There's a myriad of reasons people seek advice and support when it comes to their personal finances.
Some people need immediate guidance to deal with a financial crisis. Others are looking for long-term assistance to meet financial goals.
If you need advice on a specific aspect of your finances such as investing, you can find professionals to help. You can also hire financial professionals to help you with taxes or for general accounting services for your business.
According to LPL Financial, there are over 160 financial credentials and professional designations. Some are recognized for requiring extensive experience and rigorous programming.
Other classifications require much less effort and experience to attain – even though they may be beneficial for the financial professional in working with clients.
Let’s take a closer look at ten of the more recognized credentials and designations and the difference between them and coaches or counselors to see what they mean and whether they matter to you as a potential client.
Financial Professional Designations
It's important to note, individuals earning each of these designations must also complete continuing education requirements to maintain their certifications.
A Certified Financial Planner or CFP is a financial advisor who's passed strict requirements for certification. A bachelor's degree is a prerequisite and the demanding, and comprehensive CFP education requirement typically lasts 18 months. Afterward, CFPs take an intensive 2-day national exam and then must complete up to 3 years of experience before using the CFP(R) designation.
People who are in need of assistance with taxes, retirement planning, or investing can benefit from working with a CFP. As fiduciaries, CFP’s are required to act with their client’s best interests in mind.
The role of a Certified Public Accountant or CPA is to help organizations, businesses, and individuals reach their financial goals. CPA’s prepare taxes, complete internal audits, consult and provide general accounting services for large and small businesses.
To become a licensed CPA, accountants must meet education and experience requirements. This includes a 16-hour exam broken into a series of four tests collectively called the Uniform CPA Exam.
A Chartered Financial Analyst or CFA is a specific investment and financial designation that's the most respected and recognized investment designation in the world.
With a focus on investment analysis, portfolio management, and asset allocation – a CFA credential is given by the non-profit CFA Institute.
To earn a CFA designation requires years of professional experience, completing a rigorous three-level exam, and adhering to ethics and conduct standards, along with being a member of the CFA Institute.
CFAs typically work for institutional investors or mutual fund companies. An individual might seek the CFA designation in addition to the CFP.
Those with the CFA designation may obtain additional specialty designations and the Chartered Investment Counselor (CIC) option is a top contender. Those earning the CIC designation have demonstrated significant experience in – and spend 50% of their activities on – investment counseling and portfolio management responsibilities.
A Chartered Financial Consultant or ChFC is an experienced insurance agent who also wants to work with clients on financial planning. The American College offers the coursework and exams needed for insurance agents to earn this designation.
An Enrolled Agent or EA is a federally-licensed tax professional who has “unlimited practice rights” which allows them to represent individuals, businesses, or organizations before the Internal Revenue Service (IRS).
According to the IRS website, enrolled agents must pass a three-part comprehensive IRS exam or have sufficient experience as an IRS employee. It is considered an elite status and agents must uphold ethical standards
Those with the Chartered Portfolio Manager (CPM) designation hold a graduate or undergraduate degree in accounting, finance, financial services, law or tax, or hold a CPA, MBA, MS, Ph.D. or JD and have more than 3 years of experience actively managing investment portfolios. Additionally, they are required to complete 15 hours of continuing education annually.
To be a Chartered Alternative Investment Analyst or CAIA one must have the equivalent of a bachelor's degree and one year of financial industry experience or four years experience in the financial industry.
The Certified Divorce Financial Analyst or CDFA designation is for those with a Bachelor's degree and three years of demonstrated experience in finance or divorce as an account, financial professional, or an attorney specializing in matrimonial matters.
Issued by the Institute for Divorce Financial Analysts the designation requires passing of four initial exams, and then completion of 15 hours of divorce-related continuing education every two years.
The National Association of Certified Financial Fiduciaries issues the designation of Certified Financial Fiduciary (CFF) to those holding either another financial certification/designation, a financial professional license, or 10 years of financial industry experience (or 5-years and a bachelor's degree), once they complete a 1-day training program and pass a proctored exam.
These are just a few of the designations financial professionals can earn in their field. Check out the Financial Industry Regulatory Authority (FINRA) website, if you're interested in learning more about all the different credentials available for finance professionals.
