BANKING & FINANCE: What do those credentials really mean?

Choosing the right financial advisor to help you arrange your income and assets to achieve your financial goals is no small task in today’s world of hype and misinformation. One of the most difficult chores is simply discerning whether a financial professional has the proper education to provide you with sound financial advice.

Sadly, there is a confusing array of certificate courses (diploma mills, so to speak), offering credentials to financial advisors without costing them too much time or money.

The professional designations listed on business cards and such are intended to lend credibility to advisors who sell insurance, mutual funds and other financial products to unsuspecting consumers. How do you find the right advisor for you?

First, consider the 5 Cs when shopping for a financial advisor:

1. Competency-As evidenced by educational background, experience and credentials

2. Comprehensive continuing education-The standard in the industry is set by the National Association of Personal Financial Advisors or NAPFA which requires 60 hours for every two-year period with strict distribution requirements across the various topic areas of financial planning, such as updated information on investments, retirement issues, insurance, estate planning, tax planning

3. Compliance with the law-Make sure you check a potential advisor’s background to ensure their record is clean

4. Conflict free compensation-Has the advisor minimized any ethical gray areas to every extent possible, e.g., by operating on a completely fee-only basis, by declining business relationships or employment situations that affect objectivity, and by thoroughly disclosing potential conflicts of interest?

5. Chemistry-Do you feel comfortable with and trust the advisor?

In my opinion, an advisor should be fee-only all the time. I say that because a common and potentially deceitful technique is for advisors to call themselves fee-based, which allows them to collect commissions in addition to the fees they charge.

In order of preference, the most important credentials to look for in an advisor are the Certified Financial Planner or CFP designation (at the minimum), and ideally, an advisor will have completed the work to become a Certified Financial Advisor, CFA, and/or an MBA, if they are giving advice about investments. Having 10 years or more experience would also be a minimum standard for my money.

To begin your search, ask for references from friends, business associates and other advisors such as your lawyer, CPA, or accountant, and when you meet with a potential advisor, be armed with a list of questions.

A great place to start is the Financial Planner Interview Form which you can order by calling NAPFA at 888-333-6659 or visiting their Web site at

Also, be sure to ask your financial advisor candidate for references–at least three people who have been clients for five years or so. Call them and ask open-ended questions, such as, “What has your advisor done for you? What do you like about the relationship? What would you like different?”

Listed below are a few of the terms, credentials, designations and organizations that an advisor might belong to, each with different areas of expertise, strengths, and weaknesses.

? AICPA: CPA / PFS-American Institute of Certified Public Accountants awards CPAs a Personal Financial Specialist accreditation for personal financial planning advisory services

? American Society of CLU (Chartered Life Underwriters) and ChFC (Chartered Financial Consultants)

? CEBS-Certified Employee Benefits Specialist administered by the International Foundation of Employee Benefit Plans

? CFP-College for Financial Planning offers many designations including the Certified Financial Planner license, Chartered Mutual Fund Counselor, Chartered Retirement Planning Counselor program, etc.

? CIC-A designation awarded by the Society of Certified Insurance Counselors

? The American Society of Pension Actuaries awards two designations: CPC-Certified Pension Consultant and QPA-Qualified Pension Administrator

? Fee and Commission Advisor-An investment or financial advisor who can receive commissions in addition to receiving or charging fees

? Fee-based Advisor-Same as a fee and commission advisor, however, the term sounds better than fee and commission advisor

? Fee-only Advisor – A common term for an investment or financial advisor who believes that commissions taint an advisor’s objectivity and, thus, causes their advice to be less efficient and/or more costly.

A fee-only advisor refuses any and all commissions or remuneration from anyone other than the investor/client. The National Association of Personal Financial Advisors (NAPFA) champions the fee-only approach as the best deal for the consumer.

Paul H. Sutherland, CFP, is a NAPFA member and holds an MBA from Lake Superior State College. He is president of Financial & Investment Management Group, LTD, a registered investment advisor serving clientele from offices in Suttons Bay and Maui, Hawaii.

He is also the author of “12 Steps to a Carefree Retirement” and other books on financial and investment planning. BN