Type in ‘fee-only financial advisor’ in a Google search and you’ll see pages of financial advisors. Most with a dizzying array of credentials beside their names. The question is which professional designations truly mean something? If you know me from my weekly TV series, MoneyTrack that ran on PBS stations, you probably know that one of my biggest criticisms of the financial services industry is that it has created nothing but confusion for individuals who might want to hire a financial advisor. Will the advisor with the longest string of letters behind his name help you accomplish your desired result better than another who has fewer designations or no credentials at all?
The answer is that some designations matter more than others. But sometimes an advisor’s work hands-on experience trumps any of these labels. Credentials can be evidence of dedication to best practice standards of the industry, time invested to stay up-to-date, or develop specialized knowledge in a particular area of focus.
Some people look for advisors because they wonder if they’re truly ready to retire. They will rely on professional advice from an advisor who has experience and can do the necessary ‘deep dive’ into all aspects of their financial lives. Whether that's helping to choose things like the right rollover option, or accurately project retirement cash flows. Entrepreneurs may need to seek out a specialist advisor who understands the complexity of managing startup stock options. Families who have loved ones with special needs may want an advisor who has deep knowledge of special needs trusts. Planning for different clients requires different specialized expertise that goes beyond just the baseline planning and investment expertise.
Top 8 Financial Advisor Credentials You Should Know
It’s risky to go window shopping for financial advisors solely based on credentials. An advisor's credentials don’t tell you the whole story. Let’s start with some of the most important advisor credentials that are worth noting before you make any decisions.
Certified Financial Planner (CFP)
The CFP is what I consider to be a baseline credential for financial planning. Certified financial planners take a holistic approach to financial planning that includes your spending, retirement accounts, taxes, and your family situation, even providing an unbiased evaluation of your insurance coverages. Every CFP advisor within the Wealthramp network is legally held to the fiduciary standard, they are fee-only (meaning they are paid only by their clients), and they prioritize their customers' best interests in providing financial advice. But you need to know that a CFP does not guarantee an advisor is legally bound by the fiduciary standard. There may be brokerage firm reps who are CFP’s but get paid to sell you investments or annuities that are loaded with commissions. Those commissions are their fees that come straight out of your pocket.
CFPs undergo extensive training, completing six or seven classes, passing a challenging exam, and demonstrating a minimum of 6,000 hours of professional financial planning experience before earning the coveted CFP designation.
A CFP is only one indicator that tells you an advisor is qualified to help you select investments, prepare for retirement, save for a child's education, or accomplish an array of varied planning goals.
That said, the CFP credential has only been around since 1995. Think about the real world experience of truly qualified financial advisors who were helping clients navigate stock market crashes and recessions. An advisor who has 30+ years of boots-on-the ground experience focused on complex retirement, tax and highly detailed estate planning for a diverse clientele, may never feel the need to have a CFP designation. Or you may meet a certified public accountant who has no reason to also have a CFP credential because his knowledge and the body of work involved with earning the CPA go beyond what’s minimally required from the CFP coursework. CFP is a way of demonstrating foundational knowledge of holistic financial and tax planning.
Certified Public Accountant (CPA)
You might be familiar with the CPA credential, but what most don’t know is that the license extends beyond just accountants and tax preparers. Chief financial officers and financial analysts also opt for this designation, making it one of the most esteemed certifications.
All licenses are issued by state boards of accountancy and recognized nationwide. Each state has its unique criteria, typically involving 150 hours of coursework and a comprehensive four-part exam covering around 600 essential topics. The CPA exam is a rigorous test with passing rate historically falling between 45% and 55%.
While basic financial planning may not necessitate CPA expertise, their guidance becomes invaluable for intricate tax-related matters like estate planning, business succession, and risk management. Including a CPA in your financial team could be a strategic move for addressing evolving financial needs.
Chartered Financial Analyst (CFA)
A Chartered Financial Analyst is one of my favorite credentials for investment advisors because it’s the most rigorous. Most CFA’s manage pensions or large institutional accounts, and this is why so few financial advisors are CFA members. These advisors have extensive expertise in asset management along with stock and bond, real estate (and crypto) analysis, while upholding the highest ethical standards. While CFAs typically excel in conducting advanced research and analysis for prominent financial institutions and investment firms, they also cater to affluent private clients by offering expert investment guidance, portfolio management, and risk mitigation services.
According to the CFA Institute, obtaining a CFA charter requires 1,000 hours of meticulous study, a minimum of four years of professional experience, two to three professional reference letters and successfully passing a challenging three-part exam that has a historical pass rate of only 20%.
Retirement Income Certified Professional (RICP)
Offered through the American College of Financial Services, the retirement income certified professional (RICP) program equips financial advisors with the expertise to assist clients in maximizing Social Security benefits, identifying risk factors, and presenting solutions for retirement savings plans. Beyond addressing retirement income concerns, the program also provides valuable insights into Medicare, guidance on life insurance selection, strategies for long-term healthcare planning, and solutions for retirement tax challenges that often catch clients off guard.
Candidates can start their coursework with just a high school diploma or equivalent, but they must gain three years of relevant professional experience before they can use the designation. Through RICP training, candidates gain a profound comprehension of retirement income issues, enabling them to develop customized plans for clients that encompass income streams, housing options, healthcare and long-term care needs, estate and legacy planning, and more.
Advisors who’ve taken the time to earn the RICP designation have also earned my respect. But again, there are just as many highly qualified advisors delivering outstanding retirement income planning for clients who do not have the RICP next to their names.
Personal Financial Specialist (PFS)
The Personal Financial Specialist (PFS) certification is another prestigious designation tailored for certified public accountants (CPAs) seeking to elevate their skills in financial planning and wealth management. PFS advisors are experienced to assist with estate planning, retirement strategies, investment tactics, insurance solutions, and much more.
Administered by the American Institute of Certified Public Accountants (AICPA), achieving a PFS certification signifies an understanding of advanced tax knowledge and comprehensive financial planning expertise. To earn the credential, candidates must meet four key criteria: holding a CPA license, possessing 3,000 hours of business experience in personal financial planning, completing a minimum of 75 hours of personal financial planning education, and successfully passing a rigorous examination.
Certified Investment Management Analyst (CIMA)
The credential is a prestigious certification designed specifically for financial consultants and investment advisors, recognized by the esteemed Investments and Wealth Institute. CIMA professionals excel in advising high net-worth individuals and large corporations, specializing in investment consulting. Setting them apart from traditional financial advisors, these certified investment management analysts focus on portfolio construction, investment guidance, and risk management.
To obtain this certification, candidates must demonstrate a minimum of three years in the financial services industry and maintain a strong record of ethical conduct, evaluated by the Investments & Wealth Institute Admissions Committee. Additionally, they must successfully complete an executive education program from an accredited provider and pass a challenging written examination.
Enrolled Agent (EA)
Enrolled Agents are specialized tax professionals dedicated to managing tax matters for businesses and individuals. A knowledgeable EA can handle your tax filing needs and offer guidance on any tax-related issues. Additionally, should you encounter any interactions with the IRS, such as during an audit, an EA can serve as your representative, offering invaluable expertise and support. EAs hold the highest credential awarded by the IRS, making them the go-to experts for all tax-related issues.
Becoming an EA requires passing an exam administered by the IRA. The exam consists of three sections focusing on individuals, businesses & representation, and practices & procedures. Additionally, there is a continuing education requirement of 72 credits every three years.
For clients who want tax returns prepared by their financial advisor, I go out of my way to look for advisors who are either enrolled agents themselves, or have an EA on the team.
Accredited Investment Fiduciary (AIF)
Having completed Fi360’s comprehensive course on ethical conduct and fiduciary services, AIF holders are committed to blending business objectives with the best interests of their clients. This credential fortifies professional fiduciary best practices.
The Accredited Investment Fiduciary certification is issued through the Fi360, formerly known as the Center for Fiduciary Studies. Candidates must pass an exam and commit to six hours of annual continuing education. Embracing a code of ethics, advisors immerse themselves into Fi360’s Prudent Investment Practices to enhance their client-first approach. The AIF is a nice-to-have assurance, but I still require a written fiduciary oath to avoid the AIF from becoming a lazy way to vet the advisor’s integrity.
Wrapping It All Up
The decision to hire a financial advisor is one of the most important financial decisions you’ll ever make. That’s why it’s imperative that you understand when or if an advisor’s professional credentials truly add value to your situation. If you’re looking to hire a financial advisor, I think we all know the fee-only fiduciary model is the winning combination. My advice to you is don’t be overly impressed by credentials as that can give you a false sense of security. Within my Wealthramp network, I’ve personally vetted every one of the fiduciary advisors and have gone way beyond the labels to seek the deep knowledge, extensive experience and communication skills to help you succeed.
If you’re thinking about working with a financial advisor, Wealthramp is here to help.
