By Craig Lemoine, Director of Consumer Investment Research
We speak a secret language in financial planning. So much of our world is filled with abbreviations surrounding insurance and investment products, processes, education and accomplishments.
I could say “Tammy, a CLU and ChFC®, reviewed a DIA against a SPIA with a COLA to maximize his client’s Monte Carlo success rate.” Translating from the secret language of financial planning, the sentence would read “Tammy specializes in insurance. She reviewed two types of annuity contracts often used for retirement and helped determine which one is the best fit for her client.”
I could also be fairly sure that Tammy is a licensed insurance agent and that she has access to sophisticated software tools and may or may not engage in financial planning. I would need more information before being able to discern if Tammy is a fiduciary and as such, would be required to act in her client’s best interest.
Quite a bit of discovery from one sentence filled with planner-speak!
Financial service professionals like Tammy climb a competence stairway to work with clients. What do you need to know about that stairway?
In this blog, we’ll break down industry jargon, share what various credentials indicate and explain why the financial services industry is so regulated.
Registration Standards for Financial Advisors
The first step in the competency stairway is regulatory compliance.
The financial service profession is regulated at the federal or state level, and professionals who sell products or provide financial advice to clients for a fee are required to meet minimum required regulatory standards.
If a financial service professional represents an insurance company, they must be legally appointed by that company as an agent. Before being appointed, that professional will have to pass one or more state insurance exams, agree to a code of ethics, and maintain their license annually through continuing education. The insurance company they work with must register in states where it does business and meet statutory requirements.
The securities industry weaves the Financial Industry Regulatory Authority (FINRA) and state securities commissioners into a regulatory quilt, also requiring stockbrokers and their registered agents to pass registration exams and complete annual compliance training. Investment adviser representatives (IARs) who charge clients fees are also required to take their licensing exams, among many other legal requirements.
Registration exams are required to talk to a customer or client. They may be challenging at the time but are the bare minimum of competence. They are the first step on the road to becoming a professional.
Professional Certifications for Financial Advisors
Professional certifications and degrees, or the letters that come after a name, represent additional steps an advisor has taken on their professional journey.
Letters behind an advisor’s name can be delineated into three categories: conferred degree abbreviations, broad financial planning designations and niche or specialized designations.
Others, unfortunately, are false signals and are backed by questionable rigor and merit.
Conferred degrees are generally issued by accredited educational institutions. Degree quality varies; an MBA from Yale was hopefully more in-depth than one from an online university with few admission requirements and an unknown reputation.
Ask financial planners about their degrees, where they are from, what they are in and when they earned the degree.
Degrees do not require continuing education and rarely any ongoing ethical commitment. Knowledge earned in school fades over time, even for the best of us. In the financial planning profession, graduate degrees are generally listed behind a name, while undergraduate degrees tend to be omitted.
Common degrees used in financial planning include:
MBA – Master of Business Administration. An MBA prepares students for general success in business, running established or start-up enterprises. MBAs may be focused on leadership or entrepreneurism.
MSFS – A Master of Science in Financial Services. An MSFS is a graduate degree more focused than an MBA and may target specific elements of financial services. Most MSFS programs will contain financial planning classes within their curriculums.
Ph.D. – Doctor of Philosophy is a graduate degree awarded in the sciences, branches of economics and social or behavioral areas. Someone with a Ph.D. degree is trained to research and has a deep knowledge of a specific discipline.
DBA – Doctor of Business Administration is a graduate degree awarded by a business college. A DBA is trained in research and has a deep knowledge of business entities and practices.
JD/Esquire – Juris Doctor (JD) is awarded by a law school, esquire is an honorific used to signify someone has passed a state bar exam. Attorneys play a critical role in the financial planning process, particularly in estate planning. They can draft wills, trusts and legal documents as well as represent clients during life transitions.
LLM – Master of Laws, is a graduate qualification in the field of law. In financial services, you might encounter an LLM in tax or estate planning.
Broad Based Financial Planning Designations
Broad financial planning designations are different than degrees. Designations generally require experience, fulfilling courses, examination or some measure of competence, an ethical pledge and continuing education. Three broad financial planning designations include:
CFP® – CERTIFIED FINANCIAL PLANNER™. Using the CFP® designation behind your name requires three years of experience, taking courses in financial planning, investments, risk management, estate planning, retirement planning, education planning and psychology. Candidates must pass a capstone class, comprehensive exam and agree to a rigorous code of ethics pledging to act as a fiduciary when engaging in the financial planning process. The CFP® designation was first issued in the 1970s and is recognized today as an industry standard in financial planning certifications. A CFP® professional is required to earn an undergraduate degree and take 40 hours of continuing education every two years, a portion of which must be in ethics. The CFP® designation is administered by the CFP®, Board and CFP® professionals who break their ethical obligations are subject to sanctions and public discipline.i
ChFC® – Chartered Financial Consultant. Using the ChFC® designation requires three years of experience and completing a rigorous combination of courses in financial planning, including an advanced investment course, income tax classes, planning for families with special needs and solving applied case studies. Candidates must pass a capstone class but are not required to complete a comprehensive exam or pledge to act as a fiduciary. ChFC® professionals must agree to act according to a code of ethics and maintain recertification on an annual basis. The ChFC® designation is administered through The American College of Financial Services.ii
PFS – Personal Financial Specialist. Only a Certified Public Accountant (CPA) can hold a PFS designation. The PFS requires an accountant to earn 75 to 105 hours of financial service focused education across 12 disciplines and pass corresponding exams.iii The PFS is administered through the ACIPA, requires an unrevoked CPA permit ongoing and 20 hours of annual continuing education.
