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Financial Advisor Designations: Which ones are best?

By August 10, 2018 No Comments

When hiring a financial advisor, you’ll probably see a lot of designations after their names: CFA, CFP®, CPA, etc. Believe it or not, there are actually more than 180 credentials in use in the financial planning and investment world, per FINRA (the financial industry regulator).

Some of these credentials are well-respected and difficult to obtain. These credentials usually require a combination of extensive independent study and passing a rigorous final exam, in addition to completing years of experience requirements as well. Continuing education is required to keep the professional’s knowledge up to date as well as adherence to ethical requirements. If you hire someone who has earned one of these credentials, you can be reasonably sure they are knowledgeable on that topic.

But which credentials should you focus on as you narrow your search for a qualified financial advisor?

The Big Three

There are three designations that are potentially  the most difficult to obtain and require a dedicated candidate to prove they have an in-depth understanding the subject matter.

These are:

Chartered Financial Analyst (CFA). The CFA is well-known and difficult to attain.  In fact, it’s often referred to as the “Mount Everest of the investment world” (Yahoo! Finance). CFAs must demonstrate significant knowledge about investing, ranging from accounting, economics, and ethics to money management and security analysis.  Earning this CFA designation is a big undertaking. The exam is divided into three levels, each of which typically requires over 300 hours of study. To receive the official charter, a candidate must pass all three levels and have four years of qualified work experience in investment decision-making.The exams are notoriously difficult. According to the CFA institute, usually less than half the candidates pass Levels 1 and 2, and only 54% of the remaining candidates pass Level 3. The average CFA charter holder required four years to earn the charter.

Next is the Certified Financial Planner (CFP®). Broadly recognized and promoted by the CFP® Board and the Financial Planning Association, the CFP® designation requires significant work.  It entails  the completion of 18-to-24 months of independent study to prepare for a six-hour final board exam. Three years of approved experience as a financial planner or a two-year apprenticeship with another CFP® are required before earning this designation.

Third is the Certified Public Accountant (CPA).  Tax planning is integral to financial planning.  Having an advisor with an accounting background can help. To become a CPA, a candidate must complete a college-level accounting program and pass the 14-hour CPA exam. They must also have a certain amount of hands-on work experience that has been attested to.

These three designations are significant; look for these when considering advisors.

Not All Designations Are Created Equal

Just because the three designations listed require a lot of work, doesn’t mean all designations are alike. There are many designations available to candidates that are easy to obtain and require less experience and continuing education. Many require just taking a short course and paying a fee. While some, of course, were designed to provide proof of mastery of a topic, others seem designed to just help advisors look more knowledgeable due to more letters after their name on the business card.

A Consumer Financial Protection Bureau report found in 2013 that U.S.-based financial advisors were using more than 50 different “senior advisor” designations.

Consumers are likely to assume the initials behind the names mean mastery of a topic. Unfortunately, most of those credentials are easily acquired and require minimal self-study or taking a quick course and payment of a fee. On some, education is optional and only a fee is required.

For example, to achieve an   designation, a candidate must simply take a 100-question multiple-choice exam and pay a fee to be able to use that title.

While having those initials behind a name may make the advisor seem more accomplished and experienced, they practically purchased that designation.

How to Check Out a Designation

As you can see, all designations are not created equal. Before giving any weight to those letters behind an advisor’s name, plug that credential into a search engine. Find out the examinations, educational requirements, and work experience requirements the advisor had to complete to get that designation.

You can also go to the membership directory for that designation and check to see that the advisor indeed appears on the list.

Only once you have researched the designation should you consider it a factor in your decision-making about whether to use that particular financial advisor or financial planner.

Don’t Forget to Check Out the Advisor’s Compliance Record, Too

At the same time, take a minute and check out the advisor’s compliance record. Your money is important, so you should be very careful when hiring someone. Fortunately, there is a public resource where you can look up the compliance history on any financial advisor.

Go to https://brokercheck.finra.org/.

While it may take a few minutes, doing this research is vital. Too many people don’t look into their advisor’s background, and find out too late that the professional they thought was well-equipped to handle their financial planning and investing is not as knowledgeable –or ethical–as they thought.

Instead, invest the time up front. Choose carefully. Your future depends on it.

This article is solely for informational purposes and not intended to provide specific advice or recommendations for an individual. It is only intended to provide education about the financial industry. Please note that all Investing involves risk and possible loss of principal capital. No advice may be rendered by Rathbone Warwick unless a client service agreement is in place.
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Ryan Warwick is Principal of Rathbone Warwick, a Registered Investment Adviser. Rathbone Warwick is a fee-based financial planning and investment management firm headquartered in Boise, Idaho serving families nationwide. Our advisors hold the Certified Financial Planner™ designation and the Chartered Financial Analyst® charter and serve as trusted stewards to help families preserve and grow their wealth for over three decades. Visit us at https://www.rathbonewarwick.com/.

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