This is Sasha, my Financial Advisor. She’s a CFC, FSCP, RBP, WMS, and she’s working on her IRMAACP!
The financial planning profession is full of designations. By one count, there are 250 professional designations used by financial advisors today. (FINRA, a financial services regulator, maintains a useful list of designations here: Professional Designations | FINRA.org). While some, like Certified Financial Planner (CFP®), are fairly well-known, others, like Certified ETF Advisor (CETF) – a title I had never heard of before researching this article – are less so.
Professional designations serve an important role in all vocations, but especially for “financial advisors” who share no unified education requirement or professional licensing body.
In this article, I will introduce some of the most common financial services industry designations. I will review which topic areas these designations cover, examination criteria, and continuing education requirements. I will also introduce some niche designations, which can be valuable for clients with specific needs. Finally, I will propose a framework to evaluate professional designations more broadly.
Some words of warning: Buyer beware
“Financial advisor” covers many different professions. While “investment advisor” is a legal term that identifies someone registered with the Securities and Exchange Commission or a state regulator, financial advisor is a blanket term that includes fee-only financial planners, personal bankers, stockbrokers, and life insurance salespeople. Other similarly vague job titles you may come across include asset managers, wealth coaches, portfolio managers, financial planners, and wealth managers. (The SEC has an informative piece on financial titles versus licenses here.)
The average consumer will have a harder time evaluating a financial advisor than other professionals, such as doctors, lawyers, and Certified Public Accountants. In the absence of an academic degree requirement (M.D., J.D.) or a professional licensing body (a state board of accountancy), how can consumers assess a financial advisor’s capabilities? One method is to look for a credential, or credentials that convey information about the advisor’s relevant education, experience, and ethics.
Certified Financial Planner (CFP)
The CFP® designation was created in 1972. It is neither a license nor a degree. It is a certificate granted by the CFP® Board of Standards, a professional organization that sets and enforces standards for financial planning professionals. The CFP® is the most well-known designation for financial advisors. (You may be familiar with their “Let’s make a plan” TV and online advertisement campaign.)
Before taking the qualifying exam, designees must master coursework that tests seven key areas, including investments, tax, estate planning, and insurance. There is also an experience requirement, which means candidates must complete either 6,000 hours of professional financial planning experience or 4,000 hours in a structured apprenticeship track before they can use the designation.
The CFP® designation comes with many obligations. Professionals are bound by the Code of Ethics and Standards of Conduct. The latter includes a “fiduciary duty” to clients, as defined by the CFP® Board. CFP® holders must also complete 30 hours of continuing education every two years, including two hours dedicated to ethics.
For a long time, the CFP® was the only professional designation for financial advisors. Over time, additional designations have sprung up.
Sensible Financial currently has nine CFP® professionals on staff.
Chartered Financial Consultant (ChFC)
The ChFC is issued by The American College of Financial Services, a nonprofit accredited institution founded in 1927 that provides degrees and certifications for financial professionals.
Similar to the CFP®, the ChFC designation provides comprehensive training in multiple financial planning areas. It covers several additional areas, including divorce, special needs, and small business planning.
The education and experience requirements are similar to those of the CFP®. Instead of one comprehensive exam, candidates must pass exams for each of the eight courses in the program.
ChFC candidates have similar continuing education requirements as CFPs and are also held to a fiduciary standard. For further reading comparing the two, see What’s the Difference Between a ChFC and CFP?
Chartered Financial Analyst (CFA)
The CFA Institute offers the CFA designation. The CFA program is investment-focused and covers topics such as quantitative methods, corporate finance, equity/fixed income/alternative investments, and economics.
Prerequisites include:
- An education/experience requirement prior to taking the test
- 4,000 hours of qualified work experience in the investment decision-making process (before, during, or after participation in the CFA program)
- Two to three professional letters of reference
The CFA exam is one of the most difficult in the financial services industry. There are a total of three exams, each 4.5 hours long. The pass rates fluctuate, but typically range between 30-60%. Due to the low pass rates and the fact that exams are administered only twice per year, most candidates take several years and hundreds of hours of study to obtain the designation.
