By Lee Sherman
The term financial advisor sounds straightforward. It’s someone who can provide you with advice when it comes to your all-important financial decisions. But that’s a little too generic to cover most people’s needs or even provide an understanding of what a financial advisor actually does. Financial advisors come in all shapes and sizes, with official designations that are meant to give you a good idea of their specific skill sets and training. According to FINRA, one of the primary financial advisor regulators, there are over 200 designations an advisor can have, however these five are among the most common you should know:
- Certified Financial Planner: If your financial advisor is a certified financial planner (CFP) you can bet that they will be well prepared to provide you with the planning expertise you need. A CFP is a professional designation that is only given to individuals that have been trained by and passed a certification exam given by the CFP board. They are also fiduciaries. A CFP is the closest you are going to get to a doctor for your finances and they engender a similar level of trust.
- Chartered Financial Analyst: If extensive financial knowledge is what you’re after (and it should be) you’ll want to look for a chartered financial analyst (CFA). The CFA program is a postgraduate professional certification offered internationally by the American-based CFA Institute to all financial professionals. This course covers security analysis, statistics, probability theory, fixed income, derivatives, economics, financial analysis, corporate finance, alternative investments, portfolio management, and much more. It is so highly regarded, that graduates that have earned the CFA charter are exempt from certain financial regulations. While they are primarily employed by large investment firms, high-net-worth private clients can also take advantage of their solid investment advice, portfolio management and risk management services
- Chartered Financial Consultant: Like a CFP, a ChFC provides services that include personal financial management, retirement and estate planning, life insurance, and more. But a ChFC typically has taken more courses and may also have more practical experience as the designation requires them to have worked three years in financial services. Whereas a CFP takes a single comprehensive exam, a ChFC must pass an exam for each course they take. They are also fiduciaries.
- Chartered Life Underwriter: A CLU specializes in life insurance planning and is part of an estate planning team for high-net-worth clients with complex holdings such as family businesses. As you’d expect with a speciality, the CLU designation isn’t easy to get. Before becoming a CLU, one must first have three years of financial services experience, take eight training classes and pass a comprehensive exam. In addition, there is a continuing education requirement of 30 hours every two years. It is administered by the American College of Financial Services.
- Certified Investment Management Analyst: A CIMA is a good person to have on your team if you are interested in the more technical aspects of financial planning. This person can help with asset allocation, ethics, due diligence, risk management, investment policy and measuring the performance of your portfolio. This certification is offered by the Investments and Wealth Institute.
You may be surprised to learn that not all financial services in this highly regulated industry are subject to regulation. That means your brother-in-law is perfectly within his rights to help you with your monthly budget, paying down credit card debt, or even retirement planning. But if you are looking for a professional to guide you in your financial decisions, selecting a financial advisor with a designation that matches to your needs is one of the smartest financial moves you can make.
Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.
