the fundamentals of life and health insurance, pension
planning, insurance law, income taxation, investments, financial and estate planning, and group
benefits.
How Meaningful Are These Letters?
While certifications are not everything, you should give extra credit to investment professionals who
have them. Most of these certifications require candidates to put in many hours of study and meet
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high ethical and professional standards. For instance, to get the CFA designation, candidates must put
in approximately 250 hours of reading per exam, and there are three exams to write. The tests are so
intensive that approximately 64% of those who write just the level 1 exam will fail. Those who make it
through all three levels and become charterholders are also bound to a code of ethics and rules of
professional conduct, among other requirements.(For further reading, seeDispelling the Myths
Surrounding Financial Planners.)
Although the exams can be intense and the hours can be long, the designations should only be one
part of your criteria when deciding on a financial professional. (For more on this decision-making
process, seeShopping For A Financial Advisor.)
Conclusion
If you have to deal with a financial professional, it's important that you know the extent of his or herexpertise in different areas of finance. Now you have an idea of what some of the designations mean
and what they require from those who hold them.
CPA, CFA Or CFP - Pick Your Abbreviation CarefullyJune 01 2010 | Filed Under Economics,Entrepreneur,Insurance,Professional Education,Retirement
Whether you're searching for a good career path or just curious about the different financial
credentials, this article will help guide you through three of the best known professional designations
in the financial industry:Certified Public Accountant(CPA),Chartered Financial Analyst(CFA) and
Certified Financial Planner(CFP). Each of these three has a core career focus, and although their
abbreviations often sound interchangeable, each designation gives you something unique. Follow
along to discover how much coursework and study each designation requires, what careers they
typically lead to and how much you could make. (For a basic breakdown on these designations and
more, check outThe Alphabet Soup Of Financial Certifications.)
Certified Public Accountant (CPA)
For most people, a CPA is best known as the person who prepares tax returns. CPAs certainly do that,
but they do much more as well. A CPA license is legally required in order to do particular jobs, such as
public accounting (independent auditing). However, one does not require a CPA license in order to
prepare tax returns. State laws govern what CPAs can and cannot do with their license. (If you're
looking for a good accountant, check outCrunch The Numbers To Find The Ideal Accountant.)
Requirements: Requirements vary by state, but in general, in order to sit for the CPA exam,
applicants must have a bachelor's degree with 120 semester hours. To obtain the CPA designation,
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applicants must pass the Uniform CPA Exam, gain relevant work experience and meet additional
educational requirements. Overall, additional educational requirements usually consist of 24-30
semester hours in accounting, earned through a graduate or bachelor's degree in business. Many
states also require a minimum number of one to two years accounting and/or auditing experience.
Some states may require 150 semester hours to obtain the CPA.
Aside from the experience requirements, a CPA license usually takes about 18 months to complete
beyond the educational requirements. Many students choose to pursue a masters degree in
accounting to fulfill their educational requirements.
Exam: Although classroom requirements are a major requirement, the CPA exam is a difficult task in
its own right. Exams are administrated by the American Institute of Certified Public Accountants, the
governing body of CPAs in the United States. The 14-hour computerized exam consists of foursections:
1. Auditing andattestation
2. Financial accounting and reporting
3. Regulation
4. Business environment and concepts
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Careers: Many undergraduate accounting students receive job offers long before they graduate.Accounting is an in-demand field and is projected to continue to be so. According to the U.S. Bureau
of Labor Statistics, employment is projected to grow 18% between 2006 and 2016; this amounts to
nearly 226,000 new positions. For CPAs wishing to advance to senior-level corporate positions, two to
three years of experience at a major accounting firm is crucial.
For those seeking gainful employment but not wishing to climb the corporate ladder, there are
numerous positions available in every city for accountants at small accounting firms and practices. For
more ambitious job seekers, lucrative CPA positions are available in hedge fund accounting and
Sarbanes-Oxley-related work. The chief requirements for these positions are experience and an
excellent educational background. (To learn the history of the accounting profession, check outThe
Rise Of The Modern-Day Bean Counter.)
Chartered Financial Analyst (CFA)
The CFA reputation in the business community is world class, and CFA charterholders work in many
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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. Although the CFA designation is not a legal requirement
to perform work as afinancial analyst(the cornerstone CFA job), it is a great way to get a foot in the
door for one of the most difficult jobs to crack. (For more on the pros and cons of this demanding
designation, seeSo You Want To Earn Your CFA?andBecoming A Financial Analyst.)
By reputation, 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 even held in higher esteem than an MBA.
Requirements: The CFA designation (granted by the CFA Institute) earns its reputation mainly due tothe grueling process candidates must endure to earn the CFA charter. While the exam is very
democratic and open to anyone with a bachelor's degree, the only people with a realistic chance of
passing are those who are serious about the field. The three general requirements to earn a CFA
charter are to pass three exams, have an undergraduate degree (in any subject) and have three years
related work experience in the financial area.
