There are so many different designations and certifications for financial professionals that figuring out what kind is best for you can be like sifting through a bowl of alphabet soup.
You can weed out at least some of them by knowing what services you need. Unless you’re planning a divorce, a Certified Divorce Financial Analyst (CDFA) or Certified Divorce Specialist (CDS) probably isn’t for you.
Some designations require more education, training, and experience than others. The Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP), for example, each have substantial work experience and educational prerequisites, followed by program-specific courses and exams. Some other designations, however, require only a self-study course and an exam.
Watch out, too, for acronyms that sound alike but represent very different preparation. A Registered Financial Associate (RFA) needs a college degree in financial planning, while a Registered Financial Consultant (RFC) needs a CFA, CFP, or one of several other professional designations or an advanced degree, plus four years of experience as a financial planner. A Registered Financial Planner (RFP) needs only two years of experience and a 70-hour self-study course.
But it’s not just the acronym that matters — it’s the individual. What you really want is someone who can provide the services you need and understands your goals. Some financial professionals handle only a few investment products; others specialize in only a few areas.
Think about what services are appropriate for your situation. Some financial professionals can offer help with all of these; others handle only a few:
- Estate planning
Getting the right advisor will save you from paying for services you don’t need, and keep you from being pushed into investments that may not be right for you.
It’s also important to know how your advisor will be paid. Some are paid by the hour for the time they spend working for you; some are paid a fixed fee; others are paid a percentage of the assets they manage. Still others are paid a commission on the securities they sell you. Knowing what you want to accomplish will help you choose a professional who is paid appropriately for helping you achieve it.
And add two more acronyms to your search process: SIPC and ADV.
SIPC is the Securities Investor Protection Corporation. If your investment advisor is going to sell you securities or other investment vehicles, make sure the firm he or she works for is a member. SIPC offers some protection if the firm goes bust — it won’t protect you if the value of your investments goes down, but it will help in the event the firm becomes insolvent.
Form ADV is a two-part statement that investment advisors must file either with the U.S. Securities and Exchange Commission or with the state securities commission where they do business. (Where they must register depends on how much money they handle.)
Part I of the ADV covers the advisor’s education and scope of business. It also includes any problems they’ve had, either with customers or with regulators. Part II covers the services and strategies the advisor offers, as well as fees. Before you hire anyone, ask to see the ADV.