Blog

Ever wondered about those letters that follow a financial advisor’s name?

These credentials and designations are one way to quantify their education and expertise.

Let’s be honest: no amount of education is going to guarantee better results, quality service or a good experience. And it’s not going to tell you whether you will like the person. But in a country with 321,000 financial advisors, it’s a fast way to begin narrowing your search.

All individuals legally qualifying as a financial advisor will hold certain licenses such as the Series 7, 63 or 65. This tells us they have passed an exam on the subject of financial theory, investment products and legal requirements of advisors. They also engage in continued education to maintain those licenses.

But some decide to specialize in certain aspects of the financial industry, and that’s where the credentials come in.

Certified Financial Planner (CFP)

The CFP certification is awarded to those advisors who pass a rigorous six-hour exam on the subjects of financial planning: investment, tax, retirement, estate planning and insurance. While study time varies, it is common for an advisor to have dedicated around 1,000 hours of study time prior to taking the exam.

In order to earn this certification, the candidate must also have completed at least three years of professional industry-related experience, or at least two years in an apprenticeship role.

Candidates are also required to agree to a very high level of ethical standards in order to receive and maintain their hard-won CFP designation.

If you’re looking for comprehensive financial planning in all areas of personal finance, you can rest assured that any advisor bearing this designation has shown great competence in financial planning.

Chartered Financial Analyst (CFA)

This is the designation that I personally hold, so buckle up! I have a bit more to say about this one since I’m well acquainted with it. Plus I naturally have a very high opinion of it!

The CFA Charter is awarded to individuals who pass a series of three six-hour exams, for a total of eighteen hours of testing in total. Subjects covered include, but are not limited to, ethics, quantitative methods, economics, behavioral finance, corporate finance, accounting, financial statement analysis, portfolio management, equities, bonds, currencies, alternatives and derivatives.

This certification is considered the gold standard of the investment industry. The expertise of a CFA Charterholder is in the analysis of economics and investments in their tiniest details, as well as translating that analysis into actionable portfolio management for individuals and institutions.

Passing these three six-hour exams often requires around 300-350 hours of intense study per exam. The pass rate for the first two exams averages well below 50%, and an estimated 20%-25% of participants ever make it through all three exams. For these reasons, it is considered the most difficult exam in finance and among the most difficult of any exams in the world.

In addition to passing the exams, the candidate must also have completed 4,000 hours in no less than three years of industry work experience. They also must agree and adhere to a very high standard of ethics, which may even be stricter than the federal laws of a country, depending on where they reside.

This is a designation recognized in about 30 different countries.

If you’re looking for an advisor who has specialized knowledge of investments, you may benefit from working with a CFA Charterholder.

Certified Public Accountant (CPA)

Most of us are probably familiar with this designation. And we’re like most familiar with it because a CPA remains such an important part of your financial team.

While any advisor can offer tax strategies, not just any advisor can give financial “advice.” That’s because they’ve been trained on the basic tax strategies but not the intricate details of calculating a tax bill. Very often in the financial world, you may hit a dead end on a tax conversation when the person tells you, “We are not tax advisors. Please consult with your CPA.”

While this can be frustrating, the simple way to resolve this is to, in fact, find yourself a CPA!

A CPA will have passed the Uniform CPA Examination which covers three core sections: auditing and attestation, financial accounting and reporting, and regulation. They then choose to be tested on one of three discipline exam subjects: business analysis and reporting, information systems and controls, and tax compliance and planning.

Each of the four exam subjects consists of four hours of testing, and they are taken separately but within a maximum of 30 months.

A CPA can be a great option for advice on anything accounting, often in tax-related areas.

Chartered Financial Consultant (ChFC)

The ChFC involves the study of very similar topics as that of the CFP.

The study for this Charter involves nine college-level courses on subjects such as investing, insurance planning and retirement planning. These courses are self-paced and taken online, followed by an exam after each course.

The courses also focus on working with clients with unique and specific situations, such as divorcees and those with special needs family members.

To earn this designation, the candidate must also have at least three years of industry experience and agree to a code of ethics.

Study material largely overlaps between the CFP and the ChFC.

