CFA = Financial Planning?

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key-bit

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I have been considering the CFA program but it seems it has become diluted and common. Instead of doing it for portfolio analysis, I was considering it for part time consulting/financial planning. Already did CPA/CMA/MBA but bored with accounting.
Would CFA be worth the time as a Fee For Service (FFS) financial planner? Seems like an easy way to bring in $100+ per hour on a part time basis. (Time is not an issue working for the government, I have plenty of study time) I am considering doing the CFP exam then progressing to CFA. I am not in a hurry, but need something new.
 
CFP will be the most relevant for what you’re going after. That said, the CFA would, in my opinion, be more impressive as it is likely more difficult to attain.
 
I am not sure of your work experience or exposure to financial planning during your time in accountancy, but I feel that you may be underestimating the skills and experience necessary to achieve the goal stated here.
As noted above, I live in Australia, so the rules, regulations and products typically used do differ between our countries but I know form experience that the basic practice and skills necessary are the same, so please take my comments here as a guide and in no way as a patronizing put down (that many on this forum unfortunately choose to give whenever anyone asks about career advice) of your aspirations.
To qualify my comment, I have worked as a financial planner for 11 years, I have a Masters of Business in Finance, I am a CFP and I recently sat the Level III exam. As iteracom noted above I would want my planner to have both CFP and CFA however me having this view is both a bit obvious (or why would I have donated the last 3 years of my life to the latter cause) and self serving.
On the back of this I make the following comments:
1. While book smarts are important, streets smarts and the ‘soft’ skills (abilty to build confidence with people quickly etc) are probably more important in dictating success as a financial planner. Unfortunately, this profession is dissimilar to law or medicine, in that people believe that it’s not that hard to do for themselves and therefore believe that they don’t need help especially when you are going to be charging them $1,000 per day to provide it. While some learn these skills very quickly (in 6 months) most peope take years to learn them well (unfortunately I am the latter, and am still learning them).
2. Due to cost of setting up and maintaining practice, down time from charging and to maintain a comparative income to a commission based planner. It is more typical to charge around $250 per chargeable hour but this can be a bit rubbery depending on level of expertise and the value add of the work being done. I would argue though that well over $100 p/hr would need to be charged just to cover cost (especially if you were going to work part time). Again I make this point here not to belittle your plan but too give a clearer idea of what you will need to consider to make your plan work.
3. Fee for service is a tough gig to make a success when first starting in the profession. You are essentially asking people to agree to provide you with payment for a service that not only are they usually convinced they can do as well as you, but whose value is at times intangible and normally not realsed until after they have had to pay you. Don’t get me wrong, I think that FFS is a preferable path for ours to truly become a profession but my point here is to not underestimate its problems in implementation.
Finally, and this is my 2c worth, I would recommend you seek out some work in financial planning to see if you (a) like it as its not for everyone, and (b) learn some coal face lessons while someone else is paying you to learn them. Once you’ve learned the ropes then move towards your goal as outlined here.
Hope my comments help and good luck.
 
I appreciate your constructive feedback. It is valuable to get advice from those with personal experience.
  1. I agree the soft skills are equally important, however it seems relatively easy to provide a positive cost/benefit relationship when providing FFS planning. The expense ratio’s on existing mutual funds alone can nearly pay the FFS, without taking into consideration asset allocation, tax planning benefits, etc. Perhaps I am a bit naïve, but I feel it would relatively easy to provide/justify the cost.
  1. To mitigate the initial cost of setting up a practice, I would begin part time while keeping my “day” job. My wife will be purchasing a dental practice within 2 years, so office space and income are not primary issues for me in a few years. I appreciate a realistic amount FFS planners’ charge, however I would use traditional and nontraditional delivery methods to create multiple revenue sources. I would increase my fees as I gain additional experience and qualifications.
My primary motivations are to be able to manage my own money effectively and then share those experiences with others in similar situations. I have considered working for someone else why I learn, but I really don’t want to take a large pay cut until after my wife is doing well with her practice.
 
Your points above are all fair ones and I would have lots of feedback, however it woulld start to get very specific to my experience in Australia, which I don’t think would provide much assistance to you in the US. Rules, licensing, regulations and products differ to a sufficiently large degree to makes those differences large enough to mean my comments would be largely of no use.
Comments/questions which I think do have some parallels are:
- CFA studies along with information from local service providers will provide a good base for analysis of domestic equities and possibly domestic fixed interest but in a diversified portfolio how are you going to implement international equity and FI investments along with alternatives without using a managed approach (and therefore incurring the extra cost on these)?
- While we all believe that we are the next Peter Lynch or Warren Buffett, just as I make light ridicule of clients who think they are better than me, why would you or I be better than professional fund managers who not only have (in most cases) the same (or more) training, the benefit of experience and the access to information and modeling that we don’t? I don’t suggest that we just bow down to their supremacy but it really is another case of making sure you are getting what you pay for?
- Another problem which cascades from the point above is that fund managers have a track record they can sell. Why are people going to pay for your management skills without a track record and then how do you get a track record without any client money to manage? The old chicken/egg problem.
- Who is going to look after all of the back office work that is created from you taking on direct asset management? Not only do you have to maintain all the records but you also need to make sure you are transacting in manner that fair to all clients (once you start studying CFA ethics you will be thinking about these issues in your sleep!). It’s not too hard to do for yourself or even 10 clients but to get to critical mass you will need at least 50 clients and probably more like 200. This naturally becomes a major issue at this level because not only do you need systems, but you probably need to be able to pay one (or maybe a few) staff. This is where the $250 p/hr charge out rate becomes a necessity.
- While costs such as office space and personal income/profit are of key importance, a financial planning practice will also have costs such as research, client relationship management (CRM) software, advice provision software, staff (as discussed above) and licensing fees (which in Australia are substantial - normally for what you are trying to accomplish at least $18k pa and more frequently $25k+). Determine what, if any of these costs will apply for you?
Some more food for thought hopefully.
 
