The financial industry is full of acronyms that can be confusing for consumers. For example, the Financial Industry Regulatory Authority, or FINRA, lists 242 designations used by financial professionals.
But, while there are a lot of certifications, the most commonly used certifications can also be valuable indicators of a financial advisor’s dedication to the profession.
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Financial certifications cover topics such as accounting, financial planning, investing and insurance that require financial knowledge exceeding the basic requirements to provide service. They demonstrate a commitment to industry standards, personal professionalism, continued learning and, in some cases, a commitment to a code of ethics. Some certifications show an advisor’s specialization within the industry. All of the certifications require long hours of study and many culminate with a rigorous exam. A considerable number of continuing education hours are often mandated to maintain a designation.
An easy analogy for these certifications is to put them in the context of advanced college education degrees. Financial certifications are most closely related to a master’s level of education, as they require additional study beyond an undergraduate degree.
Here are 10 of the best and most well-known certifications for financial professionals:
— Certified financial planner (CFP).
— Chartered financial consultant (ChFC).
— Chartered financial analyst (CFA).
— Certified public accountant (CPA).
— Retirement income certified professional (RICP).
— Certified management accountant (CMA).
— Accredited investment fiduciary (AIF).
— Chartered alternative investment analyst (CAIA).
— Financial risk manager (FRM).
— Chartered life underwriter (CLU).
Certified Financial Planner (CFP)
As of Sept. 1, 2023, 97,637 financial advisors hold the CFP designation, making it one of the most widely recognized designations in the industry.
To earn a CFP certification, an advisor candidate must hold a bachelor’s degree or higher from an accredited educational institution. Experience requirements include at least 6,000 hours of professional financial planning experience or 4,000 hours of apprenticeship. At the end of the coursework, a lengthy exam is required over two three-hour testing periods in a single day. The CFP exam is only offered by the CFP Board three times per year, in March, July and November. The exam covers topics ranging from the financial planning process and principles to retirement planning, risk management, taxes and insurance, among other important topics. For July 2023, the passing rate for the CFP exam was 67%.
CFP designees are required to act as fiduciaries, meaning they must put their clients’ best interests first. CFP holders must complete 30 hours of continuing education each reporting period.
Chartered Financial Consultant (ChFC)
The ChFC designation is issued by The American College of Financial Services and is considered a desirable alternative to the CFP. There are more than 50,000 ChFC certification holders.
Candidates must possess a high school diploma or equivalent GED and have three years of full-time experience in financial planning or a related field within the five years preceding the award of the designation. The coursework is self-study through eight courses, the majority of which cover the same topics as the CFP coursework. However, this designation also incorporates topics such as small-business planning, behavioral finance, divorce financial planning and planning for clients with special needs, LGBTQ clients or unmarried couples.
Designees are required to complete 30 hours of continuing education every two years, including one hour of ethics. They also have an annual certification process.
Chartered Financial Analyst (CFA)
The CFA Institute offers a charter for financial analysts and is one of the most prestigious designations for investment analysts. As of July 2023, there were more than 190,000 charter holders globally.
To enroll in the program, a candidate must have a bachelor’s degree from an accredited educational institute or have a combination of 4,000 hours of work experience and/or higher education in three sequential years. A candidate may also be within 11 months of graduation for their college degree prior to enrollment. They must also submit two to three professional reference letters.
The program requires candidates to master 10 investment topics and also pass three levels of extremely rigorous exams. A CFA charter-holder is well respected in the industry and a solid choice if you are seeking an investment manager.
Certified Public Accountant (CPA)
Many people do not realize that a CPA license is not just for accountants and tax preparers. Chief financial officers and financial analysts also choose the designation, and it is one of the most widely recognized financial certifications in the financial industry. It is issued by each state’s board of accountancy and is recognized across the U.S. A very popular designation, the National Association of State Boards of Accountancy reports that there are 672,587 CPAs as of Sept. 1, 2023.
Each state has its own requirements and prerequisites. In general, the certification requires 150 hours of coursework and a rigorous four-part exam covering about 600 key points. The American Institute of Certified Public Accountants posts a historical passing average between 45% and 55%. Like the CFA, the CPA exam is one of the most rigorous exams.
CPAs can provide financial planner services, although you may not need their expertise to establish a basic plan or choose mutual funds. However, as clients have increasing tax-based needs in estate transfer, business succession and risk management, having a CPA on your financial team is a worthwhile consideration.
