What Do All Those Letters Mean?

By Linda Leitz, CFP®, EA, Colorado Springs, CO

We choose professionals to help us with many aspects of our lives. A competent attorney assists us when we need a will; a skilled auto mechanic repairs our brakes. With professional guidance, we can avoid costly mistakes and protect the interests of those we care about, including ourselves. Sometimes hiring a professional is more a matter of convenience. For example, I have someone else wash and iron my cotton dress shirts. It's not that I can't; I just don't want to take the time.

For help with financial planning and investing, many people seek professional guidance because they need the expertise or it’s more convenient. Professional qualifications often play a big role in choosing that help. But all of those designations and initials can be confusing. Here is an overview of what some of those designations mean.

CFP®
CERTIFIED FINANCIAL PLANNER™ (CFP®) professionals must complete coursework in the principles of financial planning, insurance, employee benefits, investments, income taxes, retirement, and estate planning and pass a 10-hour exam. They must also have 3 years of relevant work experience and subscribe to a code of ethics. A CFP® certificant may or may not hold licenses to sell investments or insurance.

CFA
Chartered Financial Analysts (CFAs) have completed an extensive set of exams on ethical and professional standards, tools, and input for investment and portfolio valuation and management. They must meet professional experience requirements. CFAs usually work as institutional money managers or stock analysts.

CLU/ChFC
The Chartered Life Underwriter (CLU) designation is held mostly by life insurance agents. They have completed a curriculum of 10 college-level courses, have at least 3 years of professional experience, and subscribe to a code of ethics. With three additional courses, they can earn the Chartered Financial Consultant (ChFC) designation.

CPA and CPA/PFS
A Certified Public Accountant (CPA) has completed a college curriculum in accounting, has passed an extensive uniform exam, and has qualifying work experience. CPAs can also earn the PFS (Personal Finance Specialist) designation, granted to those who have substantiated experience in financial planning, received peer recommendations, and passed an additional exam.

EA
Enrolled Agents (EAs) are taxation experts licensed by the federal government. They are authorized to appear before the IRS on the taxpayer’s behalf. They must pass a 2-day exam on the taxation issues of individuals, partnerships, corporations, and estates and trusts. Their knowledge and experience about investments, like that of CPAs, varies.

MBA
The Master of Business Administration (MBA) degree may cover a broad base of business issues or may have a special focus, such as marketing, finance, or healthcare administration. You may find comfort in working with a person having an MBA in finance, but you might want to think twice about taking financial advice from someone with an MBA in marketing.

Registered Representative
Registered Representatives are also referred to as stockbrokers or investment representatives. They are generally licensed to sell securities, and although knowledgeable about certain types of investments, their experience and training regarding financial planning may be nonexistent.

RIA
A Registered Investment Advisor (RIA) has registered with either the Securities and Exchange Commission (SEC) or a state regulatory authority as someone who charges for investment advice. The registration requires a disclosure of qualifications and business practices but does not impose any requirements for minimum training or experience. The SEC or state may examine RIAs (the review resembles a bank exam) to ensure they are complying with applicable laws and record-keeping requirements.

When choosing your financial professional, look for the qualifications that meet your needs. If you want help with financial planning and investing, find out about qualifications in both areas. Also, consider the impact of a professional’s training and licensing on the specifics of your financial plan.

For instance, if your financial professional is licensed to sell insurance but not securities, you may find that your retirement plan, college fund, and other long-term goals are all funded solely with life insurance. If your professional is not licensed to sell insurance, maybe that’s why he or she believes you don't need any. Fee-only advisors, who sell nothing but their professional advice, offer an objective view and can help you identify the financial products you truly need.

Your gut reaction can be an important guideline. Working with someone you trust is crucial, and all the credentials, degrees, and smooth talk in the world can't outweigh the need for honesty.