I think financial planning has more to do with taxation, estate planning stuff, so I don’t think CFA would be terribly relevant.
 
I appreciate the feedback. To put in perspective, I plan to practice in a mid-size metro area (around 1 mil) in Florida. My expectation for my potential client base would be those willing and able to manage their own cash and investments with a little bit of guidance and advice. My goal is not to run a hedge fund trying to beat the market. I would provide value in objective advice and not the “free” advice that is often nothing more than part of someone’s sales pitch.
International markets and FI can easily be incorporated into a portfolio with low cost ETF’s. Part of asset allocation risk tolerance.
I would guarantee I am no Peter Lynch or Warren Buffet. Unlike most in the financial services industry, I would not be trying to make a commission, but a financial analyst providing objective advisory services. Again, not trying to beat the market (although some indexes are better than others). Reminds me of a quote - “The number-one job of the hedge-fund manager is not to make sure that you can retire with a smile on your face – it’s for him to retire with a smile on his face.” – Mark Cuban
Valid point on the back office work. While we are developing all of the databases necessary for CRM, we found a COTS used by a financial services franchise can used for $20 a month for unlimited clients. Sounds a lot better than the time required for development and maintenance, plus the clients enter all the data themselves.
I do need to review the ethics portion of the CFP or CFA exam before starting engagements. CPA ethics are not enough.
Great point on the licensing. While my CPA license helps with tax and advisory services, I am not sure if state licenses are required in Indiana or Florida. I do not plan to sell securities or insurance, however a waiver is granted for CFP’s.
 
Palantir wrote:
I think financial planning has more to do with taxation, estate planning stuff, so I don’t think CFA would be terribly relevant.
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Personally, I would disagree with this
In relation to Level I, it is pretty broad so from a general knowledge perspective it is as applicable to FP as it is to most other areas of finance.
Level II is probably the level that has least relevance unless you are looking to implement direct investments in equities or fixed interest into a portfolio. As a minimum, it certainly provides a very good background as to what institutional managers do with funds, if a managed approach is used.
I would argue, however, that Level III is more applicable to financial planning than it is to most other areas of finance and the first half of that level is almost pure financial planning (from an Australian perspective at least).
 
herrgrunta wrote:
Palantir wrote:
I think financial planning has more to do with taxation, estate planning stuff, so I don’t think CFA would be terribly relevant.
Click to expand...
Personally, I would disagree with this
In relation to Level I, it is pretty broad so from a general knowledge perspective it is as applicable to FP as it is to most other areas of finance.
Level II is probably the level that has least relevance unless you are looking to implement direct investments in equities or fixed interest into a portfolio. As a minimum, it certainly provides a very good background as to what institutional managers do with funds, if a managed approach is used.
I would argue, however, that Level III is more applicable to financial planning than it is to most other areas of finance and the first half of that level is almost pure financial planning (from an Australian perspective at least).
Click to expand...
I totally agree with this. L3 is hugely relevant to financial planning.
 
You cannot make good financial decisions if you don’t have broad knowledge about financial… er, stuff. I would be very concerned if my financial planner did not know the elementary material that is covered in the CFA curriculum.
 
key-bit wrote:
I appreciate the feedback. To put in perspective, I plan to practice in a mid-size metro area (around 1 mil) in Florida. …………
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this sounds like a pretty solid base for a business strategy. I would encourage you to study CFP/CFA/both and I feel that as you learn through these courses your strategy will evolve. At the end of the day, people will pay when they perceive value in something. You will struggle to ask them to pay $1 for something they see no value in but the will trip over themselves to give you $100,000 for something they perceive has a $1,000,000 value.
As strategy and structuring work is more intangible, you just have to work that bit harder to present the value relative to something like asset management where the value (or lack of it) is plain too see. Obviously, presenting a bit of both may be the best of both worlds and as mentioned above may be something you move towards as you study further.
Best of luck with any studies you do take on and for your future aspirations.
 
Having just started a career in financial planning/portfolio management I can tell you being close to having the CFA and having an MSF, both very “hard” skills, has been very beneficial.
Clients don’t call you on the weekend because they are worried about taxes or life insurance decisions. They call because Europe is going crazy and some talking head on TV is telling them to sell everything and buy gold. I can speak pretty confidently about why 90% of the advice out there is terrible. It does not matter if the client can’t follow 100%, but they see I am knowledgable. If you can be knowledgable without the CFA that works too because a client doesn’t know what a CFA is, but if you ever want to compete for bigger fee-based assets you will be competing again someone who either has a CFA or works for a big shop who has several CFA’s behind the scenes managing the money. That being said if you are a nerdy quant type and can’t relate to people it doesn’t matter what designation or degree you have.
I use Level III material all the time, and actually reference the book. I think the CFP is also relevant because the emphasis is different than the CFA, but I think a lot of the CFP can be learned from experience while a lot if the CFA portfolio management can not be. Just ask your local financial planner what they use to track active risk adjusted returns…
 
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