What Does Your Advisor's Designation Mean?

The financial services industry can be confusing. With a variety of professional designations and a variety of acronyms tacked onto your financial advisor's signature, the volume and subtleties that differential designations can add to this confusion.

In this article, we will attempt to explain some of the most common financial advisor designations that you may see.

Key Takeaways

  • Financial advisors often obtain professional designation to indicate their training, knowledge, and expertise in a given specialty.
  • Many of these designations require a commitment to hours of study and a rigorous examination process and are globally recognized for their quality and breadth.
  • Some designations like CFP® or CFA charter cover a wide scope of knowledge while others like the CLU focus on a particular piece of financial expertise.
  • The CPA designation is among the hardest to obtain, though it does not prepare a license holder to manage portfolios or prepare long-term investment plans.
  • There is a debate about the difference between the CFA and ChFC designations; both are similar and prepare holders to financially plan for individual clients.

Certified Financial Planner (CFP®)

The CFP® designation is considered by many to be the gold standard for financial advisors. This designation is administered and granted by the CFP Board. An advisor with the CFP® designation has completed the minimum education requirement, holds at least a bachelor's degree, and passed the CFP exam.

The CFP exam is a comprehensive exam that tests the applicant's understanding of financial planning topics. The exam is administered over the course of several days. Candidates must prepare for the exam in advance through successful completion of practice financial planning quizzes and comprehensive readings.

Do You Need a CFP?

CFPs are used to manage your portfolio. If you have questions on investments, financial planning, investing strategy, or portfolio management, consult a CFP.

Once a candidate has passed the exam, the candidate must have either three years' experience in the industry or two years' experience in an apprentice pathway for certification. Also, after successful completion of the exam, the candidate must pass an ethics exam and perform a minimum of 30 hours of continuing education credits every two years.

Last, CFP holders and candidates must adhere to the CFP Board’s ethics requirements that cover areas such as criminal history, personal bankruptcies, client complaints, reasons for any termination by an employer, and general conduct.

Chartered Financial Analyst (CFA)

The CFA designation is administered and granted by the CFA Institute. CFA charters are widely recognized as a gold standard in financial management, analysis, and planning. To earn the CFA designation, candidates my pass three levels of exams covering accounting, economics, ethics, money management, and securities analysis.

Candidates who wish to obtain their charter must meet one of the following requirements:

  • Four years' professional work experience
  • The successful completion of a bachelor's degree
  • A combination of professional work experience and education totaling four years

Do You Need a CFA?

CFAs are often hired at investment firms for portfolio analysis. Though they have been trained in security analysis, their designation is less directed financial planning.

The CFA charter is considered the premier designation for investment analysts and related professions. Certainly, an advisor who has obtained this designation is well-qualified, though it is important to note that the exam does not cover financial planning for individuals as robustly as the CFP exam.

Certified Public Accountant (CPA)

The CPA designation is granted by the American Institute of Certified Public Accountants. To earn the CPA designation, candidates need to pass a series of four exams and meet annual continuing education educational requirements. CPA candidates must have a bachelor's degree, at minimum, and may require five years of higher education based on state requirements.

CPAs work as both as accountants and tax advisors for individuals and businesses, both large and small. This designation is also generally required for those working in auditing or public accounting.

Do You Need a CPA?

CPAs are often experts in tax or auditing. The CPA exam does not cover portfolio management; instead, seek a CPA if you need estate, gift, wealth transfer, capital gains, or other tax guidance.

Many CPAs offer investment and financial planning services. However, the CPA designation does not in itself mean the holder is more knowledgeable about financial planning or investment issues. Offering these services is seen as a growth area for CPAs beyond their normal tax and accounting services.

Personal Financial Specialist (PFS)

The PFS designation is granted by the American Institute of Certified Public Accountants (AICPA). This designation is only available to those who are already CPAs. Many view this designation as the is the financial planning designation for CPAs.

PFS holders must be a valid hold of the CPA designation, be a member of the AICPA, and have two years of relevant teaching of business experience relating to financial planning within five years of applying for the designation.

Do You Need a PFS?

PFS designations are less common than other designations but can be useful if you're looking for a financial planner well-versed in tax issues.

PFS candidates must also have a minimum of 75 hours of financial planning education within the prior five years of applying for the designation. Designation holders must also pass a PFS exam and a meet continuing education requirements of 60 hours every three years.

Chartered Life Underwriter (CLU)

The CLU designation is for those who want to focus in life insurance and estate planning. The designation is administered by the American College of Financial Services.

Designation-holders have completed five core courses and three elective courses as well as eight 100-question, two-hour examinations. CLU holders must also meet an annual continuing education requirement of 30 hours and meet strict ethics requirements.

Do You Need a CLU?

CLUs specialize in insurance and estate planning. Their designation does not test on portfolio management or financial planning.

Some financial advisors who hold designations like the CFP may obtain the CLU designation if their focus is insurance and estate planning, though the CLU in and of itself is not a financial planning or investment credential.

Chartered Financial Consultant (ChFC)

Like the CLU certification, the ChFC designation is also administered and granted by the American College of Financial Services.

Its recommended that candidates have three years of work experience in a related filed prior to applying for this designation. Besides the work requirement, the process ChFC candidates study a similar curriculum to that of the CFP® designation as well as additional personal financial planning electives. Unlike the CFP®, ChFC candidates do not have to pass a comprehensive board examination. 

Do You Need a ChFC?

The ChFC designation is a lot like the CFP designation. If you're looking for a well-founded financial advisor trained in portfolio management, consult a ChFC.

The educational requirements and training for the exam includes areas including retirement planning, insurance, investments, estate planning, and tax.There is some debate within the financial planning practice as to whether the ChFC or the CFP® is the "better" designation, both require a thorough knowledge of financial planning. Both exams cover very similar content, though the CFP is a more widely-recognizable designation.

Chartered Mutual Fund Counselor (CMFC)

The Chartered Mutual Fund Counselor (CMFC) designation is designed for advisors who provide their clients with advice on mutual funds. It is administered and granted by the College for Financial Planning.

The program was designed in conjunction with the Investment Company Institute and covers both open-end and closed-end funds as well as asset allocation, risk and return and how to select and advise on mutual funds. The exam also covers professional conduct and retirement planning.

Do You Need A CMFC?

The CMFC designation is highly specialized. Chances are, the designation is too specific for your portfolio management needs - though it is a perfect compliment to other licenses on this list.

Advisors with the CMFC designation have completed a study program focused on the aforementioned topics and passed an exam. Professionals must complete 16 hours of continuing education every other year and pay a nominal fee to continue using the designation.

What Is a CFP?

A Certified Financial Planner is a professionally licensed financial advisor that has been formally educated in portfolio management, security analysis, and financial planning. A CFP often helps clients manage their investments.

What Is the Difference Between a CFP and a CFA?

A Certified Financial Analyst is often more commonly found working for private investment firms. The CFA exam does not cover financial planning, so their expertise does not extend as well to cover traditional individual clients.

Alternatively, Certified Financial Planners have a strong background in financial planning, though their professional license did not test them as rigorously on security analysis.

What Is the Best Professional Designation?

Each professional designation has its own strengths and weaknesses. The CPA and CFA licenses are often considered harder than other designations on this list. However, neither have as strong of a financial planning regiment. Other, more specific designations might be easier to obtain but focus more on what specific clients are seeking. In short, the best designation is the one that is most useful to the holder's clients.

The Bottom Line

Having a highly qualified financial advisor can be great, but the list of potential designations held by financial advisors can be confusing to investors. Many designations show an initiative by the advisor to continue to learn and grow professionally. As a potential client, it's important to understand what your advisor's designation signifies, as well as the steps that were taken in order to obtain it. Doing so will not only provide insight into their professional focus, but also your advisor's work and education background.

In addition to the designations listed here, there are many others - especially those targeted to specific facets of the financial profession. These are intended for advisors who choose to specialize in things like retirement planning, advising charitable organizations, or legacy and estate planning, among several others. Chances are, if there are specific financial advising services you're looking for, there's a professional designation catering to that specific industry.

Article Sources
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  1. CFA Institute. "How to Become a CFA Charterholder."

  2. American Institute of CPAs. "CPA Licensure."

  3. American Institute of CPAs. "CPA/PFS Eligibility Requirements."

  4. The American College of Financial Services. "CLU Chartered Life Underwriter."

  5. FINRA. "CMFC."

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