There are well over 200 professional designations that financial professionals can choose from. If you are searching for a financial planner, you’ve likely noticed acronyms after all of their last names. These are given by industry organizations and are meant to indicate a certain level training, that this person has passed a comprehensive test, and has agreed to adhere to professional and ethical standards. However, not all designations in the world of finance will be applicable to helping you in your particular situation as an investor.
It's also important to note that anyone who promotes themselves as being a financial advisor or other similar title should be able to verify their credentials via their respective regulator or certification board. Financial advisors generally cannot provide financial advice without being registered with either a state or federal regulator. Always verify that the person has the credentials that they advertise.
Here is a summary of the most common designations
1. IAR: Investment Adviser Representative
IAR is a popular name for individuals that offer investment advice and manage client portfolios. Please note there is a difference between an investment adviser and advisor -- it's not that I can't spell. Unlike other designations listed below, which are granted by trade associations, Investment Adviser Representatives are licensed and regulated either by the states where they do business, by the SEC or by both. They are legally required to act in their clients’ best interests, otherwise known as the "fiduciary standard." This means that their advice and recommendations must reflect clients’ financial goals and risk tolerance. It is important to differentiate: not all financial advisors are Investment Adviser Representatives.
Investment advisers who work for Registered Investment Advisory (RIA) firms are required to act as fiduciaries for the advice they share. Financial advisors may work for banks, brokerage firms and insurance companies and are only required to provide advice that is in compliance with best interest regulations. Many financial advisors are not held to the same fiduciary standard and get paid trade commissions for selling investment products to clients. So, an Investment Adviser Representative may sometimes call themselves a Financial Advisor out of habit, but a Financial Advisor alone is not held to the same fiduciary standards as an Investment Adviser Representative. Generally, Investment Advisers working for RIAs do not have firm-branded investment funds or particular products to push.
2. CFA: Chartered Financial Analyst
This is a professional designation given to those who have met certain rigorous requirements of competency in all areas of accounting, ethical and professional standards, economics, portfolio management and securities analysis. This is one of the most difficult designations. To become a CFA, candidates must take 300 hours of training over a three to four year period and pass three levels of exams that demonstrate their in-depth understanding. Passing these tests and earning a CFA designation would be the equivalent of having the knowledge of a doctorate in finance. This designation is rarely seen in professionals who are not portfolio or hedge fund managers or securities analysts.
3. CFP: Certified Financial Planner
This is a professional designation given to those who have met rigorous requirements of competency in the area of financial planning. This does not mean people with this designation are more qualified than others, it simply means that they have obtained the knowledge to have a full understanding of financial planning as a service. While this is a valuable designation for a financial advisory professional to have, it is also not limited to financial advisory professionals. Anyone can gain this designation if they qualify (insurance agents, accountants, attorneys, and other related professions), so it does not define the type of work the person does, just that they have qualified with the CFP Board. If you are working with a CFP, make sure you understand exactly what their qualifications are and how they work with clients.
4. AAMS: Accredited Asset Management Specialist
The AAMS designation is a program that provides financial professionals with fundamental financial knowledge of asset management and investments. The coursework covers the asset management process; risk, return, and investment performance; asset allocation and selection; investment strategies; taxation of investments; investing for retirement; deferred compensation and benefit plans; insurance products for investment clients; estate planning for investment clients; and fiduciary, regulatory, and ethical issues. Like other designations listed, it then requires passing an exam and agreeing to a code of ethics.
5. CPA: Certified Public Accountant
This license is given by the American Institute of Certified Public Accountants. To earn this license, an individual must take 150 hours of training and pass the Uniform CPA Examination. They must also meet certain professional requirements in compliance with their state’s Board of Accountancy.
6. ChFC: Chartered Financial Consultant
This designation is similar to the CFP in that it focuses on proficiency in advanced financial planning including income tax, insurance, investment, and estate planning. Earning the ChFC designation requires a minimum of three years in the financial services industry. Applicants must take seven required courses and two elective courses and pass comprehensive exams for each subject. The ChFC was developed as an alternative to the CFP in the 1980s.
7. CIMA: Certified Investment Management Analyst
This designation has a focus on risk management, due diligence, investment policy and asset allocation. The CIMA designation is typically used for people who research fund managers for their clients or institutions. This is not commonly used for financial planning or financial advisory professionals.
Investment Adviser Representatives and Financial Advisors or even insurance brokers can hold many of the above listed designations, so it’s important to understand differences in financial professionals' service models, cost and fees, as well as their experience, investment and financial planning process, and how they will work with you in order to find the best fit for your needs.
Important Questions to Ask Your Financial Professional
- Are you a fiduciary for all of the recommendations you make?
- How do you address potential conflicts of interest in your practice?
- What are all of the ways in which you are paid?
- How much do I currently pay to work with you?
- How many years have you been a financial advisor/investment adviser?
- What professional credentials do you have?
- What is your educational/professional background?
- What is your investment philosophy?
This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.