In last week’s post about how to find the best financial planner for you, I covered the various business models advisors use to generate income. Beyond knowing how an advisor earns her keep, another critical consideration is determining how knowledgeable an advisor is, and for that, it’s helpful to understand the various advisor designations.

Best Financial Planner

In the early days of the industry, financial advice often consisted of little more than stock recommendations. Brokers and advisers were synonymous, and vanishingly few advisors offered holistic advice. However, over time, as the burden of funding retirement shifted from employer to employee, consumers began to recognize the value of advice beyond simple investment recommendations.

To meet consumer needs, professional organizations developed and refined professional designations that required holders of those designations to demonstrate mastery of a body of knowledge – typically via passing an exam or series of exams – and to have relevant work experience. Some designations also have a continuing education requirement as well.

So which designation should you look for to find the best financial planner for you? It depends upon your specific needs, but some of the most common designations are as follows:

CFP® – the Certified Financial Planner™ designation is administered by the CFP board, and the designation includes education and examination on several different areas typically involved in financial planning, including investments, risk management, financial, estate and tax planning. The designation is meant to be generalist in nature, and although it doesn’t provide a great deal of depth in any one area, the information it does cover is sufficient to address planning needs for most clients.

To earn the CFP designation, you must pass an exam and document relevant work experience, and there is a continuing education requirement to maintain the CFP®.

CFA® – the Chartered Financial Analyst Designation® is administered by the CFA Institute, and it is a designation focused primarily on investments. Most CFA Charterholders work with investment focused firms like mutual funds or hedge funds, but you will find them working for wealth management firms as well.

Earning the CFA® is an arduous process that requires passing 3 exams and demonstrating relevant work experience. To maintain the designation, continuing education is encouraged, but not required.  

CPA, EA – some financial advisors also hold the CPA designation or the Enrolled Agent designation. Both designations are tax-centric, although the CPA body of knowledge is broader. If your situation involves in-depth tax issues, an advisor with either designation might be particularly helpful.

Other designations include the CLU, or Chartered Life Underwriter, and the ChFC, or Chartered Financial Consultant. The former is focused primarily on insurance while the latter is more comprehensive in nature, similar to the CFP. In both instances, coursework is required but there is no comprehensive exam as there is with the CFP® or CFA®.

Beyond these designations, some brokerage firms have developed their own designations that are generally less comprehensive and less time consuming. The upside to this for the firms is that their brokers can become profitable for the firms more quickly. Finally, there are a number of other designations, but most are either more advanced or more niche focused and this post from Michael Kitces covers many of them. In assessing how indicative a designation might be in determining how knowledgeable an advisor is, consider the following questions:

  • What specifically does the body of knowledge associated with the designation cover, and is that body of knowledge relevant to your needs?
  • Is it necessary to pass an exam?
  • Are there work experience requirements?
  • Is continuing education mandatory, and if so, what are the continuing education requirements?

If you are comfortable that the advisor has the knowledge to assist you and the business model makes sense, the last thing to consider is fit. In next week’s post on finding the best financial planner for you, I’ll look at how to assess whether an advisor is likely to be a good fit.