Financial Advisors: Deciphering the Titles

Financial Advisors: Deciphering the Titles

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Sorting Through Different Titles for Financial Professionals

Who can you trust? The leading school of thought is that the safest advice comes from an advisor who is a fiduciary—someone legally required to place your interests first. Only registered investment advisors are held to this standard, and that typically includes financial planners who charge a fee. Brokers and advisors who work for commissions must generally assure only that an investment is suitable (“Can you trust your financial adviser?” Money, CNN). 

In our last post Financial Advisors: Who Can You Trust? , we discussed the importance of validating titles and designations prior to hiring a financial professional. In today’s post we’ll help by providing definitions of the abbreviations for some of the key designations for financial professionals and a list of questions you can pose when you’re considering hiring someone.

The Financial Industry Regulatory Authority lists hundreds of possible designations, while <ahref=””>Investopedia provides the more traditional titles that financial professionals have used for decades.

  • Certified Financial Planner (CFP): This is the most widely recognized credential in the financial planning industry, perceived as providing an unbiased approach to financial planning. Its certification requirements are rigorous, necessitating five courses covering insurance, estate, retirement, education, taxes, investment planning, ethics and the financial planning process. Candidates must pass a board exam, have at least three years of professional experience and hold a bachelor’s degree.
  • Certified Public Accountant (CPA): This is the oldest and most established financial credential widely recognized as the definitive credential of tax expertise. To sit for the two-day exam, candidates must take 150 semester hours of undergraduate-level courses and hold a bachelor’s degree or higher.
  • Chartered Life Underwriter (CLU) and Chartered Financial Consultant (ChFC): The life insurance industry originally created these designations. The two designations have the same requirements, except the ChFC tends to embrace general financial planning issues as opposed to the CLU, which focuses more closely on life insurance and its laws and regulations.
  • Chartered Financial Analyst (CFA): This is considered to be one of the most difficult and prestigious credentials in the financial industry, at least in terms of investment management. The academic requirements for this designation are second only to those for CPAs. Many portfolio managers or analysts have this designation. Newer titles, which often have less rigorous academic requirements, include the Accredited Asset Management Specialist (AAMS) and Chartered Mutual Fund Counselor (CMFC). One exception is the Licensed International Financial Analyst (LIFA), which covers much of the same material as the CFA curriculum in its coursework but is considerably more flexible in terms of administration. Notable financial certifications to look for include CFP, Certified Fund Specialist (CFS) and Chartered Investment Councilor (CIC).

Some certifications focus on a particular group, such as the Society of Certified Senior Advisors, which is designed to help professionals already working with older adults enhance their knowledge of the aging process. There is an expectation that those who obtain the CSA certification already have the appropriate education, training, licenses and certifications to practice in their professions.

Questions to Ask

Experts offer a list of precautions to ensure that your financial advisor offers the services you want and has the appropriate background for what you need.

Financial designation: If a financial professional tells you that he or she has a certain professional title, find out who awarded the title. Ask about training, ethical and other requirements. Determine whether or not a course was required and if the person passed a test. Did the designation necessitate a certain level of work experience or education? Are refresher courses required to maintain the designation? How can you verify the advisor’s standing with the professional organization?

Payment: Make sure you understand how the advisor is being compensated for investment advice or transactions, whether commissions or a fee, as well as the underlying costs of the investments. Do not be afraid to ask the investment advisor the amount of his fees.

Investment options: Find out if the advisor can suggest investments or if he must choose from a certain portfolio of funds. If the advisor is recommending one investment, an insurance product, for example, you may be getting a sales pitch, not advice. If the advisor keeps trying to sell you a financial service that generates a commission regardless of how well it suits you, she is probably not looking out for your long-term interests.

Level of service: Make sure your advisor gives you information on a regular basis, not just when he wants to sell something, and alerts you if new developments are going to affect your investments. At the same time, your advisor should be willing to take the time to explain any new investments or how the economy is affecting your portfolio. If she is unwilling or unable to explain, that should be a warning sign.

Where to Find Help

The Financial Industry Regulatory Authority (FINRA) is an independent, not-for-profit organization authorized by Congress to protect America’s investors by making sure the securities industry operates fairly and honestly. Its website provides an exhaustive list of acronyms for financial advisors, using its “Understanding Professional Designations” to decode the letters and outline whether the issuing organization requires continuing education, takes complaints or has a way for you to confirm who holds the credential.  Its BrokerCheck website allows investors to research the professional backgrounds of current and former FINRA-registered brokerage firms and brokers, as well as investment advisor firms and representatives. It also offers links to state regulators.  The Securities and Exchange Commission lets you check to see if your financial advisor has received any complaints. See “Check Out a Broker or Advisor”.

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