6 Financial Advisor Certifications You Need to Know

6 Financial Advisor Certifications You Need to Know

What does it mean when someone says they are a financial advisor?

The titles "financial advisor" and "financial planner" are vague terms that don't connote any specific type of training or education. That's why the financial certifications a person has obtained are so vital to selecting an advisor. Understanding which certifications are relevant is also confusing. In fact, there are 135 designations of different financial advisors, 90 of which begin with a "c"! Finding the right expert for your needs can be daunting, but we'll take a look at a few common certifications that financial advisors hold, so you may make a more informed decision while picking an advisor.

Common Types Of Financial Advisor Certifications:

  1. Certified Financial Planner (CFP)
  2. Chartered Financial Consultant (ChFC)
  3. Certified Public Accountant (CPA) and Personal Finance Specialist (PFS)
  4. Chartered Life Underwriter (CLU)
  5. Certified Fund Specialist (CFS) and Chartered Mutual Fund Counselor (CMFC)

While advisors with any of these certifications can help with financial planning, each certification highlights a unique skill set that is better suited to your needs.

  1. Certified Financial Planner (CFP): For general financial advice

    CFP's are the most versatile type of financial advisor, as they are able to help you on any financial issue, including investments, tax advice, budgeting and more. If you need a comprehensive review of your situation, a CFP is your best bet.

    Earning the CFP designation represents a serious dedication to one's craft. After taking a rigorous course load, CFP's must pass a test that only 60% pass. They are also required to have at least three years of experience in financial planning before applying for certification.

    CFP's are typically paid a fee for the services they provide, rather than earning a commission on investments or products that they sell. This makes them more impartial than some other advisors.

    • Rigorous qualifications
    • Can help you with any financial issue
    • Typically charge set fees instead of taking percentages or commissions
  2. Chartered Financial Consultant (ChFC): For general financial advice

    The ChFC certification is quite similar to the CFP both in terms of covering broad financial knowledge and its rigorous standards. Like a CFP, a Chartered Financial Consultant can provide services ranging from tax advice to retirement planning.

    In fact, ChFC's and CFP's often take the same education and training courses. ChFC's do not take a comprehensive test, but they do take tests after completing each course, with the average study time to pass the test being as high as 400 hours. They will also take several extra classes on subjects such as retirement planning or real estate to make themselves more well-rounded. All ChFC?s also have at least 3 years of experience in finance before they are able to become certified.

    Like CFP's, Chartered Financial Consultants are mostly fee-only advisors. They are able to offer unbiased advice because they are not beholden to a larger institution.

    • Broad knowledge base
    • Intensive preparation including 8 courses
    • Similar to a CFP
  3. Certified Public Accountant (CPA) and Personal Finance Specialist (PFS): Tax experts with a finance background

    Not every CPA will be qualified to do financial planning, but more and more CPA's are offering financial planning as one of their services. If you have complex accounting issues that necessitate a CPA, it might make sense to use them for financial planning as well.

    So how do you determine whether your CPA is truly qualified to give you advice? Look for a CPA who has taken the time to receive financial planning certifications, as this additional coursework in personal finance demonstrates their level of commitment to being a financial advisor. Many CPA's will obtain a CFP certification because their prior experience allows them to just take the test instead of all the coursework.

    CPA's also can get a supplementary Personal Finance Specialist (PFS) certification. The PFS certification requires about 200 hours of college-level coursework in 9 different personal finance subjects that culminates in a comprehensive 5-hour exam. The broad knowledge that they receive from this program makes a CPA/PFS a valuable resource for you.

    Most CPA's who provide personal financial advice are fee-only professionals and are not paid a commission.

    • Not all CPA's are good financial planners
    • Look for a PFS certification
    • Using one person for investing and taxes can be beneficial
  4. Chartered Life Underwriter (CLU): Focused on insurance

    If you are specifically concerned about insurance, securing your assets, or thinking about annuities, a CLU may be a good fit. They are experts in all things insurance and are also equipped to help with basic financial and estate planning.

    In order to become a CLU, one has to take eight college-level courses and have three years of business or finance experience. By the end of their program, a CLU is able to provide counsel on mitigating risk, both for businesses and individuals. They also can provide estate planning services so you can best distribute your assets.

    CLU's are paid in multiple ways. Typically, they are paid hourly fees for giving advice but they can be paid a commission for the insurance products that they sell. Since they can be incentivized to sell you larger policies, it is important to fully understand the products that they offer.

    • CLU's are insurance experts
    • Rigorous qualifications
    • Typically paid hourly or by commission
  5. Certified Fund Specialist (CFS) and Chartered Mutual Fund Counselor (CMFC): Specialists in Mutual Funds

    If you're looking to invest in mutual funds, a CFS or CMFC can help you allocate your portfolio to minimize your risk. A CFS or CMFC can make sure that your mutual fund investments are appropriate given other investments in your portfolio.

    Both of these certifications require completion of a 10-week course before taking examinations; this depth of education is necessary because of the complexity of mutual funds and their composition of many investments. A CFS or CMFC can make sure that your portfolio is balanced and the risk level is appropriate for your needs. The CFS and CMFC certifications are quite common and over 15,000 people have passed through these programs.

    CFS' and CMFC's can be fee-only, but it is always wise to directly ask if they are compensated based on their recommendations.

    • Mutual fund specialists
    • 60 hours of preparation for multiple tests
    • They allocate your assets to prevent unnecessary risk

Certifications are an extremely important factor in choosing the right financial advisor for you. While we've only highlighted a few of the key designations, there are many more out there. You can see a list of all the certifications and a short description of each at https://www.wiseradvisor.com/designations.asp.


By Thomas Drew.