Financial Advisors - The Primer Part 4

Part 3 is Here

Financial Advisors - Certifications

Because there are so many financial advisors out there with very little training and education, there are a number of certifications available that allow an advisor to demonstrate that they have more skill and knowledge. However, professional designations have become the latest fad for financial professionals and organizations. The key is to focus on just a few of the designations.

Warning: Watch out for certifications that sound LIKE one of these. Also, don't assume that a certification name means it is better or more specialized. For example, a Certified Financial Planner or CFP is a highly respected certification which requires 3 years of experience, an average of 2 to 3 years of study, plus passing a rigorous two day exam with a pass rate of just over 60%.

A Certified Retirement Planner is a much less rigorous certification. Avoid anyone who tells you that a certification is "just like a ______" or "just as good as a ______"

The Gold Standard Designations

These certifications represent real experience and knowledge. These are the only certifications you should worry about. Everything else is either too specialized, or too easy to get, or not known widely enough for anyone to evaluate it's credibility.

CFP - Certified Financial Planner

The gold standard of financial advisor certification is the Certified Financial Planner or CFP designation. The CFP program is run by the College of Financial Planning. The CFP program represents a certification in the whole financial planning process, not just a part. The exam is very difficult and long exam with a pass rate in the 60% range. Studying for the exam generally takes anywhere from 12 months to 3 years depending on the program. The curriculum requires a level of proficiency in all areas of financial planning including: Financial Planning, Insurance, Employee Benefits, Taxes, Investments, Retirement Planning, and Estate Planning.

One of the most important requirements for being a CFP is 3 years of industry experience. Of course, a lot of things count as "industry experience" including jobs that have nothing to do with financial planning. Still, it is better than someone who was a copier salesman last week being your financial planner this week. In addition to the original certification requirements, the CFP has continuing education requirements as well.

CFA - Certified Financial Analyst

The gold standard of investment managers is the CFA. The person who manages a mutual fund is almost always a CFA. Keep in mind that this is not necessarily better or worse than a CFP. The CFA is a specialized certification in investing and analysis. The CFA will know all about alpha, beta, Sharpe Ratios, and other things you have never even heard of. The CFA exam is as difficult or more difficult than the CFP exam.

CIMA - Certified Investment Management Analyst

A CIMA is also a very high level certification focused on the investment part of financial advice. It will be rather uncommon for you to find someone who is a CIMA and nothing else. This tends to be a certification you get after you have already gotten others.

The Common But Not So Necessary Certifications

These often represent specialized knowledge, or a watered down version of one of the above certifications. However, since these designations are fairly common you may run across them and wonder about what they mean, so they are explained here.

ChFC - Chartered Financial Consultant

The ChFC is a certification developed for the insurance industry. The ChFC is a less rigorous financial planning certification than the CFP despite being routinely positioned as equivalent. Although it covers the same topics, takes the same number of tests, and even requires the same number of years of experience, it is a definite step down from the CFP.

The behind the scenes secret of the ChFC designation is that it was hand tailored for insurance companies who wanted to get their guys a financial planning certification. In fact, the requirements for the ChFC can, with the proper selection of electives, can be almost entirely completed by getting a CLU certification (see below). So, it is no wonder that advisors who work for insurance companies are so likely to end up with a ChFC shortly after getting their CLU.  There is nothing wrong with working with an insurance company, and many great financial planners do. Just beware the myth that a ChFC is "about the same" as a CFP.

No Certification At All

Keep in mind that a good knowledgeable financial advisor need not have any of these designations. In fact, the longer someone has been in the business, the less likely they are to "go back" and get a designation like these. After all, if you already have all the clients you can handle and 20 years of experience what benefit does a CFP bring you?

Be Careful About "Seniors" Designations

As a final note, be very, very, very, very careful of any designation with the word "seniors" in it. The NASD sent out a warning to states to keep an eye on those claiming to have or confer such designations because of widespread abuse of titles with the word "seniors" in them.


Financial Advisors Primer Part 5