In recent times there has been much controversy and debate about the regulation of financial advisors by state and federal governments. But you should be on the cautious side as there still has not been a resolution to the issue. Because of this, the key to choosing the correct financial advisor for you is to do your homework. If you plan on letting an advisor handle your investments make sure it is someone you can trust and who has a proven track record with other investors. Many people find financial advisors by word of mouth using friends and family for information on how their advisor has treated them. This can be a good way to look for one but you still must do your homework in picking the right financial advisor. Anyone can call themselves a financial advisor, even someone with little or no specialized training at all. Even financial advisors that are licensed by a state or federal government may only be licensed to do specific things like recommend and sell insurance policies. So be sure to find the financial advisor who will be suited to the type of financial activity you will be engaging in.
Even though there are limited government regulations of the financial planning industry there are quite a few private organizations that have credentialed individuals that do meet certain requirements. Listed below are the most important aspects of some important certifications:
- CFP (Certified Financial Planner) A CFP is a financial planner that has met the required experience and educational specifications of the Certified Financial Planner Board of Standards. Certified Financial Planners have also sworn to abide by the specified codes of ethics. They have also passed a national test which is administered by the CFP Board of Standards.
- ChFC – A Chartered Financial Consultant is a title that is designated by the American College at Bryn Mawr. This is an institution of higher learning which is specifically sponsored by the insurance industry. The ChFC is the designation that the insurance industry bestows especially for financial planning. In order to become a ChFC there are experience requirements and an exam must be passed on designated subjects.
- CLU – A Chartered Life Underwriter is also designated by the same institution as the ChFC but a CLU is an expert on insurance related matters. A CLU must also meet experience requirements and pass an exam on designated subjects.
- CFA (Chartered Financial Analyst) A CFA is a designation that is given by the Institute of Chartered Financial Analysts. It is awarded to financial analysts with experience who have passed exams in the subjects of economics, portfolio management, security analysis, financial accounting, and standards of conduct.
- AICPA/PFP (American Institute of Certified Public Accountants / Personal Financial Planning Specialist) Certified Public Accountants (CPA’s) that are members of the AICPA and have the related experience in the field receive this title after they pass the financial planning exam given by the institute.
- RIA (Registered Investment Advisor) An RIA is a person who has registered with the Federal Securities and Exchange Commission as an investment advisor. An RIA does not have to possess any specialized financial training but they often do.