An advisor with the ChFC designation has proven that they have dedicated significant study, and demonstrated competence in, financial planning concepts.

Certified Investment Management Analyst (CIMA)

The CIMA designation is awarded to individuals that specialize in investment consulting.

This study covers subjects such as asset allocation, ethics, due diligence, risk measurement, investment policy and performance measurement. The exam lasts five hours, for which the candidates typically dedicate around 150 hours of study time. This also requires three years of industry experience.

Those with the CIMA designation often work with ultra-high net worth clients and institutions.

Personal Financial Specialist (PFS)

This PFS designation is specifically reserved for CPAs who want to expand their advisory practice into the realm of financial planning and wealth management.

To earn this credential, CPAs must study several areas of personal financial planning including, but not limited to, estate planning, retirement planning, investing, tax and insurance.

There are a number of ways to qualify for this designation, involving a combination of education, experience and examinations.

A CPA who also holds the PFS designation may be a good choice for those looking for financial planning services from the same individual who provides their tax and accounting services.

Retirement Income Certified Professional (RICP)

If you’re nearing retirement and looking for an expert on setting up passive income streams, an RICP may be just what you’re looking for.

The three areas of study that are central to this designation are: 1) retirement income processes, strategies and solutions 2) sources of retirement income and 3) managing retirement income plans.

Advisors bearing these letters have applied in-depth study to the interworking of Social Security, Medicare and taxation as applied to retirement income. They also are versed in the subjects of estate planning and health insurance.

With three years of industry experience, applicants are required to complete three in-depth courses, pass a 100-question exam, and agree to a code of ethics.

Those within ten years of retiring may have the most to benefit from an advisor with the RICP certification.

Chartered Life Underwriter (CLU)

The CLU Charter is considered the gold standard of the insurance planning industry. You may see the CFP and CLU listed together, as these two designations complement one another.

The CLU program focuses on helping clients identify financial risks that may be exposed and how to mitigate these risks, including such areas as life, health, personal property and other potential liabilities. It also covers strategy involving use of annuities, enhancing estate value, determining the proper amounts of insurance, and the evaluation of individual insurers.

Additionally, it includes the study of strategic organization of businesses and business risk management. One of the core courses is Planning for Business Owners and Professionals.

The candidates must complete eight courses, of which five are considered core and three are electives. For each course, they complete a 100-question exam lasting two hours, for a total of 16 hours of examinations.

An advisor with the CLU designation may be attractive if you’re looking for an expert in risk management and other insurance strategies. You may particularly be interested if you are a business owner looking for business-related strategic advice.

Accredited Estate Planner (AEP)

An advisor bearing the AEP credential has proven competence in the area of estate planning.

This credential is not offered in isolation, but rather in combination with others such as the CFP, CFA, CPA, etc. Estate planning must be a service which they devote a large part of their professional time to, as well as possessing five years of past experience already engaged in a related industry.

If they have less than 15 years of experience in professional estate planning, they must also complete two graduate courses at a minimum, along with their exams, through the American College of Financial Services.

While it’s never too early to begin estate planning, an advisor with the AEP designation may be particularly attractive for individuals in retirement who want to focus on leaving a legacy.

Conclusion

Choosing a financial advisor might seem at first overwhelming. Where do you start?

Paying attention to these designations can be a great way to narrow your choices. Know what you’re looking for, and start by screening for one or more designations that imply competence in the relevant subject matter.

There are over 200 different certifications available to financial professionals.

The ones listed above, however, are among those most widely recognized for personal financial advisors. Of course, if you come across one you’ve never seen before, research it to learn what expertise, experience and education this individual possesses.

While designations don’t inherently mean better service or more likeable character, they will at least help you to identify expertise, experience, dedication and the code of ethics applicable to the various advisors available to you.

The more knowledge you have at the outset, the better your chances of finding that member of your master mind group with whom you can enjoy working for years to come!

If you’re interested in further reading, check out our related articles:

Essential Insights to Know Before Choosing a Financial Advisor

Financial Coach vs Advisor: Which Is Best For You?

Wealth Management: Leveraging the Powerful Knowledge of Others