Retirement Income Certified Professional (RICP)
Offered by The American College of Financial Services, the RICP was developed by more than 45 top retirement planning experts across the U.S. to give designees the expertise necessary to build comprehensive income plans.
The RICP certification is considered the best way to learn how to advise people planning for retirement, and it teaches the skills needed to create a comprehensive retirement strategy from the ground up. Training includes how to address Social Security integration, portfolio withdrawal strategies, Medicare and elder care planning. It also addresses the best practices for tax minimization, as well as efficient wealth transfer.
A candidate can begin their coursework without any prerequisite other than a high school diploma or equivalent; however, they cannot use the designation until they have completed three years of relevant professional experience.
[Read: How to Choose a Financial Advisor]
Certified Management Accountant (CMA)
The Institute of Management Accountants is the issuing body for the CMA certification. A CMA holder is an expert at management accounting, often working in a corporate setting. The certification covers 12 competencies, including external financial reporting decisions, performance management, financial statement analysis, corporate finance and professional ethics.
Prerequisites include a bachelor’s degree from an accredited education institution and two years of continuous work experience in management accounting or finance.
The required proctored exam is in two parts. A candidate has up to three years to complete both parts, although the majority of people tend to complete the requirements in 12 to 18 months. The pass rate is about 50% for the CMA exam — significantly lower than other accounting certifications.
Accredited Investment Fiduciary (AIF)
Fi360, formerly known as the Center for Fiduciary Studies, issues the AIF certification. Designees are financial advisors who want to meet their legal obligations as fiduciaries, including standards of conduct and how to properly use these principles.
An AIF candidate must meet a point-based threshold based on a combination of education, relevant industry experience and/or professional development. They can complete their studies through a capstone program or a self-study course, culminating in a proctored exam. AIF designees have a six-hour continuing education requirement annually.
Chartered Alternative Investment Analyst (CAIA)
The Chartered Alternative Investment Analyst Association trains financial professionals in analyzing, managing, regulating and/or distributing a wide range of alternative investments, including commodities, hedge funds, private equity (including venture capital), funds of funds, derivative books and real estate investments. While the CFA certificate includes education on alternative investments, the CAIA goes into greater depth and specialization. There are about 13,000 CAIA holders worldwide.
Candidates can meet prerequisites by combining a bachelor’s degree or equivalent with one year of financial industry experience or with four years of relevant experience.
The self-study course culminates in two exams. Each exam tests the understanding of the different alternative asset classes and the tools and techniques that can be used to assess an asset’s risk-return attributes. They also include a practical application of the knowledge within a portfolio management context. The conferee completes a self-evaluation every three years to maintain the designation.
Financial Risk Manager (FRM)
A financial risk manager is accredited by the Global Association of Risk Professionals, or GARP. They are specialists in assessing and evaluating risk. They are often found working at major banks, insurance companies, accounting firms, regulatory agencies and asset management firms, although they may also work with private clients needing investment advice for complicated transactions.
There are no prerequisites to study for the certification or sit for the required testing, which is a two-part, eight-hour, multiple-choice exam. Two years of relevant business experience in risk management is required for conferment. The coursework is self-study. Continuing education is voluntary, although GARP recommends 40 hours every two years.
While the requirements seem light in comparison to other designations, the FRM accreditation is globally recognized as the premier certification for financial risk professionals dealing in financial markets. The exam is challenging, with a pass rate of 50% for the first part of the exam in November 2022.
Chartered Life Underwriter (CLU)
The American College of Financial Services created this designation in 1927, making it the oldest professional designation in the financial industry. There are more than 113,000 professionals who hold this certification, most of whom primarily specialize in life insurance for business or estate planning purposes. Through the specialized coursework, they attain knowledge in life insurance, estate planning and risk management for business owners and estate transfer.
The only prerequisite is a high school diploma or equivalent. Candidates must have three years of full-time business experience within the five years preceding the award to use the designation. The curriculum is based on four core courses and one elective of the student’s choosing. There is no final exam required, although each course has an ending exam.
Designation holders must complete 30 hours of continuing education every two years, plus one hour of ethics.
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10 Best Financial Certifications originally appeared on usnews.com
Update 09/19/23: This story was published at an earlier date and has been updated with new information.