Exam: To earn the CFA charter, candidates must pass a six-hour exam for each of three levels. The
first exam is available twice per year (in June and December) and the next two are only available in
June. The pass rates on the three tests are slightly above 50%, so if you don't pass the second or
third exam, you must wait one year to take it again.
Each of the three tests has overlapping material such as ethics and financial analysis. Generally,
though, the first test covers broad financial principles, the second is a very intensive exam on financial
analysis and accounting, and the third exam covers portfolio management and decision making. (For
more on surviving your CFA exams see,Pass Your CFA Exams The First Time.)
Careers: According to the CFA Institute, 55% of charterholders work forinstitutional investorsas in-house analysts, 15% work forbroker-dealers, and the remaining 29% work for universities and the
government. While not nearly as numerous as CPA jobs, CFA-related jobs are perhaps more lucrative.
CFA Institute's 2007 Member Compensation Survey reports that the median compensation for an
equity portfolio manager with less than five years of experience is $495,000. With over 10 years
experience, the median yearly salary went up to $555,000.
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Certified Financial Planner (CFP)
The Certified Financial Planner (CFP) is the only designation of the three focused on investing. It
provides an extremely practical course of study for those wishing to work directly with individual
investors. The focus of the CFP is to trainfinancial advisorsto create and implement financial plans for
investors.
Requirements and Exam: The requirements for the CFP, as specified by the CFP Board of
Standards, are a bachelor's degree in any major, three years financial planning experience, other
educational requirements (see below) and an exam. The 10-hour exam covers the following:
investments planning, insurance, estate planning, risk management, tax and retirement planning.
In order to take the exam, one must complete a prescribed course of study - unless exempt - inrelevant financial planning areas. These six required courses take about nine months to complete and
are conducted on college campuses nationally. They are:
1. Financial planning: process and environment
2. Fundamentals of insurance planning
3. Income taxation
4. Planning for retirement needs
5. Investments
6. Fundamentals ofestate planning
Careers: People who benefit the most from the CFP designation are those who usually work directly
with individual clients. Opportunities exist nationally for people with the CFP, but it is not necessarily a
key to a high-paying job, as opposed to the CPA designation. There is no typical salary with the CFP,
as it helps gain client credibility in what is essentially an entrepreneurial position. Income potential is
determined by the sales performance of the financial consultant, not by a salary scale. (If you aren't
sure financial planning is for you, check out the quiz inIs A Career In Financial Planning In Your
Future?)
Parting Thoughts
Of the three designations, only the CPA is governed by state laws (to protect the public interest). In
choosing a designation 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 an entrepreneur where the
sky (and the basement) is the limit. No matter which you choose, each of these three financial
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designations will provide ample professional opportunities for those who spend the time and energy to
earn them.
To learn the pros and cons of these designations and more, readFinancial Designations Aren't All
Created Equal.
Certifications and Designations
Business Valuation Analysts: Certifications and Designations
Business valuation practitioners should have very specific experience and expertise. The expertise isdeveloped through rigorous academic and professional training. Individuals who retain (and individuals
who rely on) valuation services should carefully evaluate the analyst's training, credentials, andexperience.
Credibility is an important characteristic for a valuation analyst. While a reputation for honesty and qualityof work is critical to building credibility, earning the appropriate professional credentials also reflects onthe analysts ability.
The certification process, from the multiple certifying associations, is at the core of the business valuationprofession. It is one of the key ways firms distinguish themselves, withstand challenges Dalbert(seearticle on expert challenges) and keep their inventory of skills current.
According to a recent BVR survey, the typical firm in the business valuation market has 2.1 educational orprofessional designations per employee. If you only include appraisers, and senior and junior analysts,the ratio jumps to 2.4 certifications per professional staff.
An undergraduate or graduate curriculum in economics, accounting, and finance provides an appropriateacademic foundation for the business valuation practitioner. Largely influenced by the presence of largeM&A and accounting firms which provide business valuation services to clients, two of the top three of themost common professional designations are specifically not necessarily appraisal-related, but, in fact,professional (the CPA) and educational (an MBA).
Also, a professional designation such as chartered financial analyst (CFA) is a common credential forvaluation analysts. The CFA designation is earned through the CFA Institute (see chart below).
The chartered financial analyst program is a widely recognized credential that demonstrates thecompetence and integrity of financial analysts. Three levels of examination measure a candidates abilityto apply the fundamental knowledge of investment principles at a professional level. To be awarded the
CFA designation, a candidate must:
sequentially pass the Level I, Level II, and Level III examinations,
have at least three years of acceptable professional experience working in the investmentdecision-making process, and
fulfill CFA Institute membership requirements.
There are four organizations in the United States that offer professional accreditations specifically in
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business valuation.These four organizations are:
the American Institute of Certified Public Accountants,
the American Society of Appraisers,
the Institute of Business Appraisers, and
the National Association of Certified Valuation Analysts.
Business appraisal designations from the AICPA, ASA, IBA and NACVA are all significantly moreprevalent than they were, say, in 2005, and are similarly common.
