Choosing a Financial Advisor – What Qualifications Should Yours Have?

CATEGORIES: Investment Planning

Choosing a Financial Advisor - What Qualifications Should Yours Have

Selecting a financial advisor is an important part of the investment process for many people. As you familiarize yourself with the details and practices of this industry, you will come into contact with different types of financial advisors, and you will notice those confusing acronyms that sometimes follow their names. What’s a CFP, and how does that differ from a CFA? Do I want a CLU or a CIMA? Here’s a brief guide to sorting through the alphabet soup of financial advisor qualifications.

The Planner: Certified Financial Planner

One of the most important duties of a financial advisor is planning. This is especially important for the goals-based investor trying to ensure a comfortable financial future at a desired level of lifestyle. The Certified Financial Planner, or CFP® is professionally trained in the art and science of financial planning. Holders of the CFP® designation have completed a 10-hour certification examination across a wide range of disciplines, including financial analysis, insurance, investment planning, tax management and planning for retirement. CFP® holders must also possess at least three years of relevant work experience and hold themselves to the professional and ethical standards of practice of the CFB Board, the governing entity that owns the CFP® designation. CFPs are generally regarded as investment generalists, as opposed to specialists in any particular area like asset valuation or tax planning.

The Analyst: Chartered Financial Analyst

When you are considering how to choose a financial advisor, it is important to take into account not just the individual who will be serving your account, but also the capabilities of that individual’s supporting team. The presence of a holder of the Chartered Financial Analyst, or CFA® designation can be a sign that the advisor has some intellectual firepower behind the activity of analyzing and evaluating portfolio decisions such as what allocation weights to apply to different asset classes and what specific assets to buy and sell to obtain the desired exposure. CFA® candidates go through a rigorous multi-year process that involves passing three successive levels of an examination dealing with the valuation of equity, fixed income and alternative assets, quantitative methods, portfolio management, and ethics. CFA® holders are members of the CFA Institute (formerly the Association for Investment Management and Research).

The Accountant: Certified Public Accountant

Certified Public Accountants, or CPAs, normally work as tax and accounting specialists and thus may be more likely to be the people you visit before April 15 than the ones providing advice about your retirement portfolio. But sometimes a CPA will decide that working in the capital markets is more fun and rewarding than poring over tax tables and changes to the earned income tax credit. The presence of a CPA can be a benefit in terms of your advisor’s ability to communicate the tax implications of different investment decisions. Just remember that a registered investment advisor is not a substitute for a professional tax advisor and you should not expect tax planning to be among the explicit duties of your financial advisor.

Other Common Designations

Other acronyms you may see in the course of selecting a financial advisor include: CLU (Chartered Life Underwriter) or ChFC (Chartered Financial Consultant), both of which operate under the auspices of The American College, an institution for training financial professionals. The CIMA (Certified Investment Management Analyst) focuses on advanced topics in investment and wealth management and aims to supply the top tier of professional investment advisors.

Does It Really Matter?

In a word—yes. This is not to say that the only good financial advisors are ones with one of these professional designations after their names. Nor does the possession of the designation by itself in any way guarantee that the advisor is going to be the right choice for you. What these designations do signify, however, is that the individual has committed him-or herself to a demanding program of professional study, has successfully met the exacting requirements set by the relevant institution that awards the designation, and has committed in writing to uphold and practice the highest standards of practice as mandated by the rules of the governing institution. There’s a lot of bad financial advice out there, as we have seen over the past several years. Professional designations are one means to refine your search for the candidates more likely to provide you with good advice.


Tell us…Are you in the process of choosing a financial advisor?


For straightforward investment advice suited to your long term goals, try Jemstep, the free online investment guidance and management service.

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About the Author

Katrina Lamb is a CFA for Jemstep. She has over 25 years experience in economics, finance, international development and management strategy, with a strong focus on global markets. She provides a voice of clarity, logic, and reason in an environment characterized by high uncertainty.


One thought on “Choosing a Financial Advisor – What Qualifications Should Yours Have?

  1. Pingback: What Should Your Investment Advisor Know? | The Better Investor @Jemstep

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