As the world of financial advisors becomes less sales-driven and more “advice-centric”, the need to differentiate has become all the more acute, especially as the ranks of advisors who say they offer “comprehensive financial planning” continue to grow.
As a result, a plethora of designations has emerged over the years for the purpose of helping advisors demonstrate their credibility and expertise to both their current and prospective clients, and achieve some level of differentiation. Except in practice, some designations are much harder to achieve than others… which both makes it difficult for consumers to know which designations are really credible (or not), and for advisors, creates uncertainty about which designations an advisor should pursue first.
Accordingly, in this week’s #OfficeHours with @MichaelKitces, my weekly broadcast via Periscope, we compare and contrast the two most common comprehensive financial planning designations, the Certified Financial Planner (CFP) and the Chartered Financial Consultant (ChFC), discuss some practical considerations about why advisors might choose to pursue one designation before the other, and why, in the end, it’s not an either/or question, but a pathway to building the competency it really takes to advise clients about potentially life-altering decisions with their hard-earned life savings.
The most popular designation for financial advisors – and literally, the one with the greatest consumer recognition – is the CFP certification, conferred by the CFP Board with education provided by more than 200 registered programs across the US. By contrast, the ChFC is offered exclusively by the American College for Financial Services, and was developed as a competing alternative to the CFP over 35 years ago, consisting of the same six core courses comprising the education component of the CFP requirements, as well as another two additional courses related to the application of various (more advanced) financial planning topics. Other notable differences, though, are that ChFC candidates don’t have to have a bachelor’s degree, meet a minimum experience requirement, or – most importantly for some – pass a comprehensive final exam (given how notoriously difficult the CFP exam is with its ~60% pass rate).
Which means that, at first blush, the ChFC is a much less daunting hurdle to surmount if you want to quickly (and less painfully) establish credibility and fear whether you can pass the rigorous CFP exam. But the CFP exam is rigorous for a reason: because, ultimately, a financial advisor’s job is to advise clients on how to protect, how to grow, and what to do with the savings they’ve spent years (or literally a lifetime) accumulating. Which, in turn, should reasonably demand a reciprocal effort from the financial advisor to study for (and pass) the CFP exam, which (along with the experience and ethics requirements) is a major step towards ensuring that you, as a financial advisor, really have the knowledge to fulfil that sacred duty to clients and not unwittingly give them incorrect (and potentially destructive) financial advice along the way.
In fact, as CFP certification increasingly becomes recognized as a baseline minimum standard for competency for real financial planners, arguably the decision of CFP vs ChFC isn’t an either/or question, but is rather a matter of obtaining a foundational skillset (CFP certification) from which you can build upon with post-CFP designations (like the ChFC). In other words, by starting with the CFP marks and then layering on the ChFC, CLU, CPWA, CIMA (or any number of the myriad of similarly available high-quality industry designations) as you drill down towards a deeper level of specialization, advisors can better stand out in a sea of other advisor who might say that they do the same things you do, but haven’t yet earned professional designations to demonstrate that experience and expertise!