Confused about the different titles used by financial advisors?
No worries.
We’ll sort through the different types of financial advisors to find out what they do and their qualifications.
In this article, you’ll learn about the most common advisors’ designations, including:
Let’s kick this off.
Financial Advisor Designations
There are different types of financial advisors.
An advisor’s designation determines their area of specialization.
As such, there are quite a number of certifications to say the list.
So, let’s cover the top six certifications that you’ll often come across.
Certified Financial Planner (CFP)
CFP is the most recognized certification in the financial advice industry.
And for a good reason.
Certified financial planners undergo rigorous training and a notoriously tough exam to earn the accolade.
Beyond the training and exams, there are several requirements that an advisor must meet.
Not only that, CFPs are held to the highest standards.
The certification is issued by the Certified Financial Planner Board of Standards once an advisor has successfully passed the exam and met all the other requirements.
With that said, what then does an advisor require to qualify for CFP certification?
Professional Experience
Financial advisors aspiring to become CFP must have three years of professional experience in the field.
This translates to 6,000 hours.
Apprentices are required to log in 4,000 hours, roughly two years, to be eligible for the certification.
Important to note, the experience must include relevant financial planning services.
Education Qualification
CFP Board of Standard requires candidates to have a bachelor’s degree from an accredited university.
An advisor still pursuing their undergraduate can enroll for the exam, provided they finish their bachelor’s degree within five years of getting the CFP certification.
In addition, an advisor must finish coursework from Certified Financial Planner Board of Standards registered programs.
The coursework covers eight areas which include:
- Professional conduct and regulations
- General principles of financial planning
- Education planning
- Risk management and insurance planning
- Tax planning
- Investment planning
- Retirement savings and income planning
- Estate planning
The coursework takes between 4-6 months if someone commits 10 hours per week to study.
Otherwise, the coursework can take between 12-24 months.
Once an advisor completes the coursework, the next step is to notify the CFP Board of the program completion.
From there, one can register for the examination.
CFP Examination
Advisors can register for the exams while taking the course.
However, the CFP board must receive the coursework completion notification before the exam dates.
The standard examination cost is $825.
Although registering early on can save one up to $100.
Here’s what I mean. Early birds, those registering six weeks or more before the registration deadline, pay $725.
On the flip side, latecomers pay a whopping $1025.
Late, by the way, refers to two weeks before the registration deadline.
But wait, what happens if one has to cancel their registration?
Well, they’ll have to pay a $100 withdrawal fee.
Please note that CFP exams are offered in March, July, and November.
Advisors have five days window to take the exam at one of the approved examination centers.
Now, stay with me here.
The examination takes seven solid hours, split into two sessions.
It’s a tough one!
Luckily, there’s a 45 minutes recess between the two sessions.
Ethical Standards
While passing the exam is crucial to be a certified financial planner, adhering to the CFP board’s ethical standards is equally important.
The board requires registrants to reveal criminal records or employment termination history if any.
The board also conducts a background check.
In addition to meeting the fitness standards, advisors must uphold the CFP board code of ethics and standard of conduct.
Part of the code of ethics is to abide by the fiduciary standards.
Financial planners must act in the client’s best interest at all times.
With the experience, education, examination, and ethical standards met, a financial planner can apply for the CFP certification online to complete the process.
Advisors with this designation maintain their certification through 30 hours of continuous learning every two years.
The Role of a Certified Financial Planner
CFPs offer a holistic approach to financial planning.
Since they are well-versed in various financial management topics, they can help clients with a wide range of needs.
Financial planners consider the status of the client’s financial portfolio and develop a personalized financial plan.
As they focus on all aspects of a client’s financial life, an advisor helping a client with retirement planning, for example, may provide a comprehensive plan that includes budgeting, emergency savings, and insurance products.
It’s equally important to note that financial planners specialize.
One might work with a specific clientele offering one particular service, such as retirement planning or estate planning.
Additionally, financial planners may work with a broker-dealer or Registered Investment Advisor (RIA).
They could equally sell insurance products or investment products.
When all is said and done, whatever the services a financial planner offers, they must act as fiduciaries.
Chartered Financial Analyst (CFA)
Chartered Financial Analyst is a top-rated credential in the investment world.
The certification is issued by the CFA Institute, and it’s internationally recognized.
CFAs are experts in portfolio management, financial analysis, investment research, and banking.
You’ll specifically find them in large financial institutions handling asset management and risk management.
They also do securities analysis and offer investment advice.
