What Are Financial Certifications?
Financial certifications, aka financial designations, are credentials that investment and financial industry professionals use. Represented by a trio or duo of letters after a name, they indicate a degree of education/training and specialization on the part of the individual.
If you have trouble telling the difference between a CFA®, CFP®, CIC, ChFC, or any of the other financial certifications, you're not alone. How do you sift through this alphabet soup to find the best financial professional for you? Let's look at the nine most popular designations with a brief explanation of the education and expertise each designation signifies and the kind of work done by the professionals holding them.
Guide To Financial Certifications
Types of Financial Certifications
- Represented by a trio or duo of letters after a name, financial certifications indicate education/training and specialization on the part of an industry professional.
- Common certifications for financial planners and investment advisors include the CFP (Certified Financial Planner), CFA (Chartered Financial Analyst), and ChFC (Chartered Financial Consultant).
- Other designations include the CPA (Certified Public Accountant) and the CLU (Chartered Life Underwriter).
- While some certifications indicate a state-issued license to practice, others are simply awarded by industry associations or institutions.
- Most certifications require candidates to put in many hours of study and pass exams, have a certain amount of experience, and meet high ethical and professional standards.
Certified Financial Planner – CFP®
Those with the CFP® designation have demonstrated competency in all areas of financial planning. Candidates complete studies on more than 100 topics, including stocks, bonds, taxes, insurance, retirement planning, and estate planning. The program is administered by the Certified Financial Planner Board of Standards Inc. In addition to passing the CFP certification exam, candidates must also complete qualifying work experience and agree to adhere to the CFP board's code of ethics, and professional responsibility and financial planning standards.
A financial planner works with individuals to help them understand their options and make financial decisions suited to their personal financial situation and goals. Because of the nature of their work, people place a good deal of trust in these individuals. The CFP board posts information on the financial planning process and current licensees, which lets clients of CFPs verify if their financial planners' designations are in good standing. The last thing anyone needs is to choose a CFP whose certification has been revoked.
Chartered Financial Analyst – CFA®
This designation is offered by the CFA Institute (formerly the Association for Investment Management and Research [AIMR]). To obtain the CFA charter, candidates must successfully complete three difficult exams and gain at least three years of qualifying work experience, among other requirements. In passing these exams, candidates demonstrate their competence, integrity, and extensive knowledge in accounting, ethical and professional standards, economics, portfolio management, and securities analysis.
CFA charter holders tend to be analysts who work in the field of institutional money management and stock analysis, not financial planning. These professionals provide research and ratings on various forms of investments.
Certified Fund Specialist – CFS
As the name implies, an individual with this certification has demonstrated his or her expertise in mutual funds and the mutual fund industry. These individuals often advise clients on which funds to invest in and, depending on whether or not they have their license, they will buy and sell funds for clients. The Institute of Business and Finance (IBF), formerly known as the Institute of Certified Fund Specialists, provides training for the CFS; and the course focuses on a variety of mutual fund topics, including portfolio theory, dollar-cost averaging, and annuities.
The knowledge these CFS designees hold is kept current through their continuing education requirements.
Chartered Financial Consultant – ChFC
Individuals with the Chartered Financial Consultant (ChFC) designation have demonstrated their vast and thorough knowledge of financial planning. The ChFC program is administered by the American College of Financial Services. Candidates must complete an exam in financial planning, including income tax, insurance, investment, and estate planning, and are required to have a minimum of three years' experience in a financial industry position.
Like those with the CFP designation, professionals who hold the ChFC charter help individuals analyze their financial situations and goals.
Chartered Investment Counselor – CIC
Given by the Investment Adviser Association, CFA charter holders who are currently registered investment advisors can study for this is a designation. The CIC program's focus is on portfolio management. In addition to proving their high-level expertise in portfolio management, CIC candidate must also adhere to a strict code of ethics and provide character references.
Individuals who hold the CIC charter tend to be among the financial world's major players, such as those who manage large accounts and mutual funds.
Certified Investment Management Analyst –CIMA
The Certified Investment Analyst (CIMA) designation focuses on asset allocation, ethics, due diligence, risk measurement, investment policy, and performance measurement. As this certification signifies a high level of consulting expertise, only individuals who are investment consultants with at least three years of professional experience are eligible to try for the CIMA. The Investments & Wealth Institute, formerly the Investment Management Consultants Association, offers CIMA courses.
