Is It Better To Skip The CFP Exam And Get The ChFC Designation First?

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Strategic Wealth, which provides an evidence-based approach to private wealth management for near- and current retirees, and Buckingham Strategic Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors through the scaling phase of growth.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

Read all of Michael’s articles here.

(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)

#OfficeHours with @MichaelKitces Video Transcript

Well, welcome, everyone. Welcome to Office Hours with Michael Kitces.

For today's Office Hours, I want to talk about a common question I hear from advisors who are in their first few years in the industry, about what's the best designation to pursue first? So for instance, I got this question recently from Russ who asked, "Michael, I've been working for," say a major life insurance company, "For the past two years and have gotten to the point where I'm ready to pursue my first designation. I was thinking about the CFP, but a lot of the other agents here have the ChFC and suggested that that's what I should pursue first because you can get it more quickly without worrying about the CFP exam. Now I'm not sure which one to do first. What do you think?" So a great question Russ and one that I feel kind of uniquely qualified to speak to as someone who similarly started my career at a major life insurance company and has actually been down this exact path of getting both my CFP certification and the ChFC designation as well.

Comparing CFP to ChFC [00:57]

Now, for those who aren't familiar, I think it's important just to clarify some of the differences between CFP marks and the ChFC designation in the first place. So the CFP marks are granted by the CFP Board, which oversees what they call the four E's of Ethics, Exam, Experience, and Education requirements that you have to meet in order to get the CFP marks. But the CFP Board doesn't actually teach the educational material to get the designation, instead, CFP certification classes are taught by what's now more than 200 different registered programs across the country, and then the CFP Board grants the marks once you meet that educational requirement from one of those 200-plus registered programs, along with the other E's of the four E's.

Now, the ChFC is a little bit different. It's granted by one particular institution, The American College for Financial Services, which is actually the oldest and longest-standing organization granting professional designations to financial advisors. They started with the CLU, which is the Chartered Life Underwriter, nearly 100 years ago as a way to lift what at the time was professionalism of life insurance agents. And then in 1982, they added the ChFC as a similar way to lift the professional designation for what at the time were more investment-oriented non-life insurance financial advisors, essentially as a competing alternative to the CFP marks which themselves were granted less than 10 years before. And as a side note to Russ, the fact that the ChFC is taught by the organization that originally developed the CLU for life insurance agents is why you still see the ChFC as particularly popular at insurance companies, because the ChFC was the natural extension from the American College for all the folks at the life insurance firm who had already gotten their CLU.

Now, it's notable that while several hundred schools teach the CFP coursework, the ChFC is only taught by the American College. It is their institution's proprietary designation. Not to say that makes it better or worse but simply that the American College is the only place you can get the ChFC. There are no local programs as there may be for CFP certification, which itself may or may not be important depending on your preferred learning style, whether you want live in-person classes or whether online at a distance is fine for you.

Now, while both programs originated around the same time, back in the '70s and early '80s, and to meet a similar need, which was more professional certification for financial advisors, they're not quite identical. From a coursework perspective, CFP certification requires six courses. It's five core classes of the CFP curriculum around insurance, estate, tax, retirement, and investments, plus a sixth capstone class where you learn to actually create a sample financial plan. Now, the ChFC, on the other hand, requires eight courses, which is actually the six of CFP certification plus two more on top.

Now, the other difference that Russ alluded to in his question is that the American College grants the ChFC certification once you complete the 8 courses that are required, while the CFP Board only grants the CFP marks once you complete the 6 courses and the other E's: a 2 to 3-year experience requirement, agreeing to the CFP Board's Code of Ethics, and passing the infamous CFP exam, a rather challenging comprehensive 6-hour exam that's difficult enough that the average pass rate is only about 60%. And that's a bunch of people who already did all the six classes in the first place and still may struggle to pass the exam. Because it really requires you to actually know and be able to apply what you learned in CFP classes to some real-world scenarios.

And it's for that reason, as Russ's noted, that some people consider doing the ChFC designation before CFP certification because they don't want to face that CFP exam and, you know, the risk of failing or just the time it takes to prepare for it.

The CFP Exam Is About Professional Diligence [04:46]

Except, here's the thing about the CFP exam, at the end of the day, our job as financial advisors is to give people advice about their money. About where they spend their dollars, about how they insure and manage potentially catastrophic risks, how they manage their debt, and what they do with their accumulated assets. And so if you're going to work with a client who spent 20, 30, 40-plus years accumulating their entire life savings before coming to you for advice, I think the least you can do is spend a few months studying for the CFP exam to make sure you can pass it and that you know what the heck you're talking about before you give actual real-world advice to people about stuff they spent a lifetime accumulating.

Like, I'm not trying to be overly melodramatic here, but I do view what we do as financial planning as a sacred duty. You're guiding people about what to do with their life savings that once they retire is literally all they have to rely on for the rest of their life. And so in the end, all the CFP exam really is is a way to start verifying that you really actually learned and internalized all that stuff that you learned in your CFP classes and textbooks and tries to affirm that you can actually apply it properly with clients.

Now, to be fair, the CFP test isn't perfect and no one I know has ever gotten a perfect score on the exam, so you won't know everything, passing the exam doesn't mean you're perfect, but simply put, studying for the CFP exam is a great way to practice and at least do your best to try to make sure you know what the heck you're talking about before you give advice in the real world. Because if you're not confident enough to be certain you can answer those questions on a controlled test, I don't know why you think you know enough to give someone advice about what to do with their life savings that they spent a lifetime accumulating.

