Everyone knows they need to save for the future and that there are opportunities to invest their savings to maximize growth. It is a complex world when seeking someone to help safeguard and grow savings. The “financial advisor title” is a very common one among financial planning and investment professionals. It is important to look beyond this title to understand the person’s experience and knowledge. Anyone can have access to many investment products that sound great. However, it is important to make sure your financial advisor is dedicated to walking with you throughout your life and not just selling the next hot investment product.
Kiplinger Financial Magazine outlines five key standards they believe a financial adviser should meet:
- A decade of the right experience
- A clean record
- A transparent fee structure
- A CFA, CFP or CPA/PFS designation (defined below)
- Good references
The designations of CFA, CFP and CPA are also recommended as the top three financial advisor credentials by Investopedia.com, a leading investment education web-site. Many advisors can have quality experience and may be able to provide good financial advice without these credentials. Having these credentials, however, proves that the individual has a thorough education in their area of expertise. Qualifications and expertise are defined below:
CFA (Chartered Financial Analyst). A CFA has obtained expertise in investment research and portfolio management. A CFA charter holder must have 48 months of related professional work experience in an investment-related field and pass three required examinations. Each exam is six hours long and takes several years to pass. The average pass rate over the past 10 years is 38% for Level I, 43% for Level II and 54% for Level III. To maintain the CFA charter, an individual must commit to acting as a fiduciary and putting clients’ interests first.
CFP (Certified Financial Planner). A CFP has expertise in the area of financial planning, taxes, insurance, estate planning and retirement. Obtaining this credential requires a minimum education level of a bachelor’s degree and coursework in financial planning, followed by a one-day six hour examination. The CFP Board of Standards requires its members to follow the Rules of Conduct, which put the clients’ interests first.
CPA/PFS (A Certified Public Accountant with additional expertise as a Personal Financial Specialist). A PFS studies estate planning, retirement planning, investing, insurance and additional areas of personal financial planning. Three years of work experience is also required. A PFS must also pass an examination. High ethical standards are also adhered to with this designation.
There are many other financial designations an advisor may pursue, including:
CFS (Certified Fund Specialist). Demonstrated expertise in mutual funds, including portfolio theory, dollar-cost averaging and annuities.
ChFC (Chartered Financial Consultant). Focus on financial planning, including income tax, insurance, investment and estate planning.
CLU (Chartered Life Underwriter). Typically, insurance agents focus on the fundamentals of life and health insurance, pension planning, insurance law, income taxation, investments, financial and estate planning, and group benefits.
When trusting someone to walk with you in your financial future, it is important to understand your advisor’s expertise and experience regarding financial planning and investments. I hope this information summarizes the alphabet soup that comes with finding the right financial advisor for you.