Not only can you find detailed information on all of the designations on the FINRA website, but you'll also find a helpful comparison tool available for your use.
Must All Financial Planners and Advisors Be Certified?
The terms financial planner and financial advisor are broad terms. Someone who uses these titles may be certified, but many people who call themselves financial planners or advisors are not.
However, an individual cannot call themselves a CFP or a CFA without being certified.
To meet your financial goals, you can choose to work with someone who is certified or not.
As the designation examples above show, specific certifications require extensive experience, knowledge, and on-going training. But keep in mind other designations may not have those requirements.
If the financial planner you're looking to hire does not hold a certification, it's essential to understand their level of experience and how they receive compensation for their services.
Ask for references (and check them) and ask friends or relatives for referrals.
Some excellent financial planners are not certified. But there are also individuals using that title who you likely will want to avoid.
What About Financial Coach and Counselor Designations?
One of the significant differences between financial coaches or counselors and financial advisors is who takes responsibility for managing investments.
A financial advisor usually has responsibility for a client’s investments. Investment advisors are regulated by the Securities and Exchange Commission (SEC) or a state securities regulator.
Financial coaches and counselors focus on helping clients develop good financial management practices. They do this by educating and supporting clients without giving detailed investment advice or suggesting specific products.
There are also formal training programs for financial counselors and coaches. The Association for Financial Counseling and Planning Education (AFCPE) offers formal training programs including the Accredited Financial Counselor (AFC) designation.
In order to earn the AFC designation, a person must complete 1000 hours of financial counseling experience, pass two self-study courses and a proctored final exam, and complete 30 hours of continuing education every two years.
Financial coaches support clients in a variety of ways. Coaches can help clients analyze their current financial situation, develop personal finance goals, and chart plans to meet those goals.
The roles of financial coaches include educating, mentoring, motivating, and empowering their clients – not suggesting specific products or investments.
The overall goal of a financial coach is to help their clients grow their financial knowledge and skills, along with the behaviors they need to build wealth.
Successful coaches can develop long-term relationships with clients or help them develop tools to make their own future decisions.
Although some people use “coach” and “counselor” interchangeably, there are key differences between these roles. A financial counselor’s work may begin when a client is in a financial crisis.
Counselors tend to provide short-term, focused support after analyzing a client’s financial circumstances.
The client and counselor work together to develop goals and determine a path for the client to take control of their personal finances.
As a client begins to build wealth, a financial coach can continue the work started by the counselor to strengthen the accountability for the client to meet their desired goals.
Pros and Cons of Using Financial Professionals Over a DIY Approach
There are many benefits to hiring a financial professional. If you are in a financial crisis and need help getting out of debt, the services a financial counselor offers can change your future.
You might also hire a financial professional to help you with various aspects of your business or to keep you accountable to financial goals you’ve set.
If you aren’t interested in learning about or lack confidence in investing money on your own, financial professionals can educate you on products or take over managing your investments.
The biggest drawback most people see in hiring financial professionals is the cost. If money is already a problem, spending more money to deal with the problem can be hard to accept.
Some people decide to skip hiring help and invest their own time and energy learning about money topics including budgeting, taxes, and investing, through books and online resources.
This helps them save fees on accountants or advisors and allows them to be in control of the business decisions or investment choices they make.
Having trouble deciding whether you want to hire a financial professional?
An option to consider is paying hourly to consult with one. You may find that's enough support. Or you may build a relationship with a professional and want to hire them for more extensive services.
If you want help with investing, a fee-only financial advisor may provide the support and advice you need to manage your investments on your own.
Final Thoughts on the Top Financial Professional Designations
If you decide to hire a financial professional, it's important to understand the background, experience, and goals of the people you are considering working with.
- How long have they been in the field?
- Who have they worked for?
- How are they getting paid?
Understanding their motivation to help you is important in determining the right person to choose.
Certifications are just one of many things to consider when you’re looking to hire a financial professional.
Just because someone has a list of designations after their name doesn’t mean they will do any better job with your money than someone who has years of successful financial experience who doesn’t hold specific titles.
Do your homework and ask for and check references. Then don’t be afraid to switch financial professionals if you’re unhappy with the relationship or results.
Vicki and Amy are authors of Estate Planning 101 – a Crash Course in Planning for the Unexpected -coming soon from Adams Media.