Unfortunately, anyone can pretty much call themselves a ‘financial advisor’, ‘financial professional’, or ‘investment specialist’. There are many titles and designations that people in the finance world claim. It can often be difficult for the end consumer to understand the difference between all the credentials, designations and various specialties.

Ultimately, there are no minimum standards that people must achieve in order to be considered a financial advisor. Furthermore, it can be difficult to carry out due diligence when evaluating an investment professional. This article will hope to clarify some of this confusion. To learn more about the various types of financial professionals please read (Article: Types of Financial Professionals).

Financial planners and money managers often hold several securities licenses and sometimes additional professional designations. To act as a registered investment advisor representative (someone who can advise individuals on their investments), an individual must have received certain licenses from the Financial Industry Regulatory Authority (FINRA).

To act as an investment advisor representative (IAR), the specific licenses needed are the Series 65 license or the Series 7 license in combination with the Series 66 license. Beyond these FINRA licenses, a good candidate for a financial planner or money manager should hold additional professional certification beyond these basic requirements. Although most advisors must obtain FINRA licenses, there are also various exemptions that allow an advisor to circumvent these tests.

First, we will explain some of the various designations that are commonly used in the investment advisory industry. Then, in our next article, we will show you ways that you can research a particular investment firm as well as a specific individual working at that firm.

Certified Financial Planner

Certified Financial Planner (CFP ®)

The most appropriate and perhaps the highest standard in this area would be the Certified Financial Planner designation (CFP ®). This certification covers areas which are the integral pieces to financial planning such as insurance, tax, investment, retirement, and estate planning. To achieve the CFP mark, designees must first meet strict educational (undergraduate degree), coursework requirements (additional finance courses), pass the rigorous CFP certification examination, and complete 3 years of relevant financial planning work-related experience. Once potential designees meet these requirements, they must then adhere to continuing education as well as follow a code of ethics and standards set forth by the CFP Board of Standards.

Chartered Financial Analyst

Chartered Financial Analyst (CFA)

Another professional certification to look for when choosing a financial planner is the Chartered Financial Analyst (CFA) designation. The CFA is an equally rigorous exam broken into 3 sections. To earn the CFA designation, candidates must first pass all three sections of the exam. The CFA is really geared more towards people working as analysts for investment banks and companies. The CFA may be less relevant for financial planning as compared to a CFP, however; it would be a great supplement to the investment management aspects of financial planning. While a CFA charterholder alone may not be the most appropriate certification for a financial planner, it is certainly well respected and a great addition to one of the more financial planning oriented designations such as the CFP.

Certified Public Accountant

Certified Public Accountant Personal Financial Specialist (CPA-PFS)

Another professional certification which is a viable option for a financial planner is a Certified Public Accountant (CPA) with a Personal Financial Specialist designation (CPA-PFS). By the nature of their profession, many public accountants end up performing some form of financial planning for their clients in addition to their tax planning and preparation. The Personal Financial Specialist designation covers additional topics related to financial planning beyond the tax aspects. Topics include retirement, estate, risk management, and investment planning.

Chartered Financial Consultant

Chartered Financial Consultant (ChFC)

Lastly, the Chartered Financial Consultant designation (ChFC) offered by the American College is another designation focused in the area of financial planning and investment management. The ChFC is often regarded as a less rigorous program than the previously mentioned designations. To earn the Chartered Financial Consultant designation, you must complete courses in your selected program, meet experience requirements and ethics standards, and agree to comply with a code of ethics and procedures set forth by The American College.



What Does All This Mean?

Before you get carried away and start looking for one of these designations, please consider a few things. An individual with these certifications is in no way more qualified as a result of obtaining these certifications than anyone else. In fact, there is no proof that not having these designations might make one a better investor. Perhaps, not having these designations may make someone a better investor.

Basically, understand that the integrity of someone you choose to work with is important. Read our post about “Red Flags and Warning Signs” when evaluating advisors. You should check their references and credentials and make sure to read our post on “Doing Due Diligence On Financial Advisors.”

One Comment

  • George Thiny says:

    Good point at the end of the article. Having designations does not guarantee anything. It is a great starting point when doing research though. Thanks!

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