I have seen a proliferation of initialisms after names of financial advisors lately. FINRA, the finance industry’s self-regulator, lists 227 different designations that a member can have. It’s easy to get confused. Does that list of letters after the person’s name signify that they will help you achieve your goals?
Most of those 227 are meaningless. Most tell you very little about how good someone is at their job. Most ‘certifications’ certify the certificant’s ability to pay an annual fee. Very few of them actually signify any type of expertise when it comes to advising or serving you.
You may be wondering if you should trust Dirk McSalesman, BCA, RF, ESPN, BPC with your life savings. Let's break the letters you might see after a potential advisor’s name into three tiers:
The Biggies – CFA®, CFP®, CPA®
I’m a bit biased since I have two of the three. These designations have the strictest education, testing, and experience requirements. Seeing one of these three designations doesn’t necessarily mean the person is good at their job. It does mean they are pretty serious about it. That's a good start.
CFP: A CERTIFIED FINANCIAL PLANNER™ professional has at least a Bachelors degree and at least 4,000 hours of financial planning experience. They have also passed a 6-hour, 170-question exam. This person has broad knowledge of the areas of financial planning like retirement planning, education planning, and estate planning. The pass rate for this exam is 65% and it takes several months of serious studying.
CFA: Chartered Financial Analyst is for investment experts. It’s the hardest certification to get, though I’m clearly biased. It takes at least two and a half years to pass all three exams. Level I and II each have pass rates in the 35-45% range. A CFA charterholder will understand 99% of any legitimate investment opportunities that come your way.
CPA: Certified Public Accountant. The CPA’s tax expertise is on par with the CFA’s investment expertise. Becoming a CPA takes education, experience, and four challenging exams. Much of their expertise is outside of the bounds of financial planning. However, their tax knowledge and diligence is a good signal that they’ve got a strong money brain on their shoulders. Having a good CPA on your team is usually the right move, even if you have a financial planner.
The Niche Ones
The next level down are certifications that show specialization in slivers of the financial world. These signify either specific topic expertise or a method of interacting with clients. These are most effective paired with one of The Biggies. Some examples include:
Particular specialties:
CLU – Stronger understanding of Life Insurance than most people
CAIA – Additional training on Alternative Investments (e.g. Hedge Funds, Private Equity, etc)
CAMLS – Far greater understanding of Anti-Money Laundering statutes than any sane person would have
EA – Enrolled Agent for the IRS. They have tax knowledge, but haven’t fulfilled the requirements necessary to be a CPA.
Methods of interacting with clients:
RLP – Registered Life Planning - High level focus on planning what you want your life to look like, not just your financial life
CFT – Certified Financial Therapist - Helps you understand the relationship between your mental health and your relationship with money
The Others
I’m sure there are some good, niche certifications that I missed. I’m not going to explicitly call any out here as "worthless". I don’t want to upset anyone or get sued. Once we start getting down into the niche ones, it’s easiest to assume the least and hope to be proven wrong.
The cheat code version of this: When you’re looking for a financial advisor, look for one of the big three certifications – CFP, CFA, or CPA. Everything else is gravy.