Working With a Financial Adviser: Demystifying Certifications

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.