Deciphering the Alphabet Soup of Advisor Designations

Published March November 11, 2021

Reading Time: 7 minutes

Written by: The Zoe Team

CFP, CFA, CPA, ChFC – what advisor designations mean, which ones matter the most to investors, and which ones should matter the most to you!

CFP, CFA, CPA, ChFC… It’s easy to get lost in the alphabet soup of financial advisor designation acronyms and not understand what they mean. Most of the time, people just assume it’s a certification of some sort and avoid asking further questions. The truth is that these three to four-letter acronyms should be a “make or break” factor when you’re evaluating hiring a financial advisor. 

Once you understand the designations available and what they mean, it will be easier to know what fits most with your financial goals and needs. This article will further explain what advisor designations mean, which ones matter the most to investors, and which ones should matter the most to you! 

What do Advisor Designations Mean?

These financial advisor designations (awarded by various industry trade organizations) indicate that these advisors have gone through extensive training in various areas of investing and financial planning, passed a comprehensive test of their knowledge, and agree to adhere to the organization’s professional and ethical standards.

Let’s dig deeper into the most common ones:

CFP – Certified Financial Planner

To call yourself a financial planner or offer financial planning services, you don’t need a license, so the pool of professionals available with that title can be extensive, however, If you’re looking for an advisor whose experience and qualifications are formally recognized, you should look for an advisor who has been certified as a certified financial planner by the  Certified Financial Planner Board of Standards (CFP Board).

These financial planners earn their certifications by being experienced financial professionals who have passed a rigorous financial planning examination and agree to uphold the highest integrity, accountability, and client service standards.

According to the CFP Board, around 90,000 financial professionals have a CFP certification. 

CFA – Chartered Financial Analyst

To become a CFA, candidates must take 300 hours of training over four years. They also have to pass three levels of exams that demonstrate their in-depth understanding of advanced investment, analysis, and real-world portfolio management skills.

The chartered financial analyst designation is granted by the CFA Institute, a global association of investment professionals. 

More than 150,000 investment professionals in 63 countries hold the CFA designation. Most of them work in asset management companies or investment advisory firms managing portfolios for wealthy individuals and institutional investors such as pension funds and endowments.

ChFC – Chartered Financial Consultant

Did you know that the ChFC was developed as a competing alternative to the CFP in the 1980s? This designation is similar in many ways to the CFP designation, although fewer professionals have earned it. The ChFC is granted by the American College of Financial Services, to professionals who have completed a required regimen of financial education and possess at least three years of relevant experience. 

The most notable difference is that, unlike CFPs, ChFC candidates do not have to pass a comprehensive final exam. ChFCs also don’t have to have a bachelor’s degree or meet a minimum experience requirement upon starting the course.

CFS – Certified Fund Specialist

The number of financial advisors that go out of their way to earn the Certified Fund Specialist (CFS) certification is low. The CFS is granted, by the Institute of Business and Finance (IBF), to professionals who have gone through a six-module, self-study program that covers various aspects of mutual funds, ETFs, real estate investment trusts (REITs), and close-ended funds. They also have to pass three online exams and a case study.

Since experienced financial advisors generally have a deep knowledge of these products, most don’t take the time to earn the CFS certification, it’s more commonly pursued by accountants and bankers who also want to serve as financial advisors for their clients. Moreover, because the program can be completed in as little as 15 weeks, the CFS certification is not one that we would hold in the same regard as the CFP or CFA.

CMT – Chartered Market Technician

The Chartered Market Technician (CMT) designation, is granted by the CMT Association, to investment professionals who have demonstrated proficiency in technical analysis. This investment approach bases buy and sell decisions based on historical trading activities, such as price movements.

Those who go through the CMT training process learn about pricing patterns and trends, short selling, and research skills such as correlation analysis, t-tests, and regression analysis.