Not only that.
These financial professionals specialize in high-level research analysis.
Therefore, their skills are in demand in big investment firms.
CFAs also work with high-net-worth individuals.
CFA Charter Requirement and Examination
To be eligible for the charter, an advisor must meet the following requirements:
- Have a bachelor’s degree from an accredited institution. One can also take the program while in the final year of acquiring their bachelor’s degree.
- An advisor without a degree certification should have four years of experience.
- Two of those years of experience should be in an investment-related field.
- Internationally valid passport
The CFA program constitutes ten investment-related topics that culminate in three levels of exams.
The topics are grouped into four categories:
- Ethical and professional standards
- Investment tools
- Asset classes
- Portfolio management and wealth management
Level 1 exams take place in June and December, while levels two and three are in June.
These exams are taken in sequential order.
This means an advisor must pass level 1 to proceed to level 2 and then level 3.
Investment advisors interested in the certification can expect to spend 3-4 years to complete the program.
The exams themselves require 300 hours of preparation each.
With that level of preparation, you’ll agree with me that the exams are not a breeze.
Typically, the three levels of exams take around 6 hours each.
It will be interesting to note that the institute has never revealed the exact pass mark for the three levels.
With that said, candidates tend to do better at each level.
A case in point is the 2021 results, where only 22% of the candidates passed the Level 1 exam, 40% hit the pass mark in level 2 exams, and 42% made it in the level 3 exams.
Passing level 1 exams allows an advisor to apply for the charter.
Chartered Financial Consultant (ChFC)
A ChFC offers specialized financial planning services in areas such as small business, divorce, and behavioral finance.
Apart from that, they are also qualified to offer the same services as CFP.
Because of their specialization, chartered financial consultants usually work with niche groups such as special needs clients, single people, and even same-sex families.
Requirements of ChFC Certification
ChFC designation is regarded as an alternative to CFP since it covers all the essential CFP courses on top of the specialized courses.
The certification is offered by the American College of Financial Services.
Advisors eyeing the chartered financial consultant certification must meet a specific requirement to enroll in the program.
On top of the list is three years’ business experience in a financial service industry.
An undergraduate or graduate degree qualifies as one year of experience and is credited towards the three years of experience required.
In addition, part-time work also counts towards the experience requirement.
In this case, 2,000 hours is equal to 1 year of full-time business experience.
To successfully complete the coursework, an advisor must commit around four months.
The one thing that sets the certification apart is that candidates take an exam after completing each topic.
Immediately after one is done with the exam, they can see their results on the screen.
To maintain the certification, an advisor must commit to 30 hours of continuing education every two years.
ChFC is also required to bind by the fiduciary standards.
Certified Public Accountant (CPA)
CPA is the most known certification in the financial advice industry.
Certified public accountants are highly regarded in matters of tax returns, audit, forensic research, financial reporting, stock analysis, and organizing investments.
Often they work as a chief financial officer, financial analysts, and tax preparers.
To acquire the certification, candidates must meet certain requirements and pass a rigorous examination.
The certification is administered by the American Institute of Certified Public Accountants (AIPCA).
Part of the course requirements includes having one year of experience and a bachelor’s degree.
The requirements may vary slightly depending on the state.
However, the CPA exam is the same for all candidates.
The examination covers four core areas which an advisor must pass with a high score of 75%.
Beyond passing the exams, certified public accountants must commit to lifelong learning to refresh their knowledge.
In addition, accountants with this designation must adhere to the professional code of conduct as stipulated by the AIPCA.
Personal Financial Specialist (PFS)
PFS are financial advisory elites with expertise in tax and corporate finance, wealth management, and financial planning.
A personal financial specialist may open their own wealth management firm.
They could also work in a consulting or accounting firm.
Considering their expertise, PFS is only open to financial professionals with CPA certification interested in taking their careers to the next level.
The certification is offered by the American Institute of Certified Public Accountants (AIPCA).
And there are several requirements for a CPA to take the course.
- An advisor must be a member of AIPCA
- A minimum of 2 years of personal financial planning experience, either in business or full-time teaching.
- 1,000 hours of tax compliance counts towards the required two years of experience.
- Continuous education to maintain the certification
The program covers a wide range of topics, including insurance, estate planning, retirement planning, and investing.
CPAs with a certified financial planner or chartered financial analyst certification are exempted from taking the PFS examination.
The PFS exam takes five hours, with 30 minutes of recess.
AIPCA requires PFS to comply with the institute’s code of professional conduct.
