It seems as though every financial advisor you meet has a handful of letters after his or her name. Consumers are learning to identify these designations and some surveys show that they can have a measurable effect on earnings- increasing earnings by as much as 30% in some cases.
For advisors seeking to boost their credibility and their bottom line, pursuing designations can seem like a cost-effective alternative to graduate school, but it’s fair to ask whether the time and effort put into achieving these designations can really make a difference, especially in today’s challenging markets. In this article, I’ve chosen several of the most popular financial services designations and discussed their potential for increasing your bottom line. This list is by no means exhaustive, but it represents a good starting point for those interested in investing in their financial services careers.
CFA – Chartered Financial Analyst
The CFA is the oldest and most widely held of the financial services professional designations. The first CFA charters were awarded in 1963 and as of May 2012, there are approximately 98,000 CFA charterholders in 135 countries. Candidates must have four years of work experience within finance and successfully pass three exams prior to receiving their CFA charter.
The CFA exams are challenging, requiring somewhere between 300-500 hours of study per exam, and covering topics ranging from securities analysis to portfolio management. According to the CFA institute, the average candidate needs three-and-a-half years to achieve their charter, though the minimum time required is 18 months (assuming the candidate is able to pass consecutive exams on the first try).
As of 2013, the total cost of taking the three CFA exams is approximately $2,500. However, that does not include the cost of extra study preparation materials, a popular option for candidates. The overall pass rate for CFA exams has steadily decreased over time (perhaps as they become more popular as an entry point into the industry), and hovers around 46% most years.
Bottom line: According to a 2011 survey of Seattle area CFA charterholders, the median total compensation (salary plus bonuses, etc.) for those with less than 10 years of experience was $173,500. Unfortunately, nationwide U.S. data was unavailable as of this writing, so take into consideration the effects of metropolitan costs of living on those figures.
CFP® – Certified Financial Planner
The CFP® designation was first awarded in 1973 and is owned by the Certified Financial Planner Board of Standards. Because of its popularity within the industry and the breadth of material the exam covers, the CFP® can be regarded as the financial planning equivalent to the CFA. As of 2009, there were 126,016 CFP® designees, most of whom are working in the U.S. Candidates are required to have a bachelor’s degree from an accredited college or university (all majors are accepted) and at least three years of work experience performing general financial planning activities in order to receive their CFP® certificate, though they may take the exam before meeting these requirements.
The average CFP® candidate spends between 500-1,000 hours studying for courses, preparing for course exams, and studying for the CFP® exam. Candidates are required to take eight courses covering a wide variety of financial planning topics before registering for the comprehensive exam. However, holders of the CFA, CPA, or ChFC designations may challenge the course requirements, and move directly to exam preparation. The minimum time required to complete coursework is two years, though many candidates take as long as five years to finish their coursework and pass the exam. The total cost of obtaining a CFP® designation can range between $2,500 and $5,500 in 2012 (not including the cost of a college degree). As of 2012, the exam pass rate has averaged between 55% and 60%.
Bottom line: According to a 2011 nationwide survey conducted by the Financial Planning Association (FPA), CFP® designation holders have a nationwide median income of $101,000.
CLU® – Chartered Life Underwriter®
The CLU® is to the insurance industry what the CFA is to analysts and the CFP® is to financial planners, and is widely considered to be the most prestigious credential in the insurance industry. The designation was created in 1927 by the American College, which also awards the ChFC – Chartered Financial Consultant. The CLU® is popular among financial professionals that wish to specialize in life insurance or insurance products for estate-planning purposes and insurance agents who wish to move into financial planning.Candidates for the CLU® must complete eight courses, covering topics such as insurance planning, retirement benefits, risk management, and income taxes. According to the American College, average study time is approximately 450-600 hours for the eight courses. Since no comprehensive exam is required the CLU® may be an easier credential to attain than the CFP® or CFA. Candidates must also have three years of full-time work experience in either the financial planning or insurance field. The total cost of acquiring the CLU® is approximately $5,000, including course fees and textbooks.
Bottom line: According to a 2006 study by The American College, CLU charter holders earn an average of 27% more than those without the designation.