If you’re not a CPA, CFA, CFP or another of the myriad acronyms used to identify financial professionals, those extra letters after someone’s name can get confusing, quick. But when you’re looking for help with financial matters, it’s important to understand what these designations mean and what you can expect from each professional.
The various designations that come after a financial professional’s name signify that she (or he) has prepared for and passed a standardized examination in her chosen field of study. And while that fact may qualify her to perform certain types of work, the designation alone isn’t reason enough to hire a professional.
“If I were telling someone what to look for in an adviser, the designations would be pretty far down on the list,” says Derek Gabrielsen, CRPC, wealth advisor with Strategic Wealth Partners in Independence, Ohio. “Yes, they are great to have. Yes, they give instant credibility. But just because someone is a CFP doesn’t mean they will be a good fit with you personally and doesn’t mean they will necessarily pick the best investments for you. The right designation is a great prerequisite, but should really be the starting point.”
Here’s your guide to deciphering these financial designations and figuring out which professional is right for you.
This designation stands for Certified Public Accountant and means that a person has passed the Uniform Certified Public Accountant exam and maintained annual continuing education requirements. Many small accounting firms prepare income taxes for individuals and businesses, as well as provide auditing services for corporations.
If you are audited by the Internal Revenue Service, a CPA can represent you, as can an attorney or an Enrolled Agent. A CPA designation is required for performing some corporate accounting duties, such as auditing a financial statement. But if you simply need help preparing your personal taxes, it isn’t always necessary to hire a tax preparer with the letters “CPA” after his name. Many bookkeepers and tax preparation professionals can get the job done expertly and at a lower price than you’d have to pay a CPA.
A Certified Financial Planner has earned professional certification from the U.S.-based Certified Financial Planner Board of Standards or one of its international counterparts. To use the designation, a financial planner must meet education, examination, experience and ethics requirements, as well as pay an ongoing certification fee. You might consider hiring a professional with the CFP designation if you are looking for someone to manage your investments or assist you with financial planning. (In order to sell securities, the professional must have a FINRA license.)
A Chartered Retirement Planning Counselor has completed a study course and examination from the College for Financial Planning and has in-depth knowledge of retirement planning. These professionals are trained in various sources of retirement income, retirement cash flow, asset management, estate planning and other related topics.
A Registered Investment Advisor is an investment advisor who is registered with the Securities and Exchange Commission or a state’s securities agency. RIAs are held to a fiduciary standard, meaning “they must put the needs of their clients above their own,” Gabrielsen says. “They must put their clients in what they believe to be the best and lowest cost investments, regardless of how it impacts the advisor.” Other advisors, such as those on the broker-dealer or insurance sides of the business, are held to a suitability standard, which means they are allowed to sell a client a product that benefits the advisor as long as it is also suitable for the client’s needs. Professionals with the CFP, CRPC or other designations will be held to a fiduciary standard if they work at a RIA firm.
A Chartered Financial Analyst has earned the professional designation from the U.S.-based CFA Institute, which is geared toward professionals working in “the research and analytic side of the business,” Gabrielsen says. Professionals with CFA after their names have acquired advanced knowledge in the fields of investment management and financial analysis of stocks, bonds and their derivative assets. Their educational program focuses on portfolio management and financial analysis, and they usually perform work for companies rather than individuals.
An Enrolled Agent is a federally licensed tax practitioner who specializes in taxation and is qualified to represent taxpayers before the Internal Revenue Service. These professionals can offer advice on tax matters and prepare tax returns. If you are audited by the IRS, you may want one of these professionals on your side.
The Financial Industry Regulatory Authority provides licenses for professionals to sell securities. Even if a financial advisor has completed the requirements to earn other designations, she is not legally allowed to sell securities without a FINRA license. Various licenses are required for various products: A professional with a Series 6 license can sell packaged investment products, such as mutual funds and variable annuities; a Series 7 license allows the holder to sell individual securities such as stocks and bonds; and a Series 3 license authorizes holders to sell commodities futures contracts. Professionals with any of the above designations may also have FINRA licenses — if they don’t, they are not licensed to sell securities.
While understanding professional designations can be important in choosing the right professional partner, don’t overemphasize the acronyms. “Ask questions (about expertise and type of business), but then get to know that person you will be working with. Building a trusting, two-sided relationship is just as important as everything else. Building a long-term financial plan should be the end goal for most people,” Gabrielsen says.