Financial certifications demonstrate a professional’s expertise in the financial services industry, whether the focus is on accounting, financial planning or investing.
These certifications typically require hundreds of hours of coursework and lengthy tests and are one way to differentiate between the various types of financial advisors in the industry.
The differences among the designations can be varied and significant. Checking out the certifications of the advisors before you engage their services will help you determine which one has the best qualifications for your financial circumstances and needs.
People who have a family or small business should seek out a financial expert who is a certified public accountant since CPAs focus on tax and accounting issues. Other people who are just beginning their careers or starting to save for retirement might turn to a certified financial planner since their financial needs and goals are likely to be simpler, especially if they do not own a lot of assets.
Having a designation does not mean a financial or tax advisor is more qualified than a competitor who does not have one. Part of the research people conducts before hiring an expert includes examining their references, expertise and background.
Before you sign a contract with an expert, discuss your goals, how often you will meet with the advisor and how they assess their fees. Refrain from hiring professionals who charge a higher commission on the investment and insurance products they recommend — such as mutual funds with expensive expense ratios and annuities — because they are compensated by the costly commission, which allows them to provide free financial planning.
When you see M.D. next to a person’s name, you know they’ve been to medical school. They’ve been vetted, passed written tests and you can likely trust them with your health, says Charles Sizemore, chief investment officer of Sizemore Capital Management, a Dallas-based registered investment advisory firm.
“Financial certifications may not offer quite that degree of confidence, but it’s the same idea,” he says.
Here are the best four financial licenses:
— CFA – Chartered Financial Analyst
— CFP – Certified Financial Planner
— CPA — Certified Public Accountant
— AIF – Accredited Investment Fiduciary
CFA – Chartered Financial Analyst
A chartered financial analyst designation is administered by the CFA Institute for people who manage portfolios of various assets such as stocks and bonds. To receive a CFA, people have to pass rigorous exams on three levels.
The most sought-after designation in finance is probably the CFA charter, Sizemore says.
“While no designation is a guarantee of investment success when you see the CFA letters, you can at least be certain that the person has a deep level of knowledge and is extremely motivated,” he says. “The investment world is full of fast talkers, but there’s no way to bluff your way through the CFA examinations. I would consider this a major quality filter when evaluating potential consultants.”
A CFA is the gold standard of finance because of the demanding tests that must be passed in addition to having at least four years of work experience, says Yale Bock, a portfolio manager for Interactive Advisors and president of Y H & C Investments, an RIA in Las Vegas.
“The designation is important to clients since it demonstrates mastery of a wide range of finances in the money management world,” he says.
CFP – Certified Financial Planner
Getting licensed to be a financial advisor is a good step to developing additional expertise. Taking the next step with a rigorous certification such as the certified financial planner designation is important for developing in-depth knowledge.
The CFP certification is highly regarded since advisors only qualify if they already have 6,000 hours of professional experience and take a lengthy exam.
Advisors with the CFP designation will focus on planning in various areas such as investments, taxes, estate and insurance.
“As clients become more informed, they seek advanced certifications like the CFP,” says Daren Blonski, managing principal of Sonoma Wealth Advisors in California. “It’s important that advisors have done the learning to support the range of client needs, not just rely on entry-level licensing exams. Clients should pursue advisors who seek to grow their knowledge base with advanced certifications.”
The exam is given by the CFP Board.
CPA — Certified Public Accountant
Becoming a CPA requires passing an exam after taking 150 hours of classes and is well known and highly regarded. It is common for chief financial officers, tax preparers, accountants and stock analysts to have this certification to advise clients about accounting and tax issues.
“If someone has CPA next to their name, you know that they have a deep understanding of accounting and tax principles and have been tested and vetted,” Sizemore says. “This might not matter if you want an advisor to help you choose mutual funds or do basic planning. But if you want an advisor to help you go through your business books, a CPA designation is really helpful.”
AIF – Accredited Investment Fiduciary
An accredited investment fiduciary certification is issued by Fi360, formerly the Center for Fiduciary Studies for financial advisors who are fiduciaries and helps them meet their legal obligations. Fiduciaries must adhere to a standard of acting in the best interest of the client.
“While technically this is now mandated per the new Securities Exchange Commission requirement called Regulation Best Interest (Reg BI) rules, the rules are patchwork molasses at best,” Blonski says. “Make sure the advisor you’re hiring is willing to act as a fiduciary to you. They should be willing to put this in writing.”
Clients should choose to work with fiduciaries because they abide by a higher standard of advice when advising individuals unlike brokers and insurance agents who often sell products that offer more lucrative incentives such as commissions.
Finding the right tax or financial expert to help people manage their finances for retirement, save for college tuition or build an inheritance is important. An experienced professional can guide investors on the rules governing taxes, strategies for growing their investment returns and ensuring they have enough money once they retire. The various certifications are one way to filter through the many choices investors have.
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