As Published in the Fall 2014 Edition of NJ Lifestyle
Searching for a trusted advisor? Make your decision a well-informed one.
ACCORDING TO THE BUREAU OF LABOR STATISTICS, THERE WERE 223,400 personal financial advisors in the Unites States at the end of 2012. Other analytical agencies such as Cerulli Associates, estimate that number to be north of 300,000. Furthermore, the Financial Industry Regulatory Authority (FINRA), which overseas how investments are marketed to the public, has identified at least 95 different professional designations for advisors. With hundreds of thousands of financial advisors across the country with an array of letters after their names, choosing one as your trusted advisor can be a daunting task. Understanding an advisor’s credentials is a must to ensure you choose the right one for you. Here we will cover three of the most respected designations in the financial planning and investment industry: CPA, CFA®, and CFP®.
The CPA designation stands for Certified Public Accountant. This designation is awarded to candidates who have passed the Uniform Certified Public Accountant Examination. The exam consists of four sections: Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation. In addition to passing each of the four sections, candidates must hold a bachelor’s degree with an additional 30 semester hours of study, have at least one year of experience in the practice of public accountancy (NJ state specific), pass an ethics exam, and once earned, must complete 120 hours of continuing education every three years. Certified Public Accountants can provide more than just tax advice, as many act as business and financial strategists providing financial planning services, investment advice, estate planning, and various consulting services.
The CFA Institute defines the Chartered Financial Analyst (CFA®) designation as a “globally recognized, graduate