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Financial Advisors: An explanation of the alphabet soup

Man taking Financial Planner card out of pocket of suit

By David J. Haas CFP®
April 8, 2022

Did you know that anyone can call themselves a financial advisor? It’s very different from the situation with other trusted advisors, such as doctors or attorneys. Your doctor had to get an undergraduate degree and then a medical degree. Along with the medical degree, doctors have to pass a difficult examination and then through a few years of residency. You can trust that your doctor knows something because the MD after their names means they have the education and experience to call themselves a doctor. If they didn’t, practicing medicine without a license is against the law!

Unfortunately, things are far less clear-cut for financial advisors. Anyone can call themselves a financial advisor, although there are some government requirements for those who manage investments. But there is no requirement for any education. You don’t even need a college degree. If you give financial advice you are supposed to be licensed by passing one of the FINRA exams. FINRA is the self-regulating body of the securities industry. You can pass the Series 65 exam to call yourself an investment adviser. Those who want to become a broker will take the Series 7 exam. This exam allows you to give investment advice and take commissions as a stock-broker. The FINRA exams are mostly about the law around investments and not about how to give good advice or design effective portfolios. There is also no education or experience requirement to pass these exams, although you cannot take the Series 7 unless you are sponsored by a broker-dealer.

How do you know if the person you are relying on to give you financial advice actually knows anything? Many will typically get additional certifications and sometimes college degrees. The primary requirement for any certification is the fee the certificate holder pays to attain certification! What are the requirements beyond that? It depends on the certification. There are too many designations to list here, but let’s go through a few of them:

CertificationEducation RequiredExamExperience and other requirements
CFP® – Certified Financial Planner™College Degree170 questions – 6 hours3 years in financial services, or 2 years apprenticeship with existing CFP®.
CFA – Certified Financial AnalystCollege DegreeThree different exams. 42% pass rate for the first exam.4000 hours of direct work experience. Letters of recommendation from CFA holders.
CPFA – Certified Plan Fiduciary AdvisorNone70 question examNone
CIMA – Certified Investment Management AnalystRequires education in the CIMA program (4-6 months) but no college degree5 hour exam3 years in financial services and background check.
CFPC – Certified Personal Financial CounselorHigh School Diploma or GED plus self-study programOnline ExamNo direct experience requirement.
CDFA – Certified Divorce Financial AnalystHigh School or GED150 questions – 4 hours3 years direct experience with college degree or 5 years direct experience.
PFS – Personal Financial SpecialistRequires a CPA, which requires a college degree plus 75 hours of personal financial planning education160 questions – 5 hours2 years of teaching or business experience in personal financial planning. Also CPA requirements.

Some of these certifications may only make sense when combined with others. For instance, many practitioners with the CDFA certification also have the CFP® designation, but it’s not actually required. Some financial advisors also choose to use the letters MBA after their name if they have a Masters in Business Administration, a degree that usually takes 2 or more years to get from an accredited university. I happen to have both an MBA and a CFP®, but I chose to leave the MBA off my name.

Yet, there are many individuals who call themselves a financial advisor who will have no certification and not much education. Some certifications, such as the CFPC seem to require very little of their holders or are designed for those who can’t pass or don’t want to bother passing the more difficult exams. The description of the Wealth Management Specialist (WMS) designation on their website says: This program provides new advisors with a substantial overview of the most critical concepts in financial planning and wealth management, without the rigors of the CFP® certification or a more comprehensive professional designation. So, WMS is for those who can’t pass the CFP® exam!

What does this mean for the consumer? Unfortunately, it’s not as easy as with a medical degree. You should look at what your financial advisor’s credentials are. If there are none, then that’s a warning sign. Certain credentials are held in very high regard in the industry. For instance, those with the CFP® designation are waived from the FINRA Series 65 exam by many states. CFP® holders are similarly waived from insurance continuing education in many states. If you want to look up a designation, the FINRA website has a database where they provide information on 223 different designations.  Here is the link: https://www.finra.org/investors/professional-designations. There are only 9 different designations listed that are accredited by outside accrediting bodies including CFP, CIMA, and AIF.

Knowing that a financial advisor has the education and experience to properly serve you is hard, but looking for high-quality credentials can help. You wouldn’t go to a doctor who didn’t go to medical school or an attorney who couldn’t pass the bar. Why would you trust just anyone with your finances?

If you are interested in talking with me about your finances, investments, insurance, or just have some questions your financial advisor can’t or won’t answer, please contact me.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It is based on sources we believe are accurate, but cannot guarantee. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

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