What to Look for in A Financial Advisor – Part 2: Credentials

In our last blog post (“What to Look for in A Financial Advisor – Part 1: Objectivity) we emphasized the importance of knowing the standard of care to which your advisor is held. Simply stated, in whose interest is your advisor legally obligated to act? Independent registered investment advisors are held to a fiduciary standard and obligated to put your interests first, ahead of their own. Brokers and licensed agents are held to a suitability standard and are not held to a fiduciary standard of care.

A second important question to ask your financial advisor is “What are your credentials?”

In today’s financial world it sometimes seems like everyone has a designation of some sort behind his or her name. An advisor’s professional designation can tell you a great deal about his or her education, experience, areas of expertise, and ethics. While not complete, here is a description of four highly regarded professional designations:

Certified Financial Planner™ (CFP®)

Most people think all financial planners are “certified,” but this isn’t true. While anyone can use the title “financial planner,” only those who have fulfilled the certification requirements of the Certified Financial Planner Board can display the CFP® certification trademarks which represent a high level of competency, ethics and professionalism. And because they are held to a fiduciary standard of care, a CFP® professional is required to act in your best interest.

CFP®s have completed university-level financial planning coursework and passed a 10-hour examination covering nearly 90 topics ranging from retirement planning and risk management to estate planning. For more information go to www.cfp.net.

Chartered Financial Analysis® (CFA®)

The Chartered Financial Analyst® (CFA®) credential is the professional designation of the CFA Institute and is one of the most respected and recognized investment management designations in the world. CFA®s must pass three examinations, each of which demands a minimum of 250 hours of study covering a broad range of practical portfolio management and advanced investment analysis skills. CFA®s are held to a fiduciary standard. For more information go to www.cfainstitute.org.

Personal Financial Specialist (PFS)

Personal Financial Specialists are certified public accountants who specialize in personal financial planning. The PFS credential is awarded by the American Institute of CPAs to CPAs who have demonstrated their knowledge and expertise of personal financial planning by meeting work-experience and comprehensive personal financial planning education requirements, and by passing the CPA/PFS examination. CPA/PFS credential holders are held to a fiduciary standard. For more information go to www.aicpa.org.

Certified Investment Management AnalystSM (CIMA®)

The CIMA® designation is awarded by the Investment Management Consultants Association® and reflects experience, education, examination and ethical standards set by the IMCA®. Those who have earned the CIMA® certification have at least three years of experience in financial services, have passed an extensive background check, have completed a demanding two-step, graduate-level program of study, and have passed a comprehensive examination. CIMA®s are held to a fiduciary standard. For more information go to www.imca.org.

This list is by no means exhaustive. It is representative, however, of the kinds of credentials you should look for when seeking a financial advisor. And, remember to visit the website of the organization that issued an advisor’s credential to make sure he or she is a member in good standing.