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Working With a Financial Adviser: Demystifying Certifications

This article was written by in Financial Advice and Advisers. 16 comments.


This is a series on finding, selecting, and working with financial advisers or planners. Recently, I evaluated the types of financial professionals to help readers start on the right track. This article looks at the varied professional designations and certifications.

With a number of organizations granting different types of financial certifications, it’s easy to get lost in a sea of letters. Having initials after your name on a business card helps those you meet know that you’ve been able to pass some type of testing to earn your certification, but the content and extent of testing changes depending on those initials.

The public is generally aware the type of education someone might have when he suffixes Ph.D., M.D., or M.B.A. to his name. There are different requirements for these degrees depending on the institution that awards them, but with professional certifications like CFP®, CFA, and CPA, only one organization administers the certification for each. This way, customers and clients can be sure they are receiving the specific service they require. That depends, however, on the public understanding of the certifications.

The Certified Financial Planner® (CFP) designation is granted by the Certified Financial Planner Board of Standards. In order to become a CFP, an applicant needs to take a variety of courses focusing on overall financial planning and specific areas of finance, pass an examination, have experience in the field, and abide by a code of ethics. Once someone has been granted the certification, he must focus on continuing education and continue to pay license fees. This is the primary designation for financial planners, and if you plan on working with an adviser to help you with your overall financial picture, the CFP certification helps you feel confident that the professional you hire will help you make the best decisions for you.

Chartered Financial Analyst (CFA) is a certification administered by the CFA Institute. The CFA designation is awarded to those who, like Certified Financial Planners, have relevant education and experience. Chartered Financial Analysts are not financial planners, for the most part. The certification focuses on quantitative analysis, economics, financial reporting, corporate finance, and portfolio management. There is nothing wrong with having a CFA on your team of advisers, but their focus is not your total financial package. You’re more likely to find a CFA working for a corporation than for an individual.

Certified Public Accountant (CPA) is a certification granted by the states and territories. There is a standard examination that applicants must past, uniform across all states. The examination is designed by the American Institute of Certified Public Accountants (AICPA), but certification does not require membership in this organization. Like the other certifications, it’s not enough to pass the exam. To qualify, one needs the appropriate education and experience.

In some states, the experience needs to be in public accounting, specifically. Public accounting focuses on what companies or other entities must report about their finances to the public, like annual reports. This may or may not be relevant to your personal needs. When I shopped for a tax accountant for my business, I did not deem the CPA designation to be necessary. If my business were to have shareholders other than myself, or more specifically, trade on a stock exchange, the CPA designation would be more appropriate.

CPAs can also earn an add-on certification, Personal Finance Specialist (PFS). Personal Finance Specialists are CPAs who have had additional training and experience with financial planning. Many who are certified with the PFS designation also have the Certified Financial Planner designation. (He who collects the most letters must win.)

Chartered Financial Consultant (ChFC) is a designation similar to Certified Financial Planner, but the requirements are somewhat different. The ChFC certification requires more coursework, but there is no examination. The coursework focuses on comprehensive financial planning — the type of guidance most households look for when they seek financial advise.

This isn’t the end of financial designations. Chartered Life Underwriters (CLU) are insurance agents, and not necessarily trained to look at a client’s overall financial picture. Certified Investment Management Analysts (CIMA) focus on asset allocation and other aspects of portfolio analysis. There are dozens of other designations, each focusing on a specific area of finance.

The certification is only one part of your evaluation of a potential financial adviser or planner. The existence of the right certification does not guarantee that a professional will be the right match for your needs. For most family financial planning needs, look for the CFP or ChFC designations.

Published or updated March 29, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 16 comments… read them below or add one }

avatar The Latter-day Saver ♦706 (Dime)

“When I shopped for a tax accountant for my business, I did not deem the CPA designation to be necessary.”

Flexo, you may want to rethink this, since only Attorneys, Certified Public Accountants, Enrolled Agents, and a few other individuals with highly specialized credentials can practice before the IRS.

This means your accountant without the CPA designation would be unable to represent you if your business or personal return came under scrutiny for audit. That could mean having to find another professional to represent you, or representing yourself before the IRS, yikes!

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avatar Luke Landes ♦127,495 (Platinum)

Hi LDS — thanks for bringing that up… that’s an excellent concern, definitely something to think about. My tax guy is an enrolled agent, so he would be able to represent me in an IRS audit. When looking for a tax preparer, whether they can represent you in front of the IRS is an important point to consider.

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avatar Ceecee ♦53 (Newbie)

Wow, this is more complicated than I thought. You need a map to figure this out—which is kind of what you gave us…thanks!

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avatar tbork84 ♦1,867 (Half-Dollar)

Its definitely important to look at the certifications of the people who are working with you to come up with a financial plan. As you point out very well in the post, some of them do actually require the planner to look out for their clients best interests, and it is comforting to know that they are obligated to do so.

Even for those who might not think they have enough money to justify talking to a financial adviser, it is helpful to get a different perspective on your finances and plans from a professional. I know I am happy I did it even though I had very little investments and extra income at the time.

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avatar rewards ♦31 (Newbie)

Agreed. If the posting is complete, it’s interesting to see that only CFP requires members to abide by a code of ethics. I wonder if the recent spat of financial conflict of interests will inspire more organizations to establish a code of ethics (similar to the Hippocratic Oath).

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avatar Ryan

I haven’t researched the AICPA’s rules, but I think individual states enact a code of ethics. In Ohio, they will suspend your designation if you’re convicted of a felony, I imagine there are other rules.

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avatar rewards ♦31 (Newbie)

I was hoping for a code of ethics along the line of “I will always look out for my clients best interests even if it hurts my bottom line” :)

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avatar TakeitEZ ♦549 (Dime)

This was a very informative article. Thanks, Flexo!

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avatar shellye ♦107 (Cent)

Good article, Flexo. Thanks for the road map – so many things to consider when hiring a pro to help manage your money.

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avatar Jenna

Thanks for sharing this information. Would be interesting to know if there is a review site for Financial Advisers / Planners?

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avatar steveDH

An additional note of CFP; although they are indeed required to abide by a code of conduct they do not accept/have an imposed fiduciary responsibility towards their clients. In fact, they (meaning their association etc.) have been fighting the fiduciary responsibility initiatives that are now being explored by Congress. This just means that even though they say they will work in your best interest, and many will, they might not be legally bound to.

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avatar djp

SteveDH,

You bring up a very good point regarding ethics and fiduciary responsibility. As I shop for an advisor, it’s good too keep those two points in perspective. I wonder how many CFP’s have lost there certification status due to ethics violations? thanks for bring that to light.

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avatar Paula @ AffordAnything.org

Thanks for this article; it was very informative! I’ve been wondering what all these designations mean. The only ones I knew about were CPA and CFP … I wasn’t aware of ChFC.

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avatar Philip Taylor

Nice write up, Flexo. Most people assume that the purpose of the CPA is for taxes. It’s not, it’s to opine on financial statements. I didn’t know about the PFS designation. I’m going to look into becoming one of those. As someone who’s making the CPA to blogger transition, I’m moving out of the type of work that requires a CPA. If I could add on the PFS, that might be something off additional value for my work going forward.

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avatar wylerassociate ♦162 (Cent)

thanks flexo, this is a great column and very insightful. I didn’t know the distinctions between each one.

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avatar skylog ♦368 (Nickel)

thank you for the information. i truly had no idea that there were so many different classifications, groups and differences. there are some interesing differences between the designations you provided us with.

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