The Letters After Our Names

It seldom happens, but every so often a client or potential client will ask, “All you people in finance, what do the letters after your names mean, anyway?” I often reply with, “They mean we’re good at writing exams, and some of the exams aren’t too bad while others are hell on earth.”

Finance bloggers, YouTubers, and podcasters are currently debating the value of the CFP^®(Certified Financial Planner) designation versus the value of the CFA (Chartered Financial Analyst). They’re doing this because enrollment in the CFP^® program has been climbing, especially in the US, while global CFA numbers are dropping. Canadian figures aren’t easy to find, but the trend is clear: more people are leaning toward the CFP^®, while fewer are tackling the CFA.

Before I address why this is happening, let’s break down what each designation covers.

In Canada, the CFP^® curriculum covers twelve topics that they call the FP-BoK (Financial Planning Body of Knowledge). Think of the FP-BoK this way: the answer to just about any question related to personal finance is in the FP-BoK. The CFA curriculum, by comparison, covers ten topics ranging from economics to portfolio management. In essence, it covers just about any question related to investing and how to value stocks, bonds, and derivatives. It also covers a lot about ethics and the standards of conduct when advising clients. The knowledge gained from both designations is wide rather than deep. That’s because finance professionals need to connect the dots across many areas of finance.

A quick side note here: everyone in the finance profession would agree that the CFA designation is a significantly more difficult designation to earn. Amongst finance professionals, the CFA is a bit of a badge of honour. The content is more analytical than that in the CFP^®, and the exams are much more challenging. Pass rates – which are the percentage of people who successfully complete an exam – are much lower for the CFA. But just because it’s harder doesn’t mean it’s better for clients.

Why then are more people interested in the CFP^® than the CFA? Here’s my take:

• Financial planning is far more important than investment management, especially when investing is simpler (not easier) than it’s ever been. I’ve written about this a few times and will continue to write about it: picking stocks just isn’t what it used to be.
• The profession is slowly coming to the realization that most of the value we provide comes from financial advice, not investment advice. What’s covered in the FP-BoK is far more valuable to clients than just investment management.
• A whole lot of money will change hands over the next two or three decades as Millennials inherit from their Boomer parents. Estate planning is a key part of financial planning. And though you should never plan for an anticipated inheritance, Millennials will need a lot of advice regarding the billions of assets inevitably coming their way.

I have both designations; I earned the CFP^® in 2013 and the CFA in 2023. Before I enrolled in the CFA program, I knew the three bullet-points above were true. But I still enrolled. I wanted that badge of honour (how’s that for an ego?). Did it make me a better investor? Maybe. It certainly reaffirmed that investors are and will always be their worst enemies and that diversification is vital. More than anything, though, it taught me the ability to translate financial jargon into plain English.

That’s what the letters really mean. They’re tools, not trophies. They only matter if we can use them to get you to where you want to be.