Public Awareness Of CFP Vs ChFC [06:31]

Now, that being said, it's also worth recognizing from just a more practical perspective, the CFP marks are also just a far better known and recognized designation by consumers in the first place, driven in large part by the fact that the CFP Board has been conducting a public awareness campaign for years to help promote the CFP marks. They spend nearly $10 million a year on consumer advertising around the CFP marks. It's actually over half of the annual $355 CFP certification fee goes to that public awareness campaign. Which is why when you look at the latest consumer awareness studies, CFP marks have total brand awareness of 85% amongst the mass affluent.... ChFC? 18%.

Now, ultimately, as I said, the primary reason you should get a designation is simply to learn so you know what you're talking about and can fulfill your sacred duty to clients by actually giving good accurate advice, but it doesn't hurt to get a designation that consumers are actually familiar with and recognize as well, for which the winner hands down is simply CFP marks over the ChFC designation. It may not be universally recognized, but the CFP marks are far more recognized by consumers, literally 5X the consumer recognition, and far more adopted by advisors. And realistically, I mean, it's far more likely to continue to compound in that direction anyway since, again, the CFP Board spends $10 million a year on public awareness and the American College does not.

The CFP Marks Are A Pathway To Post-CFP Designations Like ChFC [07:58]

Now, notwithstanding all of this, a lot of people advocate that the ChFC is a better designation because it does literally have more courses and covers more material. I mean, it is the CFP coursework plus two more. But because of that, I think the best way to approach this is to simply think of the ChFC as a post-CFP designation. In other words, this isn't an either/or where you get the CFP marks or the ChFC, you can get the CFP marks and the ChFC because you will have already done the CFP coursework even if you're working towards the ChFC. You just add two more courses later. Which means all you need to do is take a break for a little while, go prepare for the CFP exam, sit for it and pass it, check that box, get that designation, and then go and add the last two courses to have your ChFC as well. That was actually the pathway that I pursued. I completed my CFP coursework, sat for the exam, earned the marks, and then just went back to the American College and continued the classes. I ultimately got my ChFC and then my CLU designation as well, and then stayed enrolled at the minimum course load even further and got a few more degrees and designations as well.

Because the reality is that as more and more advisors get their CFP marks, having your CFP marks isn't even actually going to differentiate you in the future. Instead, the problem down the road is going to be not having CFP certification will differentiate you, and not in the good way. It'll make people wonder like all these other advisors have CFP certification, you don't, what's going on there? Like, that's what happens when CFP certification continues to get this growing level of public awareness. It becomes an expected minimum for the professional advisor. It's the table sticks. It's the ante you have to put up in order to play the game.

Which means you should be getting your CFP certification first, but recognize that the CFP is the starting point to becoming a professional, not the endpoint. Doctors get their medical degrees and then pursue board certification and fellowships to specialize. Lawyers get their law degrees and then pursue an LLM to specialize, and so financial advisors will increasingly get their CFP certification and then post-CFP certifications that go deeper. For which I think the ChFC is a very good option. And if you do your CFP coursework with the American College, you'll already be most of the way there. Some people do CFP coursework at other institutions and then move on to a master's degree in financial planning as well. That works too.

And from a more practical perspective, it is worth noting it's also just the less expensive route to go the CFP first because once you've done the CFP educational courses, it is cheaper to pay the CFP exam and go sit for the exam than it is to take a few more courses for the ChFC. Now, if you do a CFP live review exam prep class, the total costs may come out similar. But I know for some advisors, when you're still early on, right, the dollars are still a little more limited, and so moving into your education more gradually by doing CFP first and then going back to finish ChFC just stretches out the cost a little more and makes it more manageable as well.

Now, the one other complication I will note between the CFP and the ChFC is that the CFP Board has since 2006 required all certificants to have a bachelor's degree while the American College doesn't have any such degree requirement for the ChFC. And so for those who don't already have a bachelor's degree, the path to CFP certification frankly is longer and more expensive. You'll have to go back to finish or even start your undergraduate degree before you can get CFP certification. And I recognize what a monumental task that is, especially when you're already with the workforce as an advisor, you may already have kids and family and a lot else going on in your life.

Now, ultimately, all the advisors I've talked to who did decide to go back to school on a part-time basis to complete their bachelor's and get their CFP certification were happy with their decision, not really just for the career I think but just the sense of accomplishment and confidence that comes from going back to college and completing it. And with a growing number of CFP programs in undergraduate degrees, you actually have the potential to kill two birds in one stone. You finish your bachelor's degree and make your bachelor's degree include the coursework for the CFP certification and you come out having knocked out both. You just have to go sit for the exam. So I do think it's worthwhile in your investment in yourself and your career in the long run, but it is more expensive and it does take more time. And so if you don't have a bachelor's degree and that's the crossroads that you're at, you know, you do have to take the time about whether you want to really make that level of investment in yourself.

But the key point to understand is simply that as a financial planning professional, you shouldn't look at the ChFC as an appealing alternative to the CFP marks simply because you want to get a destination without sitting for the admittedly challenging CFP exam. You shouldn't want to sit for the CFP exam. It is your final gut check to make sure that you know your stuff, because otherwise, you risk starting to give advice to people and hurting them by making mistake because you didn't know what you were doing. And at the end of the day, taking the time to study for the CFP exam is a lot cheaper than getting sued for giving bad advice. And then if you want to keep going with your education from there, pursue post-CFP designations, which you should because I think in the future you'll have to differentiate, and then programs like ChFC are an absolutely reasonable option to consider, along with CLU certification, master's in financial planning, RICP, RMA and a whole lot of other programs that we've written about on the site over the years.