Which Financial Advisor Credentials Should You Look For?

Decoding the designations obtained by your advisor

These financial advisor designations signify knowledge.
Make sure financial advisor designations match your needs. Juanmonino / Getty Images

Before hiring a finance professional, make sure they have the expertise needed for your situation. Below are the specific designations to look for depending on your needs.

Financial planning designations

When choosing a qualified financial advisor for your family I advise you find a professional that has attained the CFP® (Certified Financial PlannerTM) designation. In order to use this designation, he or she must meet the CFP® Board's education, examination, experience, and ethics requirements.

The exam covers the broad scope of insurance, investment, taxes, estate planning, and financial planning. Most professionals will be an expert in just one of these areas and use other professionals in their network to handle areas beyond their capabilities.

You can learn more about the CFP® designation from the CFP® Board of Standards.

The other designation that I admire and respect is the PFS designation which is a financial advisor designation that Certified Public Accountants (CPA) may achieve. Only CPAs may acquire the PFS designation. If you have advanced tax planning needs along with financial planning needs you may want to locate someone with the PFS designation.

Retirement planner designations

Although there are many designations that suggest someone might have expertise that is applicable to seniors many of those designations are not considered credible.

If you are near retirement, as the Wall Street Journal states, you'll want your financial advisor to have one of the following three designations.

    You can find a detailed comparison of these three designations offered by industry expert Michael Kitces at RICP vs. RMA vs CRC - Choosing the Best Retirement Income Designation for Financial Advisors.

    Investment management credentials

    If you are hiring an investment advisor to manage a portfolio of individual stocks and bonds, look for someone who has their CFA®(Chartered Financial AnalystTM) designation. This designation means they had to study for several years and demonstrate in-depth knowledge of the securities industry by passing three different exam levels. Most of the top jobs in the mutual fund management world are held by people who have attained the CFA designation, among probably several others.

    If you are hiring an advisor to manage a portfolio of mutual funds or to select underlying advisors for different portions of your portfolio someone who holds the CIMA certification (Certified Investment Management Analyst®) would be a good choice. This designation requires mastery of statistics, finance, economics, specialty markets, portfolio theory, behavioral finance and a focus on portfolio manager selection for building diversified portfolios.

    Insurance professionals

    Depending on your specific need for insurance, you may not require someone who has a mastery level of underwriting or an advanced understanding of why one insurance product is priced differently from another.

    However, many planners use insurance as a means of risk transfer or tax planning, so it makes sense to understand the background of your insurance professional.

    Many professionals I have worked with in the past hold the (Chartered Financial Consultant®) ChFC designation.  A typical professional will spend nearly 400 hours to attain this mark and complete 30 hours of continuing education every two years to maintain it. With this designation the specialty areas of wealth transfer and comprehensive planning are emphasized.

    Additional resources

    There are many, many other designations that a financial advisor may acquire; unfortunately, in my opinion many of them do not require rigorous standards and are just designed to help someone add letters behind their name. You can learn more about other designations by going to Understanding Financial Designations, a site sponsored by one of the financial services regulatory agencies.

    In addition, always check your advisor’s credentials and complaint record before you hire them.