Types of financial professional designations and certifications: What you should consider when selecting an advisor

Nov 19, 2019

[vc_row][vc_column][vc_single_image image=”3595″ img_size=”large” alignment=”center”][vc_column_text]With all the financial designations and certifications available, it may be a bit of a challenge to decipher what each credential means. When dealing with your finances, you want to ensure that you partner with someone you trust and who has the experience necessary to handle your financial needs. To help you better understand each designation, we have created a breakdown of the most common financial certifications.


Certified Financial Planner (CFP®)


The Certified Financial Planner (CFP®) designation is earned through the CFP board. The CFP Board is a non-profit organization that fosters a professional standard for personal finance. The goal of the CFP Board is to work in the best interest of the public by setting and enforcing the education, experience, ethics, and criteria of a CFP® professional.


CFP®s are experts in a variety of topics ranging from budgeting to saving for education to insurance coverage. While many financial professionals may call themselves a financial planner, CFP®s have completed extensive training, have a bachelor’s degree from an accredited college or university, have over 6,000 (4,000 hours through apprenticeship) of experience working in the industry, and are required to uphold the ethical standards of the CFP Board.


To earn the CFP® certification, applicants must meet the CFP Board’s four “E” requirements: education, experience, examination, and uphold their code of ethics. Typically, the coursework takes about 18 to 24 months to complete. Once the CFP® coursework is complete, applicants must pass an extensive exam that is comprised of 170 multiple choice questions over the two, 3-hour sessions.


After an applicant receives the CFP® designation, they must also complete the certification renewal process every two years. In addition to the annual fee, CFP®s must submit a new application for renewal and complete 30-hours of continuing education credits.


When you should consider partnering with a CFP®


You can choose to work with a CFP® at any time during your financial journey. They can be called on to give your finances a fresh set of eyes or to help confirm that you are on track to meet your financial goals. However, there are some specific situations that may cause you to seek out a CFP®.


If you experience a substantial life change such as a change in marital status, it will likely affect your finances. Whether you’re combining or separating finances, a CFP® can help you to simplify your situation and create a plan moving forward. The same is true for when your family grows or if your employment status changes.


Other major life milestones that may cause you to seek out a CFP® are when entering or exiting a business, deciding to plan for retirement or long-term care, receiving an unexpected financial windfall, or simply feeling overwhelmed by your finances.


Chartered Financial Consultant CHFC®

Financial professionals can receive the Chartered Financial Consultant (CHFC®) through the American College. This program is designed to help applicants develop financial planning strategies that they can apply to real-world situations. This college-level curriculum guides financial professionals through the financial planning process and helps them gain the experience necessary to address their client’s financial concerns.


To achieve the ChFC® designation, applicants must complete seven core fundamental courses and pass an exam that coincides with each course. In addition to the coursework and exams, applicants must have three years of experience before completing the designation, or 5 years’ experience after they achieve the ChFC® certification. They must also complete 30 credits of continuing education every two years.


When you should consider partnering with a ChFC®


Many financial professionals often have a sale-based mentality. This means that they may base their investment recommendation on what will yield the most commission. They may also suggest a financial product as a financial solution. If you choose to partner with a ChFC®, they understand that an investment recommendation is just one piece of your financial puzzle. Knowing that they will work with you to create a personalized financial strategy that will help you reach your financial goals and objectives can be very comforting and reassuring.


ChFC®s may have the knowledge and expertise needed to help you achieve your long-term financial goals, experience to implement the strategy, and oversee and revise the strategy as need be throughout the years.


Chartered Financial Analyst (CFA®)


The Chartered Financial Analyst (CFA®) certification is one of the highest distinctions investment management professionals may have. Created by the CFA Institute, the CFA® certification signifies a financial professional’s dedication to advanced ethics, market integrity, and the professional standards of practice. The CFA® is considered one of the most challenging financial designations. Many asset management firms may require all applicants to have a CFA® designation.


To become a CFA®, applicants must complete an exam at 3 different course levels. Usually, it takes an average of 4 years and 300-hours to complete the CFA® program. Completing this certification signifies that the professional has a certain level of intelligence and a strong work ethic. The CFA Institute recommends that each CFA® completes 20-hours of continuing education each year. This helps professionals stay dedicated to a life of continued professional development.


Who should consider partnering with a CFA®?


Since the CFA® program focuses on investment management, CFA®s tend to work in portfolio management or research analyst positions. A portfolio manager can give their clients investment advice and recommendations for the types of investments they should have in their portfolio. A research analyst may work with a bigger financial firm and help them make investment recommendations.