Individuals who hold CIMA designations are required to prove their expertise through continual recertification, which requires CIMA designees to complete at least 40 hours of continuing education every two years.
CIMA designation holders tend to have careers with financial consulting firms, which involve extensive interaction with clients and managing large accounts.
Chartered Market Technician – CMT®
The CMT® designation is granted by the New York-based CMT Association. The CMT is the highest level of training within the discipline of technical analysis and is the preeminent designation for practitioners worldwide. Technical analysis provides the tools to successfully navigate the gap between intrinsic value and market price across all asset classes through a disciplined, systematic approach to market behavior and the law of supply and demand.
Earning the CMT demonstrates mastery of a core body of knowledge of investment risk in portfolio management; including quantitative approaches to market research and rules-based trading system design and testing. CMTs likely would be employed in the sales and trading departments of sell-side firms; as research analysts in firms that provide technical analysis to their clients; or working as portfolio managers and investment advisors.
Certified Public Accountant – CPA / Personal Financial Specialist – PFS
A certified public accountant (CPA) is a designation provided to licensed accounting professionals. The CPA license is provided by the Board of Accountancy for each state.
Those holding the CPA designation have passed examinations in accounting and tax preparation, but their title does not indicate training in other areas of finance. So, those CPA holders who are interested in gaining expertise in financial planning in order to supplement their accounting careers need to become certified as personal finance specialists (PFS).
The PFS designation is awarded by the American Institute of CPAs to those who have taken additional training and already have a CPA designation.
Public accountants—individuals working for a firm that provides accounting and tax-related services to businesses and publicly traded companies—must hold a CPA designation.
Chartered Life Underwriter – CLU
This designation is issued by the American College and those who hold it work mostly as insurance agents. The CLU designation is awarded to persons who complete a 10-course program of study and 20 hours of exams. The course covers the fundamentals of life and health insurance, pension planning, insurance law, income taxation, investments, financial and estate planning, and group benefits.
Advantages and Disadvantages of Financial Certifications
It's important to realize that not all certifications are created equal. While some, like the CPA, reflect a state-issued or -sanctioned license (allowing the person to legally practice or do certain activities), others are simply industry-awarded designations. They may indicate a certain degree of experience and education but aren't mandatory qualifications to work in the field.
While certifications are not everything, you should give extra credit to investment professionals who have them. Most of these certifications require candidates to put in many hours of study and meet high ethical and professional standards. For instance, to get the CFA designation, candidates must put in approximately 250 hours of reading per exam, and there are three exams to pass. The tests are so intensive that approximately 64% of those who take just the level 1 exam will fail. Those who make it through all three levels to become charter holders are also bound by a code of ethics and rules of professional conduct, among other requirements.
Although all of these exams are intense and the hours can be long, these designations should be only one part of your criteria when deciding on a financial professional.
Which Certifications Should a Financial Planner Have?
The CFP (Certified Financial Planner) is a particularly prestigious designation. One of the oldest in the profession, it requires years of experience, successful completion of standardized exams in several areas, a demonstration of ethics, and a college degree—as well as ongoing education in the field.
If a planner wants to delve more deeply into investments and advise clients about them, they might also obtain a CIMA (Certified Investment Analyst).
Which Financial Certifications Boost Income?
The Certified Investment Analyst designation seems to. According to an Investments & Wealth Institute-commissioned survey, the financial advisors who are members of CIMA practices (defined as having at least one practice member with a CIMA certification) report earning a higher annual income compared to financial advisors who are members of practices with no CIMA certification. Some 12% of advisors at CIMA practices earn more than US$380,000, compared to 3% of advisors at practices with no CIMA designation.
A CPA also seems to offer a good return on investment. While the median salary of an accountant is $73,560 per year, according to the Bureau of Labor Statistics, senior CPAs with over 20 years of experience could command an average of $150,000 annual salary, according to Accounting Today magazine and the American Institute of CPAs.
How Do I Get Financial Certifications?
Financial certifications are usually awarded by a designated industry group, association, or degree-granting institution. Their requirements often include the taking of certain courses and the passing of exams, a certain number of years' experience or apprenticeship in the profession, a college degree, membership in the association, and a committment to ongoing education in the field.
The Bottom Line
If you have to deal with a financial professional, it's important that you know the extent of his or her expertise in different areas of finance. Now you have an idea of what some of the designations mean and what they require from those who hold them.