CPA – Certified Public Accountant. While not a general financial planning designation in a traditional sense, CPAs are required to take college-level accounting courses, often earn a degree and pass a rigorous four-part comprehensive exam. CPA professionals often focus on auditing, tax or accounting functions.
Specialized Financial Planning Designations
Specialized financial planning designations are as plentiful as stars in the sky. Some shine bright, others are new and bold and a sad few twinkle and grow dim.
This summary considers designations by topic frequently used by financial advisers and omits those used in the property-casualty, insurance operations and underwriting.iv There are hundreds of specialized designations. This list includes some of the better-known industry designations but is not intended to be comprehensive.
CRPC® – Chartered Retirement Planning Counselor™. The CRPC is a designation for experienced advisers who are focused on retirement planning needs for individuals. The CRPC sets a focus on pre- and post-retirement income needs and contains some investment and estate content. The CRPC is managed by The College for Financial Planning.v
RICP® – Retirement Income Certified Planner™ is a three-course program in retirement planning offered by The American College of Financial Services. The RICP was developed by over 45 retirement and academic professionals. A RICP® professional has training in identifying retirement risks, sources of retirement income and managing retirement income.vi
RMA® – Retirement Management Adviser™ is a comprehensive retirement planning designation offered through the Investments & Wealth Institute. The RMA is a strong program teaching advisers to take an in-depth look at retirement and teaches strategies through a client’s retirement story.
CSA – Certified Senior Adviser is a designation that can be earned over a three-day class. This designation was discussed in the financial media as an example of a less rigorous retirement designation when compared to alternatives.vii
CLU – Chartered Life Underwriter™ is one of the oldest financial service designations, first being granted in 1928. The CLU is a comprehensive insurance designation requiring certificates to study multiple insurance lines and take a deep dive into life insurance. The CLU® remains robust and helps distinguish an insurance professional. The CLU® is managed by The American College of Financial Services.
LUTCF® – The Life Underwriter Training Council Fellow is a designation for new insurance agents. A three-course designation, the LUTCF® covers the basics of risk management. The LUTCF® is managed jointly by the College of Financial Planning and the National Association of Insurance and Financial Advisers (NAIFA).viii
Investments and Wealth Management
CFA® – Chartered Financial Analyst™ is a premier designation in managing wealth. The CFA® designation requires years of study, passing multiple difficult examinations and is well respected among investment and wealth management professionals. The CFA® is a global designation overseen by the CFA® institute.ix
CIMA® – The Certified Investment Analyst™ designation is a practical investment management designation and portfolio construction designation held by investment consultants. The CIMA® is commonly held by client-facing investment advisers and contains strong portfolio theory and behavioral finance elements. The CIMA® is overseen by the Investments & Wealth Institute.x
Other Specialized Designations
EA® – An Enrolled Agent is a federally authorized tax practitioner who can assist and represent a client’s tax return. There are multiple study programs to become an enrolled agent, but they all lead to a common outcome. Enrolled Agents have a strong understanding of our tax-code and how financial planning strategies can complement unique tax situations.
EAP® – The Accredited Estate Planner designation is held by financial service professionals who have a deep understanding of the estate planning process. The AEP® is administered by the national association of estate planners and councils and requires extensive education in estate and financial planning.
When evaluating a financial planner, consider designations as additional steps up the competency ladder. Financial service designations are not required to give advice or sell insurance. They are optionally sought out by advisers who are furthering their scope of knowledge to better help their clients.
After becoming Registered financial professionals generally pursue a generalist certification (CFP®, ChFC® or PFS®) and then move into more focused designations.
If your adviser has a designation that is not on this list, ask them about it. Do a quick Google search. There are hundreds of quality designations in the financial service world, and most of them showcase competency and professionalism.
Craig Lemoine is not affiliated or registered with Cetera Advisor Networks LLC. Any information provided by Craig Lemoine is in no way related to Cetera Advisor Networks LLC or its registered representatives.