So What Do All Those Letters Mean?

By Linda Leitz - Last updated: Tuesday, October 25, 2016 - Save & Share - Leave a Comment

Many of us look to professionals to give us valid financial planning and investment advice.  This seems reasonable.  People choose to have a professional help them with many aspects of their lives.  It may be having a competent attorney write or review your will or having a professional auto mechanic change the oil in your car.  In some areas, their is really a need for professional help to guard against making costly mistakes and protecting the interests of the ones we care about, including ourselves.  Other times professionals are more a matter of convenience.  (I never wash and iron my cotton dress shirts.  It’s not that I can’t, I just don’t want to take the time and the folks I take them to do a better job.)  Financial planning and investing are areas where many people choose to have some degree of professional help.  Lots of times professional qualifications can pay a big role in deciding who you ask to help you.  All of the designations and initials that can get thrown at you can be confusing.  Here is a basic primer on what some of those designations entail.

A Chartered Financial Analyst (CFA) is someone who has completed an extensive set of examinations on ethical and professional standards, tools and input for investment valuation and management, asset valuation, and portfolio management.  There are also professional experience requirements.  CFAs often work as institutional money managers or stock analysts.

A Certified Financial Planner (CFP) is predominantly involved with individual clients.  A CFP is required to have educational expertise and pass a test covering estate planning, income tax, retirement, insurance, and investments.  Also, they must have applicable work experience and subscribe to a code of ethics.  A CFP may or may not hold licenses to sell investments or insurance.

Chartered Life Underwriter (CLU) is a designation held mostly by life insurance agents.  They have completed a college level curriculum of 10 college level courses, have at least three years of professional experience, and subscribe to a code of ethics. With 3 more courses, they can become a Chartered Financial Consultant (ChFC).

A Certified Public Accountant (CPA) has an extensive education in accounting, has passed an extensive exam, received from state accountancy boards, and qualifying work experience.  The knowledge and experience of CPAs about investments will vary.  The American Institute of CPAs issues the Personal Financial Specialist (PFS) designation also.  A PFS designee has passed an additional test and has professional experience in personal finance.

Enrolled Agent
Enrolled Agents (EA) must pass a test on tax law.  They are authorized to practice before the IRS.  Like CPAs, the knowledge and experience of independent EAs about investments will vary. If you want financial planning from an EA, look for additional designations.

This is a graduate degree in business, a Master of Business Administration (MBA).  The degree will vary with whether or not there is a specialization to their degree.  It may be a general degree which covers a broad base of business issues or it may have a special focus.  You may find a great deal of comfort in working with an MBA in Finance, but do you want to take financial advice from someone with an MBA in Marketing?

Registered Representative
These professionals are also often referred to as stockbrokers or investment representatives.  These people are generally licensed to sell some type of securities.  They are generally versed in the types of investments for which they are licensed, but their experience and training in regard to financial planning varies with the individual.

A Registered Investment Advisor (RIA) has registered with the Securities and Exchange commission or a state securities agency to be able to charge for investment advice.  The registration requires a listing of qualifications and business practices.  The appropriate regulatory agency can perform examinations of RIAs to see that they are complying with applicable laws and record keeping requirements.

In choosing your financial professional, look at the qualifications that meet your needs.  If you expect them to help you with financial planning as well as the actual investing of money, you should get a sense of their qualifications in both areas.  Also, an understanding of what they are licensed to do will sometimes explain why your planning and investments take a given turn.  For instance, if your financial professional is only licensed to sell insurance and is not licensed to sell securities, that may have something to do with the fact that your retirement plan, your kids’ college fund, and all your other long term goals are funded solely with life insurance.  Also, if your professional is not licensed to sell insurance, that may explain why they think you don’t need any.

You should also have a sense of how your professional gets paid for their services. Many consumers are now seeking out fee-only advisors. Even in that arena, there are differences.  Some charge hourly, some charge a flat fee for specifically agreed upon advice, some are paid a percentage based on assets you own that are held by them. If you want a fee-only planner, don’t be confused by someone who says they’re fee based. They could charge fees or they could be paid through commission from products sold or some combination of the two. If your questions about how they are paid aren’t answered well, you might want to consider another professional.  Answers like “It’s all built in”, which refuse to specify how and how much are red flags.  Most financial professionals are not one person non-profit agencies, so you have a right to know how they’re paid.  As a consumer, it’s not an area where you should be too stingy either.  Someone who helps you meet a long term financial goal shouldn’t make more money than you do from the advice, but they should be compensated for their work.

Don’t ever forget to follow your gut reaction to someone.  Working with someone you trust is one of the most important criteria.  All the credentials, degrees, and fast talk in the world can’t outweigh the need for honesty.

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