Hiring the right financial professional can be like looking for the perfect mate. You're entrusting this person with something near and dear to you: your money. You want to make sure that they have the expertise to handle the challenges and questions you'll have over the years. How can you know if they have what it takes?
The first step in vetting a finance pro is knowing what the designation after their name means. It will tell you what sort of finance they're trained in.
- A Certified Financial Planner (CFP) must meet education, experience, and ethics requirements. They must pass an exam.
- Most CFP advisors specialize in one area, such as investment, taxes, or estate planning. Take care to choose the right one for your goals.
- Only Certified Public Accountants (CPAs) can qualify as Personal Financial Specialists (PFSs). They may be a good choice for tax issues.
- A Certified Investment Management Analyst (CIMA) may be right for you if you’re looking for assistance in managing your investment portfolio.
Financial Planning Designations
Look for a professional who has attained the CFP® Certified Financial Planner TM title if you're choosing a financial advisor for your family. They must meet the CFP® Board's education, examination, experience, and ethics requirements to use this designation.
The exam covers a broad scope of insurance, investment, tax, estate planning, and financial planning topics. But most of these professionals are experts in just one. They use others in their networks to handle matters that are beyond their capabilities. You can learn more about the CFP® title from the CFP® Board of Standards.
Another worthy designation is Personal Financial Specialist, or PFS.™ Only Certified Public Accountants (CPAs) can achieve this title.
You might want to find someone with a PFS title if you have advanced tax-planning needs along with financial planning concerns.
Retirement Planner Designations
Many titles suggest that someone might have an expertise that's needed by senior citizens. But many of these aren't thought to be credible. The Wall Street Journal says that you'll want your financial advisor to have one of the following three designations if you're nearing retirement.
The Retirement Management Analyst®, or RMA® was established by the Retirement Income Industry Association. The Retirement Income Certified Professional®, or RICP® is offered through the American College. The Certified Retirement Counselor®, or CRC® was established by the International Foundation for Retirement Education.
You can find a detailed comparison of these three designations by industry expert Michael Kitces at RICP vs. RMA vs. CRC—Choosing the Best Retirement Income Designation for Financial Advisors.
Investment Management Credentials
Find someone who has their CFA® title if you're looking to hire an investment advisor to manage a portfolio of stocks and bonds. This stands for Chartered Financial Analyst. It means that they've had to study for a good many years. They possess in-depth knowledge of the securities industry because they've passed three exam levels. Most of the top jobs in the mutual fund management world are held by people who have attained at least a CFA designation.
Think about someone who holds the CIMA certification if you're hiring an advisor to manage a portfolio of mutual funds or to select underlying advisors for portions of your portfolio. CIMA stands for Certified Investment Management Analyst®. This title requires expert knowledge of statistics, finance, economics, specialty markets, portfolio theory, and behavioral finance. It has a focus on portfolio manager selection for building diversified portfolios.
You might not require someone with a mastery level of underwriting or an advanced knowledge of why one insurance product isn't priced the same as another. But many planners use insurance as a means of risk transfer or tax planning. It can make sense to know the background of your professional.
Many of these professionals hold the Chartered Financial Consultant® or ChFC® title. Most ChFC professionals will spend nearly 400 hours to attain this mark. They must complete 30 hours of continuing education every two years to maintain it. Topics such as financial planning, income taxation, and retirement planning are covered by this curriculum.
A financial advisor can acquire many other designations. But many of them don't require rigorous standards. They're just designed to help someone add letters behind their name. Always check your advisor's credentials and complaint record before you hire them.