Choosing An Advisor: The Top 10 Financial Certifications
When you’re looking for a financial advisor, you’ll see any number of certifications and credentials listed on the business cards and websites of prospective candidates. From CPAs to CFAs, ChFCs to IARs, the long and growing list can be overwhelming. But understanding what all of these acronyms stand for allows you to choose the best financial advisor for your needs. Let’s take a closer look at the 10 most common financial professional certifications.
CPA: Certified Public Accountant
Of all the financial advisor certifications, you’re probably most familiar with certified public accountant (CPA). Although most people associate CPAs with taxes, their expertise goes far beyond your annual tax filing. CPAs handle jobs from financial reporting to audit work and forensic research. And even if your needs are slightly less extensive than those, employing a CPA can still save you a bundle of money and keep you out of a tax court, too. In short, if your finances progress beyond entering W-2 info into tax software, you’ll need a CPA.
The CPA has been around since the late 19th century, making it the granddaddy of financial certifications. It’s also a tough qualification to earn. Requirements vary by state, but candidates generally need a specialized degree, one year of work experience, and they must pass the challenging Uniform Certified Public Accountant Examination.
CFA: Chartered Financial Analyst
A chartered financial analyst (CFA) has in-depth knowledge of asset management and securities analysis, as well as a professional commitment to the highest ethical standards. The common habitat for CFAs is handling high-level research and analysis for large financial companies and investment firms, but they may also work with high-net-worth private clients, providing investment advice, portfolio management and risk management services.
The CFA Institute says it takes 1,000 hours of study, four years of professional experience and a three-part exam to become a CFA charterholder. The pass rate for all three levels of the CFA exam is just 20%. Once upon a time, the CFA qualification was considered a good plan B if you weren’t cut out for an MBA. That’s not the case anymore, and today, CFAs rank among the financial advisory elite.
CFP: Certified Financial Planner
A certified financial planner (CFP) takes a holistic, all-encompassing approach to financial planning, meeting their clients’ needs for budgeting, retirement planning, life insurance, taxes and estate planning. CFPs commit to a professional requirement to act as fiduciaries, meaning their financial advice must always put their customers’ best interests first.
The CFP is a good candidate for people who want a comprehensive financial plan. If you need help in choosing investments, planning for retirement, setting aside money for a child’s education, and many other goals, a CFP is a wonderful choice. Certified financial planners have many specialities, from the types of clients they work with to the types of work they take on, so check your candidate’s specializations before making a choice.
CFPs must take six or seven classes, depending on their program, covering the ins and outs of financial planning as well as pass a notoriously difficult exam and accrue years of financial planning experience before they can add CFP behind their name.
ChFC: Chartered Financial Consultant
Fundamentally, a CFP and a chartered financial consultant (ChFC) offer the same suite of services: Personal financial management, retirement planning, tax issues, estate planning, life insurance and special needs planning for parents and guardians.
The chartered financial consultant certification may offer slightly more depth than the CFP, as it requires additional coursework: eight courses to the CFP’s six or seven. However, unlike CFPs, ChFCs are not required to pass one comprehensive exam and instead must pass exams following each course they take. ChFC certification requires candidates to have three years of full-time experience in the financial services industry, and ChFCs must bind themselves to a fiduciary standard.
ChFCs’ broad knowledge base makes them superior candidates for managing complex individual or family estates and providing investment strategies to small businesses.
RIA: Registered Investment Advisor
Unlike the other certifications on this list, registered investment advisor (RIA) refers to a type of company, not a type of financial advisor. The registered part of the name comes from the fact that RIAs must register with the Securities and Exchange Commission (SEC) or a state regulatory agency.
RIAs are fully regulated fiduciaries that may provide financial planning or investment services. Practically speaking, though, their work with clients extends beyond simple investment advice, offering services such as retirement planning, insurance, estate planning and even concierge services like marriage and divorce consultations.
IAR: Investment Adviser Representative
An investment adviser representative (IAR) is a financial professionals who work for a RIA. Typically, IARs are certified via the Series 65 or Series 7 exams, and the Series 66, administered by FINRA, which the federal government authorizes to oversee US broker-dealers. In addition, they generally have one (or more) of the certifications listed above, like CFP or CFA.
The draw of IARs is their strong commitment to fiduciary responsibility. IARs must disclose conflicts of interest and tell clients about more efficient products, even if it means a smaller commission. This contrasts with advisors working under the “suitability standard,” who sometimes offer high-commission products that meet customer needs, without suggesting lower-commission alternatives that might better suit them.
If you’re working with a financial advisor through a company or financial institution, make sure to determine whether they are an IAR or a registered representative held only to suitability standards.
CFF: Certified Financial Fiduciary
Certified financial fiduciary (CFF) is an additional qualification that financial advisors undertake to supplement their existing professional certifications. In essence, it’s meant to signal that the advisor adheres to the highest possible standard of fiduciary duty (yes, there’s more than one kind of fiduciary). CFFs are trained to uphold the highest moral, ethical and fiduciary standards of service when providing investment advice to potential and existing clients. The National Association of Certified Financial Fiduciaries (NACFF) administers CFF training and awards the certification.
The CFF is a relatively new professional designation, first created in 2018, during the rise and fall of the Department of Labor’s ill-fated fiduciary rule. As such, the CFF is less common than the others profiled here. Before it was struck down in federal court, the fiduciary rule would have held all financial advisors to a strict fiduciary rule, and the CFF was created, in part, to prove an advisor’s commitment to this rule.
CFF candidates must pass stringent requirements: They must hold a professional financial certification or license or have enough education and experience to pass NACFF’s bar. A background check is conducted to examine their moral, ethical and fiduciary record. Candidates must complete comprehensive training and pass the CFF exam. Crucially, they agree to uphold the CFF Code of Conduct for fiduciary responsibility.
RICP: Retirement Income Certified Professional
Administered by the American College of Financial Services, the retirement income certified professional (RICP) program trains financial advisors to help clients claim Social Security, define risk factors and manage distributions from retirement plans like a 401(k). But above and beyond retirement income issues, the program also helps advisors understand Medicare, aid in managing and selecting life insurance, plan long-term healthcare and handle retirement tax issues, which frequently trip up clients.
RICP certification is sought by experienced financial advisors, lawyers, accountants and bankers―anyone who works in advisory fields that wants a heightened understanding of all the factors that impact retirement planning. RICP training aims to foster a deep understanding of retirement income issues, allowing advisors to create plans for clients that cover income, housing, healthcare, taxation, life quality and more.
CPWA: Certified Private Wealth Advisor
Certified private wealth advisor (CPWA) is aimed at wealth managers who serve affluent clients. Wealth management advisors select portfolios of investment securities for their clients and manage the portfolios.
Generally they do not offer a broad selection of advice for a client’s entire financial life, confining themselves only to managing investments. This isn’t a flaw in their service offering as high-net-worth individuals generally employ planning teams of several experts to meet their needs.
Preparation courses for the CPWA teach candidates to create strategies that maximize growth, minimize taxes and help clients pass their wealth on to the next generation.
CLU: Chartered Life Underwriter
A chartered life underwriter (CLU) is a financial advisor that specializes in life insurance planning. This isn’t a standalone service: CLUs operate as part of an estate planning team, usually for high-net-worth clients with complex holdings, including family businesses and complicated asset structures.
The American College of Financial Services administers the CLU qualification. Candidates must have three years of relevant experience, pass eight training classes and sit for an exam. There’s a continuing education requirement for CLUs of 30 hours every two years. The CLU certification is highly respected among professionals and is nearly 100 years old―second only in age to the CPA.