- With over 200 licenses, designations, and certifications, knowing what to look for is essential to finding the right advisor and the right advice for you
- Not all designations are created equal – they vary widely in terms of the levels of education, expertise, and experience required and even ethical standards
- The gold standards for advisors are CERTIFIED FINANCIAL PLANNER™, Chartered Financial Analyst®, and Certified Public Accountant
- There are more specialized designations that offer advice and guidance on specific topics or life milestones like divorce, taxes, or retirement
- When choosing an advisor, designations matter, but you also need to look for the services they provide, if their advice is ongoing, and how they charge
The alphabet soup of financial advisor certifications can be confusing and frustrating to navigate when trying to find someone you can trust to help you with your money-related decisions. With over 200 designations for financial professionals to use, trying to make sense of the landscape can be overwhelming. What do they mean? Which ones matter?
The good news is that by understanding those professional designations, you’ll be able to determine the level of education, experience, and ethical standards to which a financial advisor is held. With that critical information, you’ll be better equipped to find one that will offer the right advice for a fair price.
Here’s what you need to know about industry certifications, how to cut through the noise to find what really matters, and how to find the right financial advisor for you.
What are financial advisor certifications?
When it comes to financial advisors, there are two things to look for, licenses and certifications.
Licenses are issued by federal, state, or local governments and give individuals permission to practice a particular profession within a given jurisdiction (either within a specific state or nationally).
They may also allow specific activities, such as buying or selling stocks on behalf of a client. Licenses are, for the most part, the starting point for professional services. They don't necessarily require industry experience, advanced education, or knowledge in a particular field.
Certifications are issued by private organizations to recognize an individual for meeting specific criteria that typically include experience, education, and ethical standards. They are optional and sought by professionals looking to elevate their knowledge, advance their careers, and provide exceptional advice and services to their clients.
In short, licenses or registration with a regulatory authority are mandatory for professionals to provide advice and services. Certifications are optional, but essential if you are looking for a financial advisor who can give you truly unbiased, expert advice.
Types of financial certifications
Most certifications require candidates to put in many hours of study and pass exams, have a certain amount of experience, and meet high ethical and professional standards. Many require continuing education as well.
Here are the main certifications you should look for and a few others you may find while doing your research.
The gold standards of certifications
Certified Financial Planner™
The Certified Financial Planner™ certification is issued by the Certified Financial Planner Board. CFP® Professionals must meet extensive training and experience requirements and the CFP Board’s ethical standards that state they must always put their clients' interests first (you may hear this called being a fiduciary).
CFP® Professionals must meet educational requirements in eight principal knowledge areas, including investments, taxes, insurance, and estate planning (among others).
They must also be able to apply their financial planning expertise to life events such as getting married, having a child, saving for college and retirement, starting a business, and everything in between.
The board recently added an educational requirement that CFP® Professionals understand the psychology of financial planning and how our individual beliefs, values, and attitudes around money influence our financial decisions and lives.
If you’re looking for broad personal financial advice, investment expertise, and guidance on everything from everyday financial decisions to navigating life milestones big and small, a CFP® Professional can be an excellent choice and offers the most well-rounded expertise of any professional certification.
Chartered Financial Analyst® (CFA)
The Chartered Financial Analyst® designation is designed specifically for investment professionals. As with the CFP® Professional designation, CFAs must meet extensive education and experience requirements and strict ethical standards.
CFAs can use their designation in a variety of ways, such as becoming investment analysts, managing a mutual fund, investing money for university endowments or government pension funds, and even investment or commercial banking. CFAs can also work with individual investors and often provide investment management solutions for a broader team of advisors, like a CFP® Professional, that adds financial planning and tax advice.
CFA charterholders demonstrate extensive knowledge and skills in investment management but may not have formal education in other areas of personal finance that are needed to create a more holistic planning strategy.
Certified Public Accountant (CPA)
The CPA certification is designed for tax professionals with expertise in corporate auditing, regulatory compliance, financial analysis, and taxation. A CPA is held to the highest standards regarding professionalism and ethics. As with CFP® Professionals and CFA charterholders, CPAs must meet education, examination, and experience requirements.
Some CPAs do auditing and financial analysis work for businesses, and some do tax planning and tax return preparation for individuals or business owners.
A CPA is the way to go if you are looking for advice related to your taxes. However, remember that they likely will not offer advice for other areas of your financial life since they focus on tax planning.
