The transition from business to profession for financial services has been brief (a century and a half), while law and medicine developed over millenia. Industrialization, agricultural development, the Internal Revenue Code, heightened regulation of markets and institutions in response to dodgy Jazz Age sales practices, and the regulatory overhaul of investment companies and investment advisors contributed to this progression. So did America's retreat from the gold standard, floating exchange rates, ERISA, high inflation, energy shocks, derivatives, the mainstreaming of high yield bonds, a prolonged bull market in global equities and increased occurrences of fraud.
As with law and medicine, financial services have evolved to meet the increasingly complex needs of clients and practitioners. In those professions, the path to practice is established. A financial certification must be rigorous, relevant, founded in academia and professional practice, require continuing education and have ethics training. The following are designations and certifications currently used by practitioners, and required by employers, in various financial fields.
Accounting and Fraud
These designations account for the standards required for representing clients before tax authorities and conducting fraud examinations.
- Certified Public Accountant (CPA): To receive this designation, one must fulfill course requirements that vary by the state where one chooses to practice and hold a bachelor's degree. One then must complete a four-part examination encompassing financial accounting and reporting, audits and attestation, regulations, and business environment and concepts, before applying to the state board of accountancy to practice.
- Chartered Accountant (CA): The CA is the global equivalent of the CPA, with differing requirements by country.
- Enrolled Agent (EA): For this designation one must either meet a work experience requirement or complete an examination that covers individual tax return preparation, business entity formation and return preparation, and client representation, practice and procedures.
- Certified Fraud Examiner (CFE): The CFA is the global standard for fraud detection and prevention. To receive this designation, completion of an exam is required, along with professional references, relevant experience and professional association membership.
There is only one credential required for financial planners: The Certified Financial Planner™ (CFP®) designation is the standard for financial planning. One must hold a bachelor's degree, evidence-relevant coursework, pass a 10-hour board exam, and satisfy an ethics and work experience requirement. The examination emphasizes advanced interdisciplinary planning skills.
The designations included under investment management deal with changes in the markets that require greater analytical and quantitative skills.
- Chartered Financial Analyst (CFA): To become a charterholder, one needs to pass three rigorous examinations: foundations of markets and investments, analysis and valuation, and portfolio management. The CFA charter has evolved with the marketplace and is global in scope. In addition to exam requirements, a candidate needs four years of relevant experience.
- Certificate in Investment Performance Measurement (CIPM): The CIPM was created and developed by the CFA Institute to address the needs of professionals focusing on financial performance reporting and attribution. The program has a Principles Level which covers conceptual foundations of performance measurement and attribution, and an Expert level for advanced applications of performance evaluation and presentation.
Financial Risk Management and Alternative Investments
There are two recent professional certifications for financial risk management and alternative investments that have merited widespread recognition:
- Financial Risk Manager (FRM®): Conferred by the Global Association of Risk Professionals (GARP), the FRM designation focuses on risk management of financial institutions. Besides the work experience requirement, one needs to complete a two-part examination on foundations of risk management, quantitative analysis, financial markets and products, and valuation risk models, as well as market, credit and operational risks, risk and investment management, and current issues in financial markets.
- Chartered Alternative Investment Analyst (CAIA®): The CAIA® certification has become the global standard in advanced training in alternative investment analysis and research. Candidates need to complete two levels, obtain professional references and satisfy continuing education requirements.
Actuaries manage property and casualty liabilities, life contingencies and retirement. Designations within this category include:
- Fellow of the Society of Actuaries (FSA): The candidate for the FSA must satisfy requirements of work experience and rigorous examinations focusing on the business environments, within which financial decisions concerning pensions, life insurance, health insurance and investments are made, including the application of mathematical concepts and other techniques to the various areas of actuarial practice.
- Enrolled Actuary (EA): An EA is a recognized certification for those administering defined benefit pension plans, also conferred by the SOA. The curriculum focuses on pension mathematics, life contingencies and ERISA.
Life and property and casualty insurance planning has become more specialized, to that end the following certifications are used:
- Chartered Life Underwriter™ (CLU®): Conferred by The American College, the CLU® is earned through completing examinations on topics of insurance, investment, tax, employee benefit and estate planning, with a focus on the use of insurance to meet numerous business and personal planning objectives. One need also satisfy a work experience requirement.
- Chartered Property and Casualty Underwriter (CPCU): Administered by the American Institute for Chartered Property and Casualty Underwriters, the designation has long been considered the standard for professionals with an in depth focus on property and casualty insurance.
Estate planning typically requires a law degree. While CFP® professionals and certain other designees may analyze planning concepts, they need to avoid unauthorized practice of law. The Accredited Estate Planner® (AEP) post graduate certification builds upon the estate planning experience of certain designees.
Employee Benefits Planning
This category deals with the study of group benefits, retirement and compensation, due to the workplace demand for talent. Certified Employee Benefit Specialist (CEBS) designees must complete coursework in group and health benefits, retirement plan design, human resources and executive compensation fundamentals.
The Bottom Line
The challenges of professional certification in complex markets are ongoing. The one constant is change.