Hi, you’re welcome to today’s blog on the differences between a certified financial planner (CFP) and a certified public accountant (CPA).
At the end of reading this article, you’ll have learned the differences in job descriptions, responsibilities, and salaries of a CPA and a CFP and be able to make a more informed career decision.
However, we’ll focus on these specific areas:
Without much ado, let’s dissect the differences between these two designations.
CFP vs CPA Job Descriptions
One of the most crucial distinguishing factors between CFP and CPA is their roles.
Certified public accountants help individuals and organizations with financial statements, auditing, tax preparations, tax consulting, and bookkeeping.
Individuals mainly hire CPAs for tax preparation and tax planning services.
Business entities use them for other services apart from tax returns.
Some of the typical job profiles for this profession include public accountant, certified financial advisor (CFA), internal auditor, forensic accountant, and financial analyst.
On the other hand, certified financial planners help clients reach their financial goals.
They’re into financial planning, estate planning, wealth management, insurance planning, portfolio management, retirement planning, and risk management.
CFPs are financial specialists that broadly understand personal finance, thereby giving clients the best pieces of advice on their investment.
Their typical profiles include risk manager, retirement planner, estate planner, legal financial manager, investment advisor, and tax consultant.
From the above, we can deduce two key differences:
- First, CPAs focus mainly on tax, while CFPs are into general financial planning.
- CPAs work with individual clients and institutions, but CFPs work with clients.
However, some CPAs have earned a specialty credential known as personal financial specialist (PFS).
The PFS empowers CPAs to render wealth management services to clients.
These specialists render services similar to CFPs, even without the CFP designation.
Apart from taxes, they can help with investments, budgets, and planning.
A PFS perfectly combines financial planning and accounting services.
The designation has made financial planning for accountants a reality.
CPA vs CFP Salary
Now that you know the differences in their job descriptions, we sense you’re too eager to learn about their earnings.
It will help if you care about how these financial professionals make money because it’s part of the job satisfaction indices.
It can be frustrating to be passionate about a profession that brings meager pay.
Certified accountants and financial planners earn reasonably well, but they have different compensation modes.
Modes of Compensation
Certified public accountants bill clients for their services.
Some accounting firms charge hourly rates, and they vary based on the expertise of the financial professional and the specific demands of a client.
An accounting firm may charge hundreds of dollars hourly for its most experienced professionals and less than $100 for newbies.
Your geographical location is another determining factor in how much you charge.
However, some firms charge clients on a per-project basis.
Here, you’ll agree with a client on the services they specifically need, and then you fix a flat fee.
Unlike hourly rate, where you can’t predict the exact number of hours you’ll spend on the project, you can determine your earnings with the per-project billing method.
These billing methods don’t lead to a conflict of interests between clients and financial accounting professionals.
CFPs are compensated for their services in diverse ways.
You must meet the fiduciary standard to become a certified financial planner.
It means that you must prioritize your clients’ interests in all circumstances.
One of the ways you may be compensated is by being a fee-only CFP; It means you charge fees without receiving any form of compensation.
You may bill clients for every hour you spend giving them financial advice.
CFPs also charge a flat rate to complete a project.
For instance, they charge a particular amount to help a client draft a detailed financial plan.
The third alternative is charging a percentage of assets—you charge a client the ratio of the funds you’re managing on their behalf.
It is mostly 1%.
Some CFPs prefer a fee-based payment plan.
It means you can charge fees for some financial planning services and get commissions for other ones.
If you prefer the commission-based payment, you must be careful and defend your integrity because there may be moments where you’ll be tempted to put your selfish interest above a client’s.
It is now crystal clear that how much you make either as a chartered financial analyst (CFA) or financial planner depends on your work experience, payment choice, geographical location, and other prevailing factors.
CFP vs CPA Requirements for Certification
Certification is what formally distinguishes a financial planner from a public accountant.
Thus, discussing the methods or routes of earning each certificate is befitting.
The Certified Financial Planner Board of Standards (CFP Board) organizes the certification exams for CFPs.
In contrast, the American Institute of Certified Public Accountants (AICPA) organizes and controls the certificate-issuing process for CPAs.
Below are the broad differences between the two designations:
The CFP qualification course is just at a level, while the CPA is categorized into four.
They include financial accounting and reporting, regulation, business environment & concept, and audit & attestation.
A candidate must pass these four assessment examinations before earning the CPA certification.
The exam question types include real-life simulation, written communication, and multiple-choice questions.
However, the CFP exam is an entirely multiple-choice format.
It tests a candidate’s comprehensive financial planning knowledge with real-life scenarios.
The exam takes place in a day with two three-hour sessions.
CFP hopefuls must have at least 4,000 hours of experience in apprenticeship programs or 6,000 hours of experience in financial planning.
In other words, you must have a minimum of three years of experience in personal financial planning or present evidence of two years of apprenticeship.
