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With the calendar flipping to 2020, businesses and individuals alike need to start prepping for their favorite time of year: tax season! If you’re a new homeowner or started your own business within the last 12 months, taking a DIY approach with TurboTax might not be the best course of action this year. Complex tax situations often require the help of a professional financial advisor.
Searching for professional help with your taxes unveils a new problem — acronym overload. Financial advisors go by a number of different acronyms: CFA, CPA, CFP, CMA, each requiring a different license and performing different types of financial work. Two of the most common designations are CPA and CFP, but which one is suitable for you?
We’ll look at the differences between CPAs and CFPs, who needs their services and where they can be found.
What is a CFP?
CFP stands for certified financial planner and it’s a designation that requires extensive education and testing to acquire. All CFPs must go through the Certified Financial Planner Board of Standards to achieve their license, a process that requires specific education, exams and experience to qualify for. To become a CFP, you’ll need to complete the following steps:
- Hold a bachelor’s degree from an accredited university, including 120 course hours with a capstone financial planning course.
Note: A bachelor’s is required to receive the CFA designation, but it is NOT required to take the exam.
- Complete the CFP exam. The exam is 170 multiple choice questions and is taken in two 3-hour sessions with a short 40-minute break between sessions. The CFP Board holds 3 testing periods per year and you must make an appointment to schedule to take the exam. Test results are returned within 4 weeks and the current pass rate hovers around 60%.
- Gain the prerequisite experience. There are 2 ways to get the experience needed for the CFP title: 6,000 hours of professional experience or 4,000 hours of apprenticeship experience. Eligible candidates must complete their experience requirements no more than 10 years before taking the exam and no more than 5 years after examination. Completing 6,000 hours requires a minimum of 3 years; the 4,000-hour apprenticeship requirement can be completed in 2 years.
- Adhere to the ethics of the CFP Board. CFAs are fiduciaries, which means they must act in the best interests of their clients. Candidates must pledge to follow the ethical guidelines laid out by the board and background checks are required to move forward. Felony convictions for theft, embezzlement, fraud, or certain violent crimes automatically ban candidates from receiving the certification. Also, multiple personal bankruptcies or suspension of other financial professional licenses (such as broker-dealer licenses) could be considered unacceptable.
Once licensed, CFAs can help clients with a number of financial matters, such as tax services, retirement planning, wealth management, estate planning, and other jobs typically associated with a financial advisor.
What is a CPA?
CPA stands for certified public accountant and acquiring this license takes a little more work than the CFP license. Like the CFP, candidates going for their CPA license must meet certain standards and pass a difficult exam. All CPA licenses are granted by the American Institute of Certified Public Accountants.
Here are the steps needed to qualify:
- Candidates must complete the 120 course hours required for a bachelor’s degree, plus an additional 30 hours of graduate course work. Most CPA candidates get a master’s degree to complete the full 150 hours, but a master’s isn’t required.
- Take the CPA exam. Did you think 4 hours for the CFP exam was a long time? The CPA exam is a 4-section behemoth that must be completed in an 18-month time frame. Each section takes 4 hours and they must be completed in order. The 4 sections are:
- Audit and Attestation
- Financial Accounting and Reporting
- Business Environment and Concepts
- Meet your state’s requirements for licensure. Most states will require 1-2 years of general accounting experience before granting a CPA license and many require you to pass an Ethics exam. Each state’s guidelines are different and the CPA license can only be granted through your state’s board of accountancy. To learn more about each individual state’s requirements, visit ThisWayToCPA.com.
CPAs do many of the same jobs as CFPs but also work in higher profile positions such as the chief financial officer of a large corporation. CPAs know the “language of business” better than anyone, so large public and private firms are always recruiting their services.
Who Should Use a CFP?
Deciding between a CFP and CPA might seem like a daunting process, but it’s fairly simple. A CFP works mainly in personal finance, which means tax prep, wealth management and financial advice for individuals and families. CFPs often meet clients one-on-one to discuss matters like taxes, investments, estate planning and other topics tailored to personal finance.
Anyone can call themselves a financial advisor. The CFP designation is significant because CFPs are held to a fiduciary standard — they can only make recommendations in the best interests of their clients. Unlicensed commission-based advisors can make recommendations that are suitable for the client, but not in their best interest. If you’re looking for personal finance advice, be sure to hire a CFP.
Who Should Use a CPA?
If a CFP is geared more toward personal finance, the CPA is more attuned to the matters of corporate finance. Getting your CPA license requires more testing and education than the CFP license and CPAs are usually found higher up the corporate ladder. CPAs are experts on topics like generally-accepted accounting principles (GAAP), corporate tax law and financial reporting.
Who needs a CPA? In addition to being experts on taxes, CPAs help businesses stay on the right side of the law. CPAs can review financial documents for corporations before presenting to shareholders, give regulatory advice, and even represent businesses before the IRS if audited. CPAs can work for individuals in matters of tax preparation and financial planning, but most of their work is done in the corporate sphere.
How to Find a CFP
Don’t just choose the first advisor with ‘CFP’ listed after their name. CFPs must be confirmed by the CFP Board and all claims can be verified on their website. It’s also a great place to start looking; search for a CFP in your ZIP code using this convenient, Board-approved search engine. Prospective clients can also visit the National Association of Personal Financial Advisors (NAPFA) to find fee-only advisors with a CFP designation.
How to Find a CPA
CPA claims can also be verified by the AICPA board by visiting aicpa.org. Remember, always do a background check before hiring an advisor. The board will list not only CPA-licensed firms and individuals but also black marks they may have on their reputation. Always verify both your CPA’s preparer tax ID number and their CPA license through your state’s database.