Choosing a member of your financial team is a task that you should never undertake lightly.
After all, you will be sharing an intimate part of your life with someone you typically haven’t known for long and probably don’t know very well.
Trustworthiness is an essential virtue for anyone you select as part of your income planning and retirement team. You also want to have some assurances that your advisor is competent, well-educated, and client-centric. Advisor designations are one way you can determine if your professional financial guide embodies the qualities you need to achieve success planning for retirement.
Unfortunately, there are hundreds of professional designations, degrees, acronyms, and certifications used by financial advisors, insurance agents, and tax professionals. While many of those, such as CPA and MBA, may be familiar to you, others are more obscure and difficult to evaluate. The plethora of designations can create confusion, primarily since designations and certifications often serve as differentiation and marketing tools.
I have picked out some of the financial and insurance industry designations you are most likely to run across when researching an advisor and a brief description of each.
However, be aware that just because your advisor candidate possesses one or more of these professional credentials or other credentials does not mean that he or she will be the best selection for your financial guidance team.
It’s best not to rely on a designation, degree, or certification alone when choosing an advisor. Instead, take the time to find out as much as you can about the person’s educational and professional background, check for any disciplinary or legal issues, and arrange for an in-person interview before engaging them. Below are 6 of the most commonly-encountered financial advisor designations.
- IAR: Don’t get this confused with an IRA (Individual Retirement Account). An IAR, or Investment Adviser Representative, receives compensation for managing client accounts, recommends securities, or gives other financial advice.
- AN RIA (Registered Investment Advisor) can be either an individual or a financial services firm that is registered with a state or with the Securities and Exchange Commission (SEC). The vital thing to know about an RIA is that RIAs have a fiduciary responsibility to their clients. “Fiduciary” means that an advisor is obligated to act in the best interests of their clients and cannot recommend products simply because those vehicles provide the best commissions.
- ChFC®- While not as widely recognized by the general public as the CFP, CHFCs are held to the same kind of fiduciary standards. The ChFC designation is governed by the American College of Financial Services’ Code of Ethics. An advisor earns this designation after completing a program consisting of college-level coursework over a six to nine-month period.
- CLTC® – Agents and advisors holding this certification have a specialization in extended care planning. Certificants have completed a course of study to give them the tools and skills needed to advise consumers about how the consequences of longevity can impact their finances.
- CLU®- This designation has a history going back over 100 years. The Chartered Life Underwriter (CLU) certification is awarded to advisors who demonstrate superior knowledge in life insurance underwriting, law, and risk management. CLUs must also demonstrate their understanding of life insurance needs for self-employed professionals and business owners.
- CFP®- This designation, awarded by the Certified Financial Planner Board of Standards, Inc.to individuals who successfully demonstrate acceptable levels of experience and education, requires completion of a rigorous program of initial exams. Applicants must also improve their skills through continuing education. CFPs meet strict requirements concerning formal education, work experience, ethics, and exam performance. Many financial professionals consider this to be one of the most useful and desirable designations available.
The Bottom Line:
Professional designations are useful in helping you evaluate a financial advisor. However, they are only one thing to consider. Diligent evaluation of an advisor’s background, education, and experience are also needed to find the best advisor for your team.
