Understanding Financial Advisor Credentials
Are you confused by all those letters after your advisor’s name? If so, it’s no wonder. Literally, hundreds of financial designations exist around the world, with words like “Certified,” “Qualified,” or “Accredited” in their names. When researching advisors to help you with your finances, it’s important to understand what those letters mean, what financial advisor credentials are, and how they can impact the guidance you receive.
The “Why” Behind Credentials
In the U.S. and most other countries, no title protection exists for the terms “financial advisor” or “financial planner.” That means anyone can hang a shingle and offer financial advice, whether it’s related to insurance, investments, or comprehensive financial planning. Over time, some advisors started using credentials to help differentiate themselves and the services they offer, and that created a market for even more education and certification programs.
The Financial Industry Regulatory Authority, or FINRA, has devoted an entire section of its website to help consumers decipher more than 100 professional designations, but just reading through the various designations and their requirements may not be enough to help you evaluate whether a credential is rigorous enough. Understanding financial advisor credentials can help you better evaluate an advisor’s qualifications. Here are some of the more popular designations you’ll encounter as you seek an advisor:
Certified Public Accountant
The Certified Public Accountant, or CPA designation, should be familiar to most people because it’s widely recognized for accounting and tax professionals. It’s offered and recognized in all 50 states, the District of Columbia and four U.S. territories, and U.S. CPAs are often members of the American Institute of CPAs (AICPA), which sets the ethical standards for the profession. This is one of the most recognized types of financial advisor credentials for professionals specializing in tax and accounting.
Financial Advisor Evaluation Checklist
Our Financial Advisor Evaluation Checklist outlines the questions you should ask any advisor or firm you’re considering hiring. Using the Checklist, you can make side-by-side comparisons of potential firms designed to help you feel confident in taking the next step.
Personal Financial Specialist
A Personal Financial Specialist is a Certified Public Accountant who meets requirements set by the American Institute of CPAs (AICPA) for financial planning. Those requirements include experience, education, passing an exam, and meeting ethical standards. Candidates for the PFS designation must be CPAs in good standing, be members of AICPA, earn a minimum of 80 hours of personal financial planning education, pass a comprehensive personal financial planning exam, and have at least two years or 3,000 hours of full-time financial planning business experience. They must also agree to be bound by the AICPA’s Code of Professional Conduct and meet continuing education requirements.
Chartered Financial Analyst®
The Chartered Financial Analyst®, or CFA® designation, is one of the most widely recognized investment designations in the world. CFA charter holders agree to follow the CFA Institute Code of Ethics and Standards of Professional Conduct. In addition, candidates must pass three levels of exams. Each exam requires approximately six months of preparation. Candidates must also demonstrate at least 48 months of qualified professional work experience.
CERTIFIED FINANCIAL PLANNER®
A global certification available in more than 25 countries and territories around the world, the CERTIFIED FINANCIAL PLANNER®, or CFP® certification, is one of the most widely recognized financial advisor certifications for professionals providing comprehensive financial planning. Administered in the U.S. by the Certified Financial Planner Board of Standards, CFP® certification requires candidates to meet initial and ongoing requirements for education, experience, and ethics. In addition, each candidate must sit for a comprehensive certification exam. To maintain their certification, CFP® professionals must meet ongoing continuing professional development obligations and continue to adhere to CFP Board’s Code of Ethics and Standards of Conduct.
What to Look For In a Credential
Different credentials can come in handy for different reasons, so sometimes, weekend courses or short online programs can add value to someone looking to get an overview of a topic or an update on a specific issue. But these types of programs should not be the basis for determining an advisor’s credibility. Understanding how to evaluate financial advisor credentials can help you identify which qualifications reflect an advisor’s education, experience, and professional standards. Here are some of the things to look for when evaluating a credential as an indicator of an advisor’s standing:
Competency vs. Knowledge
Typically, certification programs focus on building competency, not just knowledge. Here’s the difference: knowledge indicates someone studied a discipline and passed an exam. Competence shows that an individual can apply that knowledge, with other skills and abilities, to work with a client in a dynamic situation. Knowledge represents “book smarts,” and competence includes taking those book smarts and combining them with “street smarts” to help provide clients with a real-world solution to their problem. Street smarts could include skills learned on the job, certain inherent abilities, or experience with a particular situation.
A Code of Ethics
Many professional standards-setting organizations include a code of ethics and professional responsibility in their standards. This helps to create a benchmark for professional behavior that clients, businesses, and other professionals can expect when working with the advisor. Many credentials have codes of ethics that professionals must agree to follow. Some certification programs include a complaint system and use a disciplinary committee to enforce the code. The CFP Board, for example, regularly publishes a list of CFP® professionals it has sanctioned on its website, as does CFA Institute and the AICPA.
A Fiduciary Standard
Acting as a fiduciary is a hallmark of professionalism for financial advisors and is a requirement for some credentials and a regulatory requirement for RIA firms. Stockbrokers are not required by law to be fiduciaries in all circumstances, although many brokers have certifications that obligate them to place their clients’ interests first and may be subject to other regulatory standards of conduct. In some cases, you may receive fiduciary advice from an advisor on how to allocate your investments, but the advisor may also sell products for a commission.
A Continuing Professional Development/Continuing Education Requirement
Education courses reflect a point in time. While the material is current when taught, change is constant. That’s why strong credentials require ongoing education to maintain a certification or license.
When interviewing a financial advisor, it’s typical to ask many questions about how the advisor works with you, whether they are a fiduciary, what the fees and/or commissions are, etc. You can also ask whether the advisor has faced criminal charges, formal investigations, or disciplinary actions. If the advisor is a fiduciary, you can check the Investment Adviser Public Disclosure (IARD) website for more information. In addition, you can check with the certifying body if the advisor is a CPA, CFP® professional, or CFA® charterholder.
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Frequently Asked Questions About Financial Advisor Credentials
What do financial advisor credentials mean?
Financial advisor credentials indicate an advisor’s education, experience, and professional standards. They help you understand the advisor’s qualifications and whether they meet recognized industry requirements.
What are the most important financial advisor certifications?
Some of the most recognized financial advisor certifications include CFP®, CFA®, and CPA accreditations. These designations typically require rigorous education, exams, and ongoing professional standards.
How do you choose financial advisor credentials that matter?
To choose financial advisor credentials that matter, focus on certifications that require real–world experience, ethical standards, and ongoing education. Strong credentials help demonstrate both knowledge and practical application.
Are all financial advisor credentials equally valuable?
Not all financial advisor credentials carry the same weight. Some require extensive training and strict standards, while others may involve only short courses. It is important to evaluate the depth and credibility of each designation.
Why is it important to understand financial advisor credentials?
Understanding financial advisor credentials helps you make informed decisions when selecting an advisor. It allows you to compare qualifications, assess credibility, and choose someone aligned with your financial goals.
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.
