Check Your Financial Advisor’s Designations Now

“I guess I’ll become a financial advisor” said Greg to me one day at the gym, briefly after lamenting how he was in his mid-thirties and making $35,000 a year in his current, seemingly dead-end job.  Greg had become an acquaintance of mine over the three years we ran into each other.  An extremely personable guy, he had been processing claims for a medical insurance company from his home office and wanted more out of life.  I looked at him and said, “You guess you’ll become a financial advisor?  When I am unnerved about my job, I don’t say that I guess I’ll become a heart surgeon.”

Six weeks later, with no relevant experience or formal financial education, Greg had interviewed with Northwestern Mutual and was federally licensed to manage anybody’s life-savings.  I looked at my LinkedIn and the decade of undergraduate and graduate level courses and training I had taken, and I was legally able to do the exact same thing as Greg.

This story is about 90% fact.  If there is a Greg out there who feels upset at me right now, rest assured, this Greg does not exist (I changed his name).  However, throughout my career, I have seen countless of underqualified outsiders toss on a $500 suit with bull and bear cuff links and call themselves a “financial planner.”

And this is the main reason why I tell people to be wary of most financial advisors.

The purpose of this article is to make sure your financial advisor or financial planner is qualified, and not just a sociable person with a fancy business card.  When vetting your own financial professional, you should ask some of the following questions:

• Why did you get into this industry?
• How many years of experience do you have?
• How many clients do you currently work with?
• Do you have a business degree?
• Do you have any advanced designations or industry certifications?

Designations & Certifications

It takes four weeks to become a financial advisor.  You take a test called a “Series 7” examination or sometimes a “Series 6”.  The industry jokes that passing your Series 7 or Series 6 gets you your “license to kill.”  You may also spend an additional two weeks getting your license to sell life insurance.  But, as we all should know, it takes far longer than six weeks to learn how to manage someone’s financial life.

If you want to be sure you have an advisor who is dedicated to the industry and has the qualifications, you should look at the alphabet soup after their name on their business card (called designations).  An advisor with no designations should be a red flag that they might be an underqualified “Greg” who may cause you more financial harm than good.  To boot, a 2017 study by Camarda Wealth Advisory Group indicated that advisors with no designations or dually registered advisors have significantly higher track records of professional misconduct.  Especially since this is your money we are talking about, always check your advisor’s licenses and designations.

Here are some designations you should look for:

CFP – Certified Financial Planner

A CFP charter holder has taken at least one year of post undergraduate classes in creating financial plans for individuals and then passed a six-hour exam with only a 60% pass rate.  A CFP is required to study over 1000 pages of materials on education, investment, tax, retirement, insurance, and estate planning.  Less than 20% of “financial planners” are actually Certified Financial Planners.

I would prefer to work with a CFP versus a non-CFP because the CFP code of ethics requires you to be a fiduciary.  In other words, a CFP must always act in your best interests, or plainly disclose when they are unable to.

If you want someone who always will work in your best interest, your best bet is to find a CFP who also calls themselves a “fee-only advisor.”

CFA – Chartered Financial Analyst

A CFA charter holder most likely knows more about investing that anyone you know.  They are specialists in investment management – usually managing portfolios for major institutions and hedge funds rather than becoming financial advisors.  CFAs take three grueling exams over at least three years on portfolio management, advanced economics, and statistics, and corporate accounting and reporting.  For those who enroll in the CFA program, only about 13% pass all three tests to complete the program.

In summary, if you want your financial advisor to be an expert with investments, you should seek out someone with a CFA designation.

CIMA – Certified Investment Management Analyst

This one-year program is often deemed as the “CFA lite” for those aspiring to be investment management professionals.  Individuals with a CIMA designation have finished coursework and an exam covering statistics, economics, investment analysis, and portfolio management.  Most CIMAs work for institutional money managers, but there are some who also engage in one-on-one financial planning.

CPA – Certified Public Accountant

It’s becoming more common for tax preparers to also offer financial planning and investment services.  A CPA has a graduate degree in accounting and passes four separate exams.  CPAs have a broad knowledge of taxation, including personal taxes, corporate taxes, and auditing. 

EA – Enrolled Agent

These individuals passed three exams administered by the IRS which, if they pass, allows them to complete tax returns on another’s behalf. EA’s are tax preparation experts, but they usually don’t engage in comprehensive financial planning.  I generally hold both CPAs and EAs in high regard when searching for help with filing tax returns.

CDFA – Certified Divorce Financial Analyst

CDFAs take six months to learn about the unique money matters pertaining to divorce.  They often have a general knowledge of the divorce process and methods of how assets are split.  They are not experts on the legal aspects of divorce, however, to the degree a dedicated divorce attorney is.  Usually, a CDFA works with your divorce attorney to advise as a financial expert.

Thus, if you need help managing your finances within the context of ongoing divorce matters, seek a CDFA.

AEP – Accredited Estate Planner

The barriers to even being allowed to enter the AEP program are very high – you must have a J.D., CPA, CFP, CFA, or other advanced designation to even register.  These are specialists in creating cost-effective transfer mechanisms from your estate to your heirs or philanthropies.  These estate planning specialists will often work together with your estate attorney and CPA to coordinate your finances to take advantage of any available gift tax exemptions, transfer credits, and trust structures to minimize the cost of transferring your wealth.

CLU – Chartered Life Underwriter

The CLU is one of the industry’s oldest designations, dating back to 1927.  To attain a CLU designation, one must take eight specialized courses on life insurance and its applications in estate planning and pass a final exam.  This is a specialist designation offered by the American College and most applicable to those focusing on the insurance business.

CExP – Certified Exit Planner

Individuals holding this designation have a specialized knowledge of the various mechanisms to either sell or transfer a business while minimizing costs and tax frictions.

Conclusion:  Vet Your Advisor & Ask About His/Her Alphabet Soup

Everybody deserves best-in-class financial advice and planning.  We don’t want a Greg with four weeks of experience and no formal schooling.  And yet, his title may very well be the same (Financial Planner) as someone who has dedicated years to become a financial planning expert. 

Ask about your advisor’s designations.  If they don’t have any, be wary, for you might be working with one of the “career changers welcome, no experience needed” advisors who could be underqualified.

Bonus:  Job Ads That “Gregs” Reply To – Why You Need to Vet Your Advisor: