Frequently Asked Questions: Financial Advisor Designations?
If you have been searching for, and interviewing, financial advisors lately, you may have found that some advisors carry certain financial advisor designations (e.g. CFP®, CFA, CPA, etc.). If you are confused about what these letters represent, and have some questions, you are not alone. Many advisors choose to further their education so that they gain the knowledge and fine-tune their advice so that they can serve their clients better. But how do you select an advisor that is right for your needs? Below I will highlight three of the more commonly held financial advisor designations in hopes that it will clear some of the confusion and lead you to find the advisor that is best suited to meet your needs.
Certified Financial Planner (CFP®)
The Certified Financial Planner™ designation is awarded by the Certified Financial Planner Board of Standards to those individuals who meet rigorous education, training, and ethical standards. Before an individual may call oneself a Certified Financial Planner™ he/she must first meet an education requirement which includes completing financial planning coursework and holding a bachelor’s degree from an accredited college or university. He/She will then need to demonstrate that they attained the knowledge and competency to provide comprehensive financial planning bypassing the CFP® exam. Upon passing the exam he/she will need to complete (or have completed) 6,000 hours of professional experience related to the financial planning process and agree to adhere to the CFP Board’s ethical and professional standards for the practice of financial planning. A CFP®, unlike other types of financial advisors, is held to a fiduciary standard. Therefore, they must provide financial advice and guidance that is in their client’s best interest.
Through the financial planning process, a CFP® will help its clients create and monitor a financial plan. They typically start out by determining your financial goals and assessing your current financial needs. They will then move on to providing advice on everything from specific investments to saving for a down payment on a home, to planning for retirement. You will also find that some CFP®s specialize in a certain area such as divorce and retirement planning, while others tend to work with specific clients, like small business owners or retirees. Therefore, it is important to understand what type of advice you need so that you can select the advisor who best fits that need.
Chartered Financial Analyst (CFA®)
The Chartered Financial Analyst (CFA®) designation is awarded by the CFA Institute and is awarded to financial professionals who are competent in investment analysis and portfolio management. The CFA Institute’s mission is to promote and develop a high level of education, ethical, and professional standards in the investment industry. In order to earn the CFA® designation, an individual must demonstrate his/her expertise in financial research, portfolio management, risk analysis, and risk management. Similar to the CFP® designation, the requirements of becoming a CFA® are rigorous and can take several years to complete. Before an individual can call himself a CFA® he/she must have a bachelor’s degree, 4,000 hours of relevant work experience over at least three consecutive years, and pass a series of three, six-hour exams. Lastly, he/she must adhere to the CFA Institute’s Code of Ethics and Professional Conduct.
The skillset of a CFA® is focused on high-level investment management, economics, financial reporting, corporate finance, and complex equity investing strategies. Therefore, they are typically employed at large financial institutions and asset managers where they perform investment research and analysis. However, you may find some who serves as the Chief Financial Officer (CFO) for a company or who choose to work in the public sector for the Federal Government or a local government. The main difference between a CFP® and a CFA® comes down to who they work with. A CFA® typically works with corporate clients on the investment analysis side, while a CFP® works with individual investors to build a financial plan.
Certified Public Accountant (CPA)
Certified Public Accountant is a professional designation awarded to a licensed accountant. Unlike the CFP® and CFA®, the CPA license is issued by the Board of Accountancy in each state. Therefore, the requirements to obtain a CPA license will differ among the states; however, all states will require a certain level of accounting education to become a CPA. In most states, this includes 150 credit hours in college-level accounting and some states may even require relevant work experience before being licensed to practice as a CPA. In addition, an individual must pass the Uniform CPA Exam and may be required to complete an ethics course.
While the CPA designation is common among tax preparers and accountants, you will find that CPAs are employed in many fields across multiple industries. Some CPAs will choose to help individuals with tax preparation and filing, while others may provide bookkeeping services, financial reporting, and auditing for large corporations. You may also find some CPAs who provide investment advisory and financial planning services.
While there are many financial advisor designations available today, most of them do not carry the same level of education requirements and time commitment that the above designations do. This is why the designations listed above are considered to be the gold standard in the financial services industry. When working with a financial advisor, you want to make sure that they are not only competent in their advice but that they are acting in your best interest. When you choose to work with a CFP®, CFA®, and/or CPA you can be confident that you will be in good hands.