Chartered Life Underwriter (CLU)
CLU is a designation for financial professionals with expertise in life insurance, estate planning, and risk management.
Certified financial planners usually take this certification to expand their areas of expertise.
Apart from CFPs, insurance agents can equally further their careers with CLU certification.
The CLU program covers eight courses, constituting five major ones and three electives.
The certification is offered by the American College of Financial Services.
Candidates registering for the program must have three years of experience.
Besides, advisors must take 30 hours of continuous learning every two years to maintain the certification.
These are the main designations, but there are several others.
- Chartered Financial Specialist (CFS)
- Retirement Income Certified Professional (RICP)
- Chartered Mutual Fund Counsellor (CMFC)
- Certified Investment Counsellor (CIC)
- Financial Risk Manager (FRM)
There are many more designations that an advisor could have.
It all boils down to what suits a financial advisor’s career growth.
The Different Kinds of Financial Advisors
From the different designations, you’ll come across different kinds of advisors.
What sets the advisors apart is the financial services they offer, the clients they work with, and the companies they work for.
Broker-Dealers and Brokers
Broker-dealers work independently or with brokerage firms.
They sell a wide range of products, including stocks, bonds, mutual funds, and annuities.
A broker can buy and sell securities from their own account or transact on behalf of their client.
Brokers are paid through commissions when they sell products.
The investment products a dealer sells depend on the license they have.
The free tool from FINRA, BrokerCheck, can help verify a broker’s credential to ascertain their employment history, licenses, and disciplinary actions.
Besides the license, they must be registered with the U. S. Securities and Exchange Commission (SEC).
Apart from that, they must be members of the Financial Industry Regulatory Authority (FINRA).
Investment Advisors
Investment advisors, also known as Investment Advisor Representative (IAR), work for Registered Investment Advisor (RIA) firms.
IAR can also work independently.
IAR offers investment advice to clients, helping them better manage their financial life.
Their work goes beyond advice to managing client assets and offering guidance for short term-projects.
An investment advisor examines a client’s financial need and develops a financial plan to help them meet a specific goal.
They’ll recommend investment products and securities depending on the client’s financial situation.
Not only that, they’ll go ahead and manage the investment portfolio for the client.
RIA can also offer brokerage services.
RIAs work with a wide range of clients, from high net worth individuals to modest investors.
Advisors managing assets worth $110M are required to register with the Securities and Exchange Commission (SEC).
Anything below $110M, an advisor should register with the state security regulator where they are conducting business.
RIAs are bound by fiduciary standards.
All the investment services they recommend should be based on what will work best for the client and nothing else.
Fiduciary standards eliminate conflict of interest where an advisor might recommend a product simply because of the high commission.
RIAs usually charge an asset under management (AUM) fee, a flat fee, or an hourly rate for the services offered.
Flat fees and hourly fees are for one-time projects.
AUM fee is an ongoing annual fee for managing a client’s investment portfolio.
One can find out about an investment advisor qualification on BrokerCheck.
Robo Advisors
Robo advisors are computer algorithms that offer automated investment management services.
Robo advisors’ portfolio management services cost 0.25% per year.
The services can be purely online-based, or there could be an option to talk to a financial planner.
Because of its affordability, Robo advisors are the perfect option for anyone starting their investment journey.
Wealth Managers
Just like the name suggests, these advisors deal with wealthy clientele.
They offer investment management services and financial guidance on a wide range of personal finance.
As they work with affluent individuals, wealth managers address every financial need of their clients.
Their financial planning services often include retirement planning, philanthropic planning, health insurance, tax planning, and estate planning.
More importantly, wealth managers are fiduciaries, doing their best to ensure the client’s interest comes first.
Financial Coach
A financial coach works with clients on the basics of finance.
They are beginner-friendly and mostly help clients with budgeting, savings, and reducing spending.
Financial coaches help clients to master the best financial practices and then build wealth over time.
Financial Planners
Financial planners offer a variety of services.
Some are brokers selling investment products and financial products, while others only offer financial guidance.
Some financial planners work in brokerage firms, while others work in RIA firms.
Besides, planners work with diverse clients, from those seeking life insurance packages to those saving for children college to those planning for retirement.
Since many advisors refer to themselves as financial planners, it’s important to look for a CFP for financial planning services.
Certified financial planners develop holistic plans to address a client’s financial situation.
They help clients reach their financial goals through informed financial decisions in every area, including budgeting, insurance products, savings, and investing.