The cost of the CFP exam ranges from $825 to $1,025, depending on the time of registration.
There are three registration windows for the CFP exam: early registration is $825, standard registration costs $925, and late registration is $1,025.
However, the total package for CPA fiduciary designation is $1,500.
It includes application fees, registration costs, exams, and license charges.
If you want to sit the CFP examination, you should register as an early bird to save $200 charged for late registration.
Before the actual examination date, you should familiarize yourself with the course syllabus to know the possible questions to expect.
The course syllabus for the CFP exam encompasses the following topics:
Education planning, estate planning, income planning & retirement savings, general principles of financial planning, tax planning, insurance planning & risk management.
The course syllabus for the CPA exam entails the following: Individual federal taxation, federal entity taxation, economic concepts & analysis, corporate governance, professional responsibilities, ethics & general principles, and financial statement accounts.
Most candidates complete their CFP course and exam within three years, but it takes 18 months for CPA candidates to complete all four assessment exams.
The CFP exam pass rate as reported by the CFP Board surpasses 60%.
Specifically, the Board recorded a 62% overall pass rate in 2019 and 66% success for first-timers.
Thus, the CFP certification exam difficulty level is moderate.
According to the AICPA, the average historical pass rate of the CPA exam is 50%.
The Association recorded a 55%-65% pass rate in its 2020 exams.
From the preceding, we can conclude that the CPA certification exam’s difficulty level is moderate.
A candidate committed to their coursework and course syllabus will pass the exams excellently in their first attempt.
The CPA organizers have made the assessment exams a continuous testing model since 2021.
It implies that candidates can sit the exam throughout the year.
However, there are specific months and seasons for taking the CFP certification exam.
For instance, CFP Board announced March 8-15, July 12-19, and November 1-8 as the exam dates for 2022.
If you feel not adequately prepared at the moment, you may register for the November edition.
The Board allows candidates to register for the exam before completing their coursework requirements.
The CPA CFP discourse is incomplete without discussing education requirements and other qualification features.
For instance, before earning a CPA license, you must be experienced in public accounting, apart from passing the licensure examinations.
The experience requirements differ from one state to the other.
Generally, they require one to three years of experience, with the flexibility to work with any firm.
Educationally, all intending CPAs must have a minimum of a bachelor’s degree and complete 150 semester hours.
A conventional degree is just 120 semester hours.
That is why most CPAs have a master’s degree to complement semester hours’ requirements.
Some states have requirements that intending CPAs must meet.
In Alabama, a candidate’s 150 semester hours must include a minimum of 24 hours in accounting, six hours in taxation, nine hours in financial accounting, three hours in business law, three hours in government and not-for-profit accounting, three hours in auditing, and three hours of management accounting.
However, the exams are the same in all states.
CPA candidates must also take an ethics course after their certification examination before earning a practicing certificate.
On the other hand, CFP hopefuls must also have work experience and meet education requirements.
Candidates for this designation must have a bachelor’s degree with a specific focus on financial planning.
You can’t take the certification exam unless you’ve met the educational requirements.
A CPA is regulated by the laws in their state of practice.
An intending CPA should inquire from their state accountancy board what a CPA’s legal liabilities in the state are.
Once you’ve earned the CPA license, new requirements are not binding on you to keep your status active.
Most states require licensed public accountants to partake in continuing education yearly.
On the other hand, if you don’t have a degree at the point of sitting the CFP exam, you’re required to earn a bachelor’s degree within five years of passing the designation exam.
A CFP hopeful must also pass the fitness standards test.
That is, you must consent to ethical standards.
You’re also to disclose any history of job termination and criminal record.
Intending CFPs must be ready to undergo background checks.
However, unlike the CPA, the CFP certification is not legally regulated by state laws.
But some CFP activities require state or federal endorsement.
The specific services you’re rendering to a client will determine the laws you stick to.
Projection of Job Growth
A crucial point you must take when deciding on which career route to take is the job outlook for the two designations.
According to the Bureau of Labor Statistics (BLS) projection, the job growth rate for CPAs within 2020 to 2030 is 7%.
There would be about 135,000 annual job openings for auditors and accountants yearly.
The projected rate for CPAs is the average of all occupations.
However, the BLS projected 5% job growth for wealth managers and financial planners.
The rate is lower than the average job growth for all occupations.
If you’re not strong-willed, dedicated to working, and exceptional, it might be difficult for you to break through as a certified financial expert.
If you’ve always had the “CPA or CFP” question on your mind, this piece has illuminated your path.
It has given you the direction to go.
However, the story is fast changing as many professionals are moving away from the norm; thousands of CPAs have also earned the CFP appellation to work as financial planners.
Since you can pursue both certifications, you can earn the more appealing certification first and chase the other later.
Follow the route that will make you fulfilled and relevant in finance.
With time, you will hit the mark and relish the journey.