Other types of financial certifications
Because there are over 200 licenses, designations, and certifications in the financial services industry, it would be difficult to list them all. The three certifications listed above represent elevated standards in education, experience, and ethical practices.
However, other certifications may offer more specialized advice or less rigorous educational standards. Here are some other certifications you may find in the fields of investing and financial planning:
- Certified Divorce Financial Analyst (CDFA) - As the name implies, this certification gives an advisor the knowledge they need to help individuals navigate a divorce and make critical financial decisions during and after.
- Accredited Financial Counselor (AFC) - Financial counselors primarily focus on budgeting and debt issues but also help clients with money-related emotional or behavioral issues.
- Chartered Life Underwriter (CLU) - A CLU focuses solely on insurance products and solutions for clients, including life, disability, and long-term care insurance.
- Chartered Financial Consultant (ChFC) - Think of this as CFP® Professional “lite.” A ChFC must meet educational requirements in various personal finance topics, but not as in-depth. A ChFC certification also doesn’t require training on the psychology of financial planning and related behavioral elements.
- Chartered Retirement Planning Counselor (CRPC®) - A CRPC® focuses on one aspect of your financial life: retirement. While retirement is an important life milestone, a CRPC® may lack expertise in other areas of personal finance.
- Accredited Asset Management Specialist (AAMS®) - The AAMS® designation offers education limited to managing (or investing) money for clients. It doesn’t include more in-depth analysis related to financial analysis, economic modeling, or corporate finance like the CFA designation.
If you have a very specific financial need, such as advice during and after a divorce, a professional with a specialized certification might make sense as you work through the transition. But, other than that, any other certification just won’t cut it when compared to working with a CFP® Professional, CFA charterholder, or a CPA.
Why is it important to understand the different advisor certifications?
The certifications of financial professionals and financial advisors matter if you're looking for true financial planning advice. There are three things you should consider when assessing an advisor's certifications:
- Ethical standards - Also known as the fiduciary standard, a financial professional must always do what is right and best for you and put your interests ahead of their own and of their business. The bottom line is that a financial advisor should always be a fiduciary. If they aren’t, they aren’t worth your time or money.
- Education and breadth of knowledge - The degree of their education and the advanced knowledge they carry in a topic also matter. It can also signify an advisor’s commitment to excellence in their field. The broader the knowledge area, the more dynamic and evolving the advice and relationship can be.
- Experience - When you work with a doctor, you expect they have been through medical school and a residency program to gain the appropriate experience to apply their knowledge. You should expect the same from your financial advisor. You should look into experience requirements for each certification to see what is required before choosing the right advisor.
The best solution is to build a team of professionals to ensure you are getting the best advice for your personal situation. When choosing a financial advisor, look for a company that can offer you a dedicated CFP® Professional who is supported by a CFA® charterholder and possibly a CPA.
What to consider beyond advisor certifications
While professional designations matter, they are only the starting point of what you should look for when choosing an advisor. Here are other things to help you make the right choice:
- Services provided: Does the advisor offer advice and guidance in all areas of your financial life (taxes, debt, insurance, estate planning, investing, retirement), or do they focus on one area like investments? In addition, will they help you navigate financial decisions and life events big and small (marriage, children, college, dream home, new job, or career), or will they focus on retirement only?
- Ongoing support and guidance (if any): Some financial advisors will offer ongoing advice and guidance and even help implement your plan. Others offer advice around a single event or topic and let you execute the strategy yourself. Make sure you get the advice and ongoing service you are looking for.
- Fee structure (how they charge): The final piece of the puzzle is how an advisor charges for their services. There are several options: a one-time fee for a static plan, an hourly fee for more of an episodic consulting arrangement, a fee based on how much you invest (called an ‘assets under management fee’), and a fixed subscription fee for ongoing planning.
There's a lot to consider when choosing the right financial advisor. However, with so much on the line, it's critical to make the right call to get the right advice for the right price.
There is no universal standard for how much education a financial advisor has, what advice they provide, or what ethical standards they must meet. Because of that, understanding financial professional certifications is essential to finding an educated, experienced, and trustworthy advisor.
The wrong choice can leave you without expert advice when you need it most. The right choice can help you eliminate the stress and worry that comes with money, make smarter, more informed decisions, and navigate life’s twists and turns with greater clarity and confidence. All of which can put you in control of the life you want to live.
A CFP® Professional at Facet can help you create a dynamic, ongoing, and evolving financial plan for all aspects of your life and your money for a clear, fixed fee.