Everything you wanted to know about Financial Advisors

This is Part 1 of a 5 part series on Financial Advisors:

Part 2 – “What the F? – fee-only vs. fee-based and the fiduciary”

Part 3 – What's the difference between a financial advisor and planner?

Part 4 – How to find and vet a financial advisor

Part 5 – I fired my financial advisor

There is a lot of confusion and distrust around Financial Advisors. It doesn’t help that there are several reasons why your beliefs are justified.

First, anyone can call themselves a Financial Advisor. Did you know that? I can. You can. Just tell people you are and people will believe you. OK, well isn’t there a license real FAs need to get? Sort of. In some ways, this is one of the most highly regulated professional fields you can find. But people have found ways to get around the regulations, and that is what you need to understand. There are over 100 official “license” designations and “financial advisor” is not one of those designations, just a description that anybody can use to describe themselves.

It’s not that different from non-dermatologists calling themselves dermatologists. In fact, there are doctors who trained in family medicine or internal medicine who literally take a test and pay a fee to get a bogus certification without formal training. How can the public really know the difference since both can say they are “board certified”?

The American Board of Dermatology (ABD) is the official body certifying dermatologists. This requires 4 years of formal residency training (after successful completion of medical school) followed by a board certification exam. Like all other specialities, annual continuing education and other measures are required to maintain certification. Throughout residency I had to prove I attained certain milestones and underwent biannual evaluations to ensure I would practice dermatology safely. Again, unless you are a “real” physician, how can you possibly know the difference?

There is no official “Financial Advisor board.” Some, just like the sham dermatology board I mentioned above, simply require a test and a fee. Some don’t even require a test! The good news is that there are only 3 that I believe really matter.

  1. Certified Financial Planner™ or CFP®

This is probably the most recognized certification for financial planners. The CFP® Board of Standards governs CFPs. A CFP requires: a college degree, completion of a series of courses that cover 6 areas of planning and ethics, 3 years of experience in financial planning, passing a background check and passing a 10 hour exam. Just like doctors, CFPs must complete annual continuing education and renew their licenses every 2 years. The CFP emphasizes the importance of the financial plan in addition to managing investments.

  1. Chartered Financial Consultant or ChFC

ChFCs was introduced as an alternative to CFPs for insurance-focused professionals. The main difference between ChFCs and CFPs is that ChFCs do not need to have a college degree or pass a comprehensive exam. This is a popular designation for insurance professionals.

  1. Certified Public Accountant/Personal Finance Specialist or CPA/PFS

 A CPA in good standing can get the companion designation PFS by completing 75 hours of personal finance education and experience, passing an exam, and paying a fee.

Stay tuned for Part 2 – “What the F? – fee-only vs. fee-based and the fiduciary”.

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