“Mistakes are the best teachers. One does not learn from success. It is desirable to learn vicariously from other people’s failures, but it gets much more firmly seared in when they are your own.” – Mohnish Pabrai
This is the third post in a series of 3 about the financial advisor profession, financial advisor designations, and titles of financial advisors. The past two: Who is your financial advisor? and Top 8 titles used by financial advisors, discuss the different titles by which a financial advisor might be called. This post will detail 7 different financial advisor designations which require additional training and certification to use them. According to the Wall Street Journal, there are over 208 financial advisor designations1. However, many of them are relatively unknown to the majority of the financial advisor community and the investing public. Also, a number of them are for specializations which may not apply for most of the advisor’s day-to-day activities.
I have chosen 7 designations: Certified Financial Planner, Chartered Financial Analyst, Chartered Financial Consultant, Certified Fund Specialist, Certified Investment Management Analyst, Chartered Market Technician, and Certified Public Accountant for this post. A number of these designations are common and well-known, but generally, they are not used by the financial advisory profession. Get to know these designations. If you meet someone with one of these designations, don’t be afraid to ask what they mean.
Professional financial advisor designations:
This is a professional designation given to professionals who have met certain rigorous requirements of competency in all areas of financial planning. This does not mean people with this designation are more qualified than others, it just means that they have obtained the knowledge to have a full understanding of financial planning as a service. This is a challenging designation to obtain in both time and effort to prepare and take the required test. While this is a valuable designation for a financial advisory professional to have, it is not limited to financial advisory professionals. Anyone can gain this designation if they qualify. Attorneys, insurance agents, accountants, and other related professions can obtain this designation, so it does not define the type of work the person does, just that they have qualified with the Certified Financial Planner Board of Standards Inc. While the person with this designation should be more than qualified to provide financial planning services, make sure you understand what their qualifications or licenses are for the services which they provide.
Chartered Financial Analyst (CFA)
This is a professional designation given to professionals 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 obtain. It takes a minimum of 3 years and 900 hours of study to pass three separate tests. Passing these tests and earning the CFA designation would be the equivalent of having a knowledge base of a doctorate in finance. This designation is rarely seen in professionals who are not portfolio managers, hedge fund managers, or securities analysts. While this designation is becoming much more common in the finance industry, always check to verify that the financial advisory professional has the designation he or she portrays to have.
Chartered Financial Consultant (ChFC)
This designation is similar to the CFP in that it denotes proficiency in advanced financial planning including income tax, insurance, investment, and estate planning. Earning the designation requires a minimum of 3 years in the financial services industry. To learn more go to the American College.
Certified Fund Specialist (CFS)
This designation demonstrates proficiency with mutual funds, ETFs, REITs, CEFs, and similar investments. I have never met anyone with this designation, but it has been around for 24 years, so there must be a number of designations in existence. Check out the IBF website to learn more.
Certified Investment Management Analyst (CIMA)
This designation has a focus on risk management, due diligence, investment policy, and asset allocation. This 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.
Chartered Market Technician (CMT)
This designation is achieved by passing three exams offered by the Market Technicians Association (MTA). People with this designation have proven to be experts in technical analysis. This is a rigorous set of tests to pass. A financial advisory professional with this designation will be an expert in the technical analysis given this thorough testing period. This is a newer designation that is not as highly respected as the CFA, but it can be equally challenging to pass and is gaining notoriety in the merits of holding it as a designation. This is not as commonly seen with financial advisory professionals. This designation is more commonly seen in traders or portfolio managers.
Certified Public Accountant (CPA)
This designation is earned by passing a rigorous exam in accounting and tax preparation. This designation does not denote expertise in financial planning or investments, only accounting, and tax. Investors typically have a high level of trust with their CPA or tax preparer, however, they should understand the difference between tax and investments. Most CPAs do not provide investment advice to their clients. This is not commonly seen with financial advisory professionals.
This is not a title or designation but rather my description. There are many financial advisors who are both Registered Representatives (RR) with a broker-dealer and Investment Advisor Representatives(IAR) with a RIA at the same time. This is not a conflict for the client. However, you as the client should be aware of it since this allows the advisor to be compensated via commissions, 12b1 fees, and other forms of compensation that are not always directly visible or transparent to the client. The ability to be paid via commissions (RR) vs fee-only(IAR) is a conflict in this way. If the financial advisor is a hybrid then you should assume that they can be paid via commissions even if they are being paid a fee based on AUM.
Which one is the best of the financial advisor designations?
While I have considered all 7 of these designations for myself professionally, I have not been convinced that they would be beneficial for anything other than making my name longer. This is not to say that they are valuable. Financial advisors look at designations in two ways: “can it help me learn more about a certain field?”, and “can it make me more marketable?”
There is no one “best” designation for everyone. Each of these is valuable in its own way for someone who wants to specialize in the area that is taught. The CFA is valuable for a portfolio or fund manager, the CPA is valuable for someone working in the audit or tax field, and the CFP is valuable for someone focused on financial planning. However, a CFA might not be valuable at all if the person is not managing portfolios or investments. If there is some confusion as to what designation is valuable for a person in a certain position, look at other people in that position to see what titles they hold.
The bottom line is that anyone who promotes themselves as a financial advisor, financial planner, CPA®, or another similar title should be able to verify their credentials via their respective regulator or certification board. Financial advisors generally cannot provide financial advice for you personally without being registered with either a state or federal regulator. Always verify that the person has the credentials that they advertise. And if you have a question regarding the certification, ask them. Given the amount of time, most of these certifications require, I’m sure the person would be happy to share their experiences studying for the test.
If you would like more information about any of these financial advisor designations, or others that I have not mentioned, feel free to contact me for more information.
About Innovative Advisory Group: Innovative Advisory Group, LLC (IAG), an independent Registered Investment Advisory Firm, is bringing innovation to the wealth management industry by combining both traditional and alternative investments. IAG is unique in that they have an extensive understanding of the regulatory and financial considerations involved with self-directed IRAs and other retirement accounts. IAG advises clients on traditional investments, such as stocks, bonds, and mutual funds, as well as advising clients on alternative investments. IAG has a value-oriented approach to investing, which integrates specialized investment experience with extensive resources.
For more information, you can visit www.innovativewealth.com
About the author: Kirk Chisholm is a Wealth Manager and Principal at Innovative Advisory Group. His roles at IAG are co-chair of the Investment Committee and Head of the Traditional Investment Risk Management Group. His background and areas of focus are portfolio management and investment analysis in both the traditional and non-traditional investment markets. He received a BA degree in Economics from Trinity College in Hartford, CT.
Disclaimer: This article is intended solely for informational purposes only, and in no manner intended to solicit any product or service. The opinions in this article are exclusively of the author(s) and may or may not reflect all those who are employed, either directly or indirectly or affiliated with Innovative Advisory Group, LLC.