Financial advising is one career path for CFA charterholders. Other common career tracks include portfolio manager, analyst, corporate finance analyst, and CIO/CFO.
Sensible Financial has two CFA charterholders on staff.
Retirement Income Certified Professional (RICP)
Another designation issued by the American College of Financial Services, the RICP designation provides specialization around retirement income. The program covers a variety of topics, with a focus on retirement withdrawal planning approaches, Social Security claiming strategies, and addressing long-term care and healthcare needs.
Candidates must meet an experience or educational prerequisite. The program consists of three individual courses, which take three to four months to complete. Candidates can achieve their designation in about one year.
Retirement income planning is a sought-after skill, and the RICP is not the only designation covering this specialization. Other designations include the Certified Retirement Counselor (CRC) and the Retirement Management Analyst (RMA). (I focused on the RICP, as it’s currently the most popular of the three.)
Sensible Financial has one RMA on staff.
To summarize the four professional designations above:
| CFP | ChFC | CFA | RICP | |
| Program Focus | Holistic Financial Planning | Holistic Financial Planning | Investment Management | Retirement Income Planning |
| Number of Designees (Approx) | 230,000 | 50,000 | >200,000 | >3,000 (no official number available) |
| Prerequisites | Bachelor’s degree and 3 years full-time financial planning experience | High school diploma and 3 years financial planning or related experience | Bachelor’s degree or equivalent work experience; at least four years (or 4,000 hours) of relevant professional experience | – |
| Designation Exam | One 3-hour certification exam | Eight required courses each with its own final exam | Three 4.5-hour certification exams | Three courses each with its own 100 MC question exam |
| Exam Pass Rate (approximate) | 65% | 60-65% | 30-60% | unknown |
| Continuing Education | 30 hrs every two years | 30 hrs every two years | Recommended 20 hrs every year | 30 hrs every two years |
Other specialized designations
Issuing organizations have developed additional, highly specialized designations to meet clients’ needs. Some specializations you may encounter include:
- Chartered Special Needs Consultant (ChSNC) – provides planning expertise in the area of special needs. Offered through the American College of Financial Services. Sensible Financial has one ChSNC on staff.
- Accredited Estate Planner – awarded by the National Association of Estate Planners & Councils, the designation provides in-depth estate planning expertise.
- CDFA (Certified Divorce Financial Analyst) – designed for financial advisors who want to work with divorcees and the issues that arise through the divorce process. Offered by the Institute for Divorce Financial Analysts.
There are many more specializations. To determine whether a specific specialization will benefit you, consider using the following process.
Step 1. Start with FINRA’s website.
FINRA’s online database is comprehensive. For each designation, FINRA provides details such as the issuing organization, prerequisites, exam information, and continuing education requirements.
Step 2. Research the issuing organization.
Organizations like the CFP Board, the American College of Financial Services, and the Investments & Wealth Institute have been around for decades and are associated with some of the most well-regarded designations in financial services. If the issuer is less familiar or associated with only a single designation, consider reviewing its board’s composition and relationships with other institutions.
Step 3. Verify the professional’s status at the issuing organization.
Just because someone claims to have a certain designation doesn’t necessarily make it so. Go to the issuing organization’s website to verify their status. Some designations make this straightforward. For example, you can verify an individual’s CFP certification instantly here. Consider it a red flag if an issuing organization does not provide a way to verify its members.
Step 4. Search a professional’s history for customer complaints.
It can be difficult to evaluate a professional designation. But you can – and should – review your financial advisor’s record to ensure they do not have a history of customer complaints, or worse.
FINRA provides a useful tool called BrokerCheck you can use to research a financial advisor’s background and experience. The database conveniently covers both investment advisors (regulated by the SEC) and brokers (regulated by FINRA) in one place.
BrokerCheck provides a detailed report including employment history, licenses, and, very importantly, any history of regulatory actions or disciplinary measures.
In Conclusion
It’s essential to do your due diligence when hiring any professional. This is particularly true when hiring a financial advisor, for whom there are no specific academic requirements or professional licensing body.
Professional designations are one way to identify capable practitioners. But not all designations are created equal, and a little bit of research can go a long way.
Photo courtesy of Christina Morillo on Pexels