You see them all over the place – seemingly random letters and symbols following your advisor’s name, in their email signature, on their business cards, and across their website. But what do those letters even mean, how does someone earn them, and are there any that are more important than others?
In the financial industry, registered professionals are required to pass certain “bare minimum” exams in order to provide financial coaching, planning, and advising services. However, just as passing a driver’s test doesn’t necessarily make someone a good driver, passing these exams doesn’t automatically make someone a great advisor. Expertise only comes with continued education and practice. Every designation has different standards that must be met in order to gain the title. While some certifications can be earned at a conference in a few days, others take years of studying and rigorous examinations.
Financial Planning Designations:
Designation: CFP®
Difficulty: 8 out of 10
Level of expertise: 10 out of 10
What it means: CERTIFIED FINANCIAL PLANNER®
What it really means: A great place to go to get fee-based (not commission-driven) advice in your best interest.
Details: This is perhaps the most well-known credential in the financial planning industry. The media has promoted this designation for years, primarily because of its unbiased approach to teaching the financial planning process, and the rigorous certification requirements that are administered by the CFP® board. The academic requirement consists of six courses covering insurance, estate, retirement, education, tax and investment planning plus ethics. Together, these courses encompass the full financial planning process. Once the academic requirement is complete, students must sit for the board exam. This is a 10-hour, 285-question test that spans two days and includes two comprehensive case studies. Once a passing grade has been achieved, prospective CFPs® must complete at least three years of professional experience and hold a bachelor's degree in order to obtain the CFP® designation.
Designation: CEC
Difficulty: 7 out of 10
Level of expertise: 7 out of 10
What it means: Certified Educational Consultant
What it really means: Demonstrating expanded knowledge and commitment to the professionalism this gives though looking to learn that this teacher has qualified experience and is committed to maintaining the highest quality of service to students.
Details: Offered through the Foundation for Financial Education (FFE), this rigorous designation requires a minimum of 10 years of consulting/teaching experience or a relevant graduate/doctoral degree. Applicants have their business reviewed for their implementation of best practices and ultimately they must be nominated and approved by the FFE Board of Directors. In order to secure the CEC, candidates must complete a two-day in-person training and a one year training program.
Designation: ChFC®
Difficulty: 5 out of 10
Level of expertise: 6 out of 10
What it means: Chartered Financial Consultant®
What it really means: Someone that can help individuals analyze their financial situations and goals.
Details: Created as a designation by the life insurance industry. The ChFC® designation embraces the general financial planning concepts and individuals must demonstrate their vast and thorough knowledge in order to qualify. The ChFC® program is administered by the American College. In addition to successful completion of an exam spanning the areas of financial planning (including income tax, insurance, investment, and estate planning), candidates are also required to have a minimum of three years’ experience in the financial industry.
Investment Oversight Designations:
Designation: CFA®
Difficulty: 10 out of 10
Level of expertise: 10 out of 10
What it means: Charted Financial Analyst®
What it really means: Normally this designation will focus on managing large corporation's investments.
Details: This designation is generally considered to be one of the most difficult and prestigious credentials in the financial industry, at least in terms of investment management. The academic requirements for this designation are second only to those for CPAs®. The CFA® charter is a qualification for finance and investment professionals, particularly in the fields of investment management and financial analysis of stocks, bonds, and their derivative assets. The program focuses on portfolio management and financial analysis, and provides generalist knowledge in other areas of finance as well. Overall, it is one of the most widely recognized designations for finance and investment professionals worldwide. To obtain this destinations candidates must pass three, six hour exams over several years, have 48 months of “acceptable professional work experience”, and commit to the CFA’s® Institute’s Codes of Ethics and Standards of Professional Conduct.
Designation: CIMA®
Difficulty: 6 out of 10
Level of expertise: 6 out of 10
What it means: Certified Investment Management Analyst®
What it really means: Tend to have careers with financial consulting firms, which involve extensive interaction with clients and the management of large amounts of money.