ASA
The American Society of Appraisers, formed in 1936, is a multidisciplinary organization that offerseducation and professional accreditation in many appraisal disciplines. These appraisal disciplinesinclude: real property, machinery and equipment, personal property, and a number of technical valuationspecialties, as well as business valuation. Since 1984, the business valuation discipline has been theASAs fastest growing area of accreditation. The ASA offers certification as (1) an accredited member
(AM) and (2) an accredited senior appraiser (ASA). Both of these certifications require (1) certain workexperience in business valuation, (2) successful completion of various exams, and (3) submission ofwritten business appraisal reports that earn the approval of the associations Board of Examiners.
ABV
The American Institute of Certified Public Accountants (AICPA) started a business valuation specialtyaccreditation program in 1997. They offer an Accredited in Business Valuation (ABV) designation forCPAs with experience in business valuation. To earn the ABV designation, a candidate must pass awritten examination. To be eligible to sit for the written examination, the candidate must:
Table of Valuation Certifications
Certification Certifying Organization URL
CPA AICPA http://www.aicpa.org
ABV AICPA http://www.aicpa.org
MBA Multiple
CVA/AVA NACVA http://www.nacva.com
ASA/FASA/AM ASA (American Society of Appraisers) http://www.appraisers.org
CFE (Certified Fraud Examiner) ACFE (Association of Certified Fraud
Examiners)
http://www.acfe.com
CFA (Certified Financial
Analyst)
CFA Institute https://www.cfainstitute.org
JD Multiple
CBA/MCBA IBA (Institute of Business Appraisers) http://www.go-iba.org
PhD Multiple
CFP (Certified Financial
Planner)
Certified Financial Planner Board of
Standards, Inc.
http://www.cfp.net
CM & AA AM&AA (Alliance of Merger and
Acquisition Advisors)
http://www.amaaonline.com
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CBV CICBV (Canadian Institute of Chartered
Business Valuators)
https://www.cicbv.ca
Chartered Accountant CICBV https://www.cicbv.ca/
CFFA (Certified Forensic
Financial Analyst)
NACVA (National Association of Certified
Valuation Analysts)
http://www.nacva.com
The standard business valuation designations are often enhanced by the advanced degrees andcertifications from non-BV associations and institutes that pepper many firm resumes. The list ofadditional degrees, in fact, it's quite impressive, if not daunting. A partial list of some of the honorificsreported in the BVR survey appears below.
Table of non-BV Professional Designations
CIA Certified Internal Auditor
MA Master of Arts
BVAL IBAs (Institute of Business Appraisers) BV Accreditation in Litigation
CLU Chartered Life Underwriter
Real Estate License
PE Mechanical EngineerCMEAA Certified Management Accountant
CBI IBBAs (International Business Brokers Association) Certified Business Intermediary
be a member in good standing of the AICPA and hold an unrevoked CPA certificate or licenseissued by a recognized state authority, and
provide evidence of 10 business valuation engagements/projects that demonstrate substantialexperience and competence to be eligible to sit for the ABV examination.To maintain the accreditation (after passing the examination) each credential holder must:
submit at the conclusion of every three-year period documentation demonstrating substantialinvolvement in five business valuation engagements, and
complete 60 hours of related CPE during the same three-year period.
CBA
The Institute of Business Appraisers (IBA), formed in 1978, offers certification as:
an accredited by IBA (AIBA),
a certified business appraiser (CBA),
a master certified business appraiser (MCBA), and
a business valuator accredited for litigation (BVAL).
Certification as a CBA is available to members of the Institute of Business Appraisers who demonstratethat they have attained a high level of professional competence and conduct. To obtain the CBA
credential:
The applicant must have successfully completed at least 90 classroom hours of upper levelcourse work in addition to having earned a 4-year college degree, or
The application must have five years of full-time active experience as a business appraiser. Theapplicants experience must include valuation of a variety of business types and appraisals fora variety of purposes.
The applicant must provide four satisfactory references, including two references as to personalcharacter and two references as to professional competence as a business appraiser.
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The applicant must complete a four-hour, proctored, written examination covering the theory andpractice of business appraisal.
The applicant must pass a comprehensive written examination on current business valuationtheory and practice.
The applicant must submit two demonstration reports demonstrating a high degree of skill,knowledge, and judgment as a business appraiser. All CBAs are required to document 24
hours of continuing professional education every two years.
AVA, CVA
The National Association of Certified Valuation Analysts (NACVA) was formed in 1991 to providecertification and member support services specifically for CPAs and others performing business valuationservices. The NACVA offers certification as:
an accredited valuation analyst (AVA),
a certified valuation analyst (CVA), and
a government valuation analyst (GVA).
In order to qualify for the CVA designation, a candidate must: hold a valid and unrevoked CPA license issued by a legal ly constituted state authority (the CharteredAccountant [CA]certification issued in Canada is considered equivalent to the CPA in the U.S.), be a member in good standing with NACVA, complete a five-day training program as prescribed by NACVA, submit three personal and three business references, and pass a comprehensive two-part examination.