Therefore, if choosing to partner with a CFA®, most commonly they will be a portfolio manager. So, if you’re looking for extensive investment advice, a CFA® may be worth considering.


Certified Public Accountant (CPA)


Accountants can receive their CPA designation through the American Institute of Certified Public Accountants (AICPA). Achieving this title takes months of rigorous work – there are at least 150 hours of required education and a four-part exam to receive the CPA designation. In addition, there are upfront experience requirements.


Once a person achieves the CPA designation, they must commit to lifelong learning. A CPA must also adhere to a strict Code of Professional Conduct that requires competence, objectivity, integrity, and independence.


When should you consider partnering with a CPA?


There are several situations that might necessitate a CPA. CPAs specialize in working with both individuals and business owners. While there is a cost associated with working with a CPA, they can help you make better business decisions, avoid costly mistakes, and save you time.


You may want to consider working with a CPA during tax season, but CPAs can advise on tax strategies year-round. It’s important to note that not all CPAs are tax strategists. However, they are accountants first and can help to maximize your taxable income, especially if you own multiple homes or rental properties. A CPA is well-trained to offer advice on complex situations. Additionally, you will want to have a CPA by your side if you are ever contacted by the IRS. A CPA can help you to understand the ‘language’ of the IRS and navigate any potentially confusing communications.


Financial Risk Manager (FRM)


The Financial Risk Manager (FRM) designation is awarded by the Global Association of Risk Professionals (GARP). This certification is earned when a candidate completes FRM Exam Parts I and II, and are required to earn 40-hours of Continuing Professional Development (CPD) every two years. This ensures that they maintain the latest best practices in risk management.


An FRM specializes in assessing risk for major banks, insurance companies, accounting firms, regulatory agencies, and asset management firms. Many FRMs specialize in areas such as credit or market risk, and they determine risk by analyzing financial markets and the global environment to predict changes or trends. In short, their role is to develop strategies to counteract the effects of potential risks.


When should you consider partnering with an FRM?


FRMs are typically employed by major banks and do not typically work with end consumers. However, it may be wise to discuss the role of the FRM with a bank or other financial institution before choosing to invest with them.


Financial Modeling & Valuation Analyst (FMVA®)


The Financial Modeling & Valuation Analyst (FMVA®) is a certification granted by the Corporate Finance Institute. The designation is a premier certification program that focuses on practical applications of financial analysis, modeling, valuation, presentations, and more. The certification provides an individual with all the tools necessary to become a world-class financial analyst.


The course takes about 120-200 hours to complete and is taken at the individual’s own pace.


When should you consider partnering with an FMVA®?


FMVA®s have practical skills that allows them to work as a financial analyst and typically work with institutions rather than individuals. However, an individual should inquire with an institution that they are considering investing with about their financial analysts, and if they have the FMVA® certification.


How to find the right financial advisor for you


Now that you have a better understanding of the top financial designations and certifications, it’s time to find the most suitable financial professional for your situation. Before you begin interviewing potential financial advisor candidates, you need to identify what you truly want. This may differ depending on what stage of investing you are in, so here is a step-by-step guide  to help you find the right financial advisor.


Determine what you’re looking for


When deciding which financial advisor to work with, you will first want to understand what your needs are so that you can explain them clearly to a potential advisor. Be ready to tell your potential advisor what stage you are at, what your goals are, and what your expectations are of them. You should be clear if you prefer to meet in person and what kind of advice you are looking for.


How to identify potential candidates


Now that you understand what you’re looking for in a financial advisor, what are the best steps to take to find the right one for you? Before you decide on a whim and fall head over heels for a specific advisor, here are a few tips for identifying a suitable financial professional for your needs.


For example, let’s say you’re a few years away from retirement but you’re concerned you don’t have enough saved to thrive in your golden years. You may want to try to identify financial planners who specialize in retirement planning. Knowing what expertise you need will help you sort through potential candidates.


Ask for recommendations from friends and family


Who do you trust more than your loved ones? Many of your friends and family may be in similar financial situations. They may be able to provide suitable recommendations to coincide with your financial circumstances. Asking your friends and family for recommendations is a great place to start when choosing the best financial professional for your needs. They can point you in the right direction and help you begin your search.


Review the fee structure


Before you partner with an advisor, you want to make sure you understand their fee structure. Their fee structure can also help you determine if they have your best interest in mind when making recommendations for your financial plan.


For example, you may feel more comfortable paying a flat fee instead of commissions on financial products sold.


Consider designations and certifications


As stated above, certifications can help you determine the experience and expertise of certain advisors. All designations and certifications have different requirements and standards to uphold. Make sure you understand what each designation means and how it applies to your financial situation.


Research advisor’s background


What would you do if you found out your financial advisor had been tiptoeing around the law for years? Would you feel betrayed and lose faith in the financial industry as a whole? Do your research and make sure you review your advisor’s background. You can review an advisor’s disciplinary history on the Financial Industry Regulatory Authority’s site.


Determine if they have experience working with clients in similar financial situations


How can a financial professional guide you if they have no experience working with other clients with similar situations? You want to work with someone who understands you and your financial needs. If you are 10 years away from retirement, you will want to work with someone who has experience working with pre-retirees.


Advisors with this experience will know the right questions to ask and how to properly plan a comfortable retirement. They will be able to see the bigger picture and help you develop a plan of action for you to achieve your retirement goals.


Questions to ask financial advisors before you partner with them


Once you understand what you are looking for in an advisor and have done research on several potential partners, you will want to interview them to ensure that a partnership is mutually beneficial. By speaking to them in advance, you will determine if they understand your goals and are ready to help you achieve them. Below are some questions that you may want to ask.


Are you a fiduciary?


‘Fiduciary duty’ means that the advisor must act in the client’s best interests. You want your advisor to point you in the right direction that will help you achieve your financial goals. If a financial advisor doesn’t work under a fiduciary, they may make recommendations based on financial products that may yield the most commission instead of what’s best for you.


Can you explain your fee structure?


Similar to inquiring about whether your advisor is a fiduciary, understanding how an advisor gets paid is extremely important. If they are commission-based, for example, they may make decisions based on the products they recommend rather than your financial needs.


What are the total costs involved?


In addition to understanding how your money is invested and the fee structure associated, you will want to understand if there are any other extra costs of working with your advisor. You will also want to inquire about the tax implications of working with this advisor. Having a complete picture of what you’re expected to pay will help you decide if this is the right financial advisor for you.


What are your designations and certification?


Now that you understand the most common certifications and designations, you can ask your potential advisor about their qualifications. Depending on your needs, you may specifically want to work with a CPA or a CFP®.


Do you have experience working with other individuals who have a similar financial situation?


If you are close to retirement, you wouldn’t want to partner with a financial planner who has limited experience working with pre-retirees. You want to partner with someone who understands your financial concerns and who can help you address them. By understanding if they have a specialty, you will be able to understand if they have success in working with individuals in your situation. Your advisor needs to understand your unique challenges to help you achieve your financial goals.


Can you explain how our relationship will work?


If you want to work closely with your advisor, this is an important question to ask. It will help you to agree on how you will communicate with them and how often. You will also want to understand if they will be available for calls or emails outside of designated appointment times.


What’s your investment philosophy?


If you have a strong preference for a specific philosophy, this is an important question to ask. When you understand your risk tolerance and goals, you will be able to align yourself with an advisor that has the same investment philosophy.


Who is your custodian?


A custodian is used to hold and protect an advisor’s client’s assets. Oftentimes, an advisor will offer several custodian options to their clients. Following the 2008 financial crisis, it’s exceedingly important to understand who your advisor’s custodian is. Using a custodian provides an extra layer of accountability and protection of your assets.


What benchmarks do you use to determine success?


A good advisor will use benchmarks and be able to explain to you how they directly relate to what they are invested in. A benchmark is a standard measure that can be used to analyze the allocation, risk, and return of a portfolio. Benchmarks are used to manage risk and measure the performance of your investments.


Can you explain the tax implications of investing with you?


Similar to understanding the fees of working with a specific advisor, you will want to understand any tax implications, as well. Different investments have unique tax deferrals or implications, so ensure that your advisor has your tax bill in mind when helping you to make financial decisions. You want to be sure that your investments truly are making you money and that the growth won’t disappear once taxed.


The bottom line


By understanding different financial designations and certifications, you are better equipped to decide who to work with. Now that you understand how to ask the right questions, you can choose a financial advisor who will help you be successful in your retirement strategy.


If you’re looking for a financial planning partner who can help you realize your retirement goals, we have financial planning offices in Redmond, Seattle, Mill Creek, the Tri-cities region, and Denver. Our firm focuses on helping retirees and those preparing for retirement achieve financial freedom by creating a plan that shows them how they can have the income they need and want until they turn 100.

If you’re ready to take the first step to achieving your retirement goals, our team is ready to assist you. We’ve helped hundreds of couples and individuals smoothly transition with confidence, and we’d like to do the same for you.


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