Details: The CIMA® professional integrates a complex body of investment knowledge to provide objective investment advice and guidance to individuals and institutions. That knowledge is applied systematically and ethically to assist clients in making prudent investment decisions. The CIMA® certification program requires that candidates have three years of financial services and a satisfactory record of ethical conduct. It’s offered by the Investments & Wealth Institute and candidates must complete an in class program at The Wharton School, University of Pennsylvania, or online through Yale School of Management and two examinations.
Designation: CAIA
Difficulty: 8 out of 10
Level of expertise: 8 out of 10
What it means: Chartered Alternative Investment Analyst
What it really means: An investment specialist very familiar with private equity, hedge funds, commodities, and real estate.
Details: The educational benchmark for the alternative investment industry, and the CAIA designation is now the most globally recognized credential in the industry. The CAIA designation demonstrates mastery of alternative investment concepts, tools, and practices and promotes adherence to the highest standards of professional conduct. Offered through the Chartered Alternative Investment Analyst Association all candidates must have either a Bachelor's or equivalent degree and more than one year of business experience in the financial industry, or four years of experience in the financial business. Before awarding this designation applicants need to pass two CAIA exams.
Retirement Consulting Designations
Designation: CPFA
Difficulty: 5 out of 10
Level of expertise: 7 out of 10
What it means: Certified Plan Fiduciary Advisor
What it really means: A great resource that as a plan fiduciary will act in the client's best interest.
Details: This is a relatively new credential offered through the National Association of Plan Advisors. By earning the CPFA, an advisor "demonstrates the expertise required to act as a plan fiduciary or help plan fiduciaries manage their roles and responsibilities." To achieve this designation applicants need only to pass a proctored exam and earn 20 continuing education credits every two years. Plan advisors who earn their CPFA demonstrate the expertise required to act as a plan fiduciary or help plan fiduciaries manage their roles and responsibilities.
Designation: AIF®
Difficulty: 5 out of 10
Level of expertise: 8 out of 10
What it means: Accredited Investment Fiduciary®
What it really means: An advisor legally bound to act in the best interest of its clients through serving as an investment fiduciary and/or advising other investment fiduciaries.
Details: This designation represents a thorough knowledge of fiduciary responsibilities and is based on learning the legal practices and framework they are built upon. AIF® designees have a reputation in the industry for the ability to implement a prudent process into their own investment practices, as well as being able to assist others in implementing proper policies and procedures. Issued by the Center for Fiduciary Studies candidates must meet a point-based threshold based on a combination of education, relevant industry experience and/or professional development. They’ll have to complete a web-based and capstone program, as well as pass a final certification exam.
Other Financial Credentials
Designation: CPA
Difficulty: 9 out of 10
Level of expertise: 10 out of 10
What it means: Certified Public Accountant
What it really means: The resource to go to when looking for assistance with broader accounting needs.
Details: The CPA is by far the oldest and most established financial credential in America. CPA requirements vary by state, but generally require 150 semester hours of undergraduate level courses plus a bachelor's degree or higher in order to sit for the 19-hour, two-day exam. They must also have at least two years of public accounting experience. CPAs are known for their role in income tax preparation but can specialize in many other areas, such as auditing, bookkeeping, forensic accounting, managerial accounting and information technology.
Designation: CLTC
Difficulty: 4 out of 10
Level of expertise: 6 out of 10
What it means: Certified in Long-Term Care
What it really means: Good consultant when in need of building a long-term care plan.
Details: Granted by the Certification for Long-Term Care graduates have completed a rigorous multidisciplinary course that focuses on the profession of long-term care planning. The CLTC is the long-term care insurance industry's only independent professional designation and focuses on the field of long-term care planning and provides legal, accounting, insurance and financial service professionals the critical tools necessary to address long-term caring needs. To achieve this designation candidates have to take a two day-class or online course and pass a final exam.
While designations are a good way to identify that your financial advisor has taken the steps to continue building their knowledge base above and beyond the “bare minimum” tests, it doesn’t necessarily make them the best fit for you. Overall, as a member of your retirement committee or HR representatives be aware more destinations doesn’t necessarily mean a more rounded individual. While it is important to understand what these designations mean, ultimately you should do your research and look around to find a financial advisor that is the best match for you and your company needs.