There are more than 4,500 CMTs in over 85 countries. Those who earn the designation tend to work in broker-dealers, asset management companies, and hedge funds, where the planning, timing, and execution of trading-related decisions have the most impact. Since most financial advisors aren’t involved in executing trades on their own, the CMT designation isn’t one that most consider being vital for their role.

CPA – Certified Public Accountant

The Certified Public Accountant (CPA) license is given by the American Institute of Certified Public Accountants. To earn this license, an individual, generally, someone already working as a public accountant, must take 150 hours of training and pass the Uniform CPA Examination®. They must also meet certain professional requirements in compliance with their state’s Board of Accountancy. After they become a CPA, the individual must take continuing education courses to keep up with industry developments.

While many CPAs serve as accountants or tax advisors for individuals and businesses, many also work within companies as auditors, comptrollers, chief financial officers, and business advisors. Many also work with independent accounting firms that audit companies’ financial activities.

When you find a financial advisor who is also a CPA, chances are that they started their career as an accountant and then earned their investment license  (and/or CFP or ChFC certification) to be able to offer a broader range of financial services to their clients. The advantage of hiring these types of individuals is that they may serve as a one-stop resource for integrated financial and tax planning advice and services.

RIA – Registered Investment Advisor

Registered Investment Advisor (RIA) is a popular (and incorrect) name for financial advisors whose real title is “investment advisor representative.” These individuals offer investment advice and manage client portfolios, mutual funds, and other pools of investable assets.

Unlike all of the other certifications and designations listed above, which are granted by trade associations, investment advisors are licensed and regulated either by the states where they do business or by the SEC and often both.

Investment advisors who work for individuals and families are legally required to act in their clients’ best interests. This means that their advice and recommendations must reflect their clients’ financial goals and risk tolerance. They cannot expose their clients’ investments to unnecessary risks. And they must try to keep investment expenses reasonable.

Investment advisors are paid directly by clients, most often as an annual percentage of the assets they manage. They cannot be paid commissions for selling investments to clients since this would impede their ability to act solely on their clients’ behalf.

Not all financial advisors are investment advisors. Many are brokers who are not held to an interest-aligned standard and do get paid commissions for selling investment products to clients. Thus, when looking for a registered investment advisor, you’ll want to ensure “RIA” is accompanied by the word “fiduciary.” This will ultimately tell you if they will work in your best interest, or not. 

Which Designation Should Matter the Most to You?

Everyone’s financial situation is different, and for some, it may be more complex than for others. Depending on your life stage and financial needs, you may find yourself looking for more specific designations when looking for an advisor. Here is a short guide that can help you recap and understand the general needs that consumers for each designation have: 

CFP – Certified Financial Planner: The gold standard of designation you should look for with any financial advisor, regardless of your goals. 

CFA – Chartered Financial Analyst: This designation is specific to investments and analysis and proves the advisor is extremely intelligent. 

ChFC – Chartered Financial Consultant: If the advisor doesn’t have a CFP, CFA, or CPA, this will be the ‘next best thing’ for a designation to show their ability to provide excellent advice. 

CFS – Certified Fund Specialist: This is a ‘nice to have’ from an investment standpoint, but doesn’t speak to the advisor’s ability to do anything other than pick investment funds. 

CMT – Chartered Market Technician: This is less personal and more about the ‘technical’ side of investment trading. Probably not a ‘must have’ for individual investors.

CPA – Certified Public Accountant: This will show a heavy emphasis on taxes. Very helpful to have especially if you want an advisor to prepare your tax return in addition to planning and investments. 

RIA – Registered Investment Advisor: Although this is not necessarily a designation, any financial advisor should be registered to give you advice. 

Advisor Designations Are Not The Only Factor

Lastly, it’s important that you understand that a designation alone shouldn’t determine the advisor you choose, it should only serve as a “filter” for when you are navigating your options and weighing out the pros and cons. Advisors have different service models, fees, and planning processes that may also impact your experience. 

Before you make this important decision, make sure you have all the characteristics and factors laid out clearly, in order for you to be comfortable and happy with your final choice! 

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