Searching for a financial advisor is always a little stressful. After all, you’re looking for someone to trust with your financial life.
Certifications can help you gauge a potential advisor’s competence, dedication, and ethical standards. However, these designations are also a bit confusing – they look like a list of airport codes: “CPA, CFA, CFP, ChFC, RIA, IAR, CFF, RICP, CPWA, CLU”
So what do these certifications mean, and how can they help you find someone who matches your financial goals and needs?
Financial Planner vs Advisor vs Coach
It’s helpful to first understand the differences between financial planners, advisors, and coaches.
A Financial Planner is a professional who helps individuals and businesses create a program to meet long-term financial goals. They might specialize in tax planning, asset allocation, investment management, retirement, or estate planning. Certified Financial Planners (CFPs) are held to the fiduciary standard, meaning they are required to act in their clients’ best interest. Not all financial planners are CFPs, so it’s important to inquire about qualifications.
Financial Advisor is a broader term that refers to a professional who helps manage your finances. Financial advisors can provide many different services, such as investment management, income tax preparation, and estate planning. They could be brokers, investment advisors, or insurance agents, among others. Depending on their role, they might be held to a fiduciary standard or a suitability standard (which requires them to make recommendations that are suitable, but not necessarily in the client’s best interest).
Financial advisors and planners hold various certifications that reflect different levels of specialization and expertise. Additionally, many advisors hold multiple certifications. The most common include:
- Certified Financial Planners (CFP)
- Chartered Financial Analysts (CFA)
- Certified Public Accountant (CPA)
- Certified Investment Management Analysts (CIMA)
- Personal Financial Specialist (PFS)
- Chartered Financial Consultant (ChFC)
What about a Financial Coach?
A financial coach is a professional who helps clients change their approach to personal finance in a more hands-on and educational manner. They focus on the basics of personal finance such as budgeting, debt reduction, and saving, and they don’t usually give investment advice. They act more like a mentor, aiming to improve a client’s financial habits and behaviors.
While there is no universally recognized certification to practice as a financial coach, several organizations offer certification programs designed to provide credibility and a structured approach to coaching.
Common Financial Credentials & Designations
Certified Financial Planner (CFP)
CFP’s specialize in personal finance and can offer comprehensive financial planning services to individuals.
The Certified Financial Planner (CFP) designation represents one of the most highly respected certifications in the finance industry, demonstrating proficiency in comprehensive wealth management.
Specializing in personal finance, CFP professionals offer a broad spectrum of financial planning services to individuals. These include tax-efficient investment strategies, retirement planning, estate planning, portfolio management, and insurance selection.
Acquiring the CFP credential involves satisfying stringent education requirements and passing a rigorous exam encompassing various facets of financial planning such as the financial planning process, taxes, retirement, estate planning, and insurance.
A crucial component of a CFP’s role is their fiduciary obligation, mandated by the CFP Board, to consistently act in the best interest of their clients while dispensing financial advice. This duty spans all aspects of the financial planning process, from data collection and analysis to the execution and monitoring of the financial plan. Breaching this obligation may lead to disciplinary action by the CFP Board, including potential loss of the CFP designation.
“At all times when providing financial advice to a client, a CFP professional must act as a fiduciary, and therefore, act in the best interest of the client.”– CFP Board
Chartered Financial Analyst (CFA)
CFAs focus on investment management and analysis. A CFA is a professional designation given by the CFA Institute that measures the competence and integrity of financial analysts.
Earning the CFA designation requires passing a series of three rigorous exams, which test a candidate’s knowledge of investment analysis, portfolio management, economics, financial reporting, corporate finance, equity and fixed income investments, derivatives, alternative investments, and professional ethics, among other topics.
CFA candidates must also have four years of qualified work experience.
ChFC: Chartered Financial Consultant
The Chartered Financial Consultant (ChFC) certification is a specialized professional designation for financial advisors working in the areas of personal finance and small business.
The ChFC designation is granted by The American College of Financial Services, and requires passing nine college-level courses on all aspects of financial planning including investing, taxes, and estate planning.
Similar to Certified Financial Planners (CFPs), ChFCs must act in the best interest of their clients. This can make them a good choice for individuals seeking comprehensive financial planning advice.
The main difference between the ChFC and the CFP is that the ChFC does not require a comprehensive board exam and it involves more coursework.
CPA: Certified Public Accountant
A Certified Public Accountant (CPA) is a designation given by the American Institute of Certified Public Accountants to individuals who pass the Uniform CPA Examination and meet the education and experience requirements.
CPAs can specialize in many areas of finance, including financial planning, but their training and expertise typically lie in areas such as auditing, tax, and accounting.
Personal Financial Specialist (PFS)
This is a specialty credential for CPAs who specialize in helping individuals plan all aspects of their wealth. It requires being an active CPA, completing certain financial planning coursework, and passing an exam by the American Institute of Certified Public Accountants (AICPA) to those CPAs who specialize in personal financial planning.
Certified Investment Management Analyst (CIMA)
Professionals with this designation are trained in asset allocation, ethics, due diligence, risk measurement, investment policy, and performance measurement.
RIA: Registered Investment Advisor
A RIA is a person or firm that, for a fee, provides advice, makes recommendations, issues reports or furnishes analyses on securities, either directly or through publications. RIAs have a fiduciary duty to their clients, which means they have a fundamental obligation to provide suitable investment advice and always act in their clients’ best interests.
A Registered Investment Advisor (RIA) does not technically require specific certifications. Instead, it involves registering with either the Securities and Exchange Commission (SEC) or state securities authorities.
However, most RIA’s have other certifications such as CFP, CFA, etc.
Other less common financial certifications
IAR: Investment Adviser Representative
An Investment Adviser Representative (IAR) is a professional who is registered with and overseen by the Securities and Exchange Commission or state securities authorities, providing investment-related advice for a fee on behalf of Registered Investment Advisers (RIAs).
CFF: Certified Financial Fiduciary
A Certified Financial Fiduciary (CFF) is a designation for financial professionals, bestowed by the National Association of Certified Fiduciaries, that certifies them to act in the client’s best interest, ensuring they prioritize the client’s needs above their own when providing financial advice.
RICP: Retirement Income Certified Professional
A Retirement Income Certified Professional (RICP) is a designation offered by The American College of Financial Services, indicating expertise in retirement income planning and the capacity to help clients structure effective retirement income plans.
CPWA: Certified Private Wealth Advisor
A Certified Private Wealth Advisor (CPWA) is a professional certification offered by the Investments & Wealth Institute, indicating that the holder has advanced knowledge and skills to meet the complex needs of high-net-worth clients.CLU: Chartered Life Underwriter
A Chartered Life Underwriter (CLU) is a professional designation granted by The American College of Financial Services, representing specialized knowledge in life insurance and estate planning, essential for professionals aiming to provide risk management advice to clients.