The financial services industry can be confusing to investors at times. The variety of 3- and 4-letter professional designations used by financial advisors that follow their names 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.
- Financial advisors often obtain professional designation to indicate their training, knowledge, and expertise in a given speciality.
- Many of these designations require a commitment to hours of study and 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.
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 an education requirement
The candidate must hold at least a bachelor’s degree
- Successful completion of financial planning coursework, though much of this can be bypassed if the candidate holds another applicable professional designation such as the CFA, CPA, or an advanced degree in business
- Passed the CFP exam, a comprehensive exam that tests the applicant's understanding of financial planning topics, administered over the course of several days
Work experience: advisors with the designation have either three years' experience in the industry or two years' experience in an apprentice pathway
Passed an ethics requirement
CFP holders and candidates must adhere to the CFP Board’s ethics requirements that covers areas such criminal history, personal bankruptcies, client complaints, reasons for any termination by an employer and general conduct.
- Completed an education requirement
CFP holders must also complete 30 hours of continuing education (CE) credits every two years.
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:
- Money management
- 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
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.
Pass rates for the CFA exams are 43% for Level I, 45% for Level II, and 56% for Level III. All 3 exams must be passed to earn a CFA charter.
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 exams and meet certain educational requirements. CPA candidates must have a bachelor's degree, at minimum.
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.
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 holder of the CPA designation
- Be a member of the AICPA
- Have two years of relevant teaching of business experience relating to financial planning within five years of applying for the designation.
- 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.
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.
The educational requirements and training for the exam includes areas such as:
- Retirement planning
- Estate planning
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.
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.
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.
The Bottom Line
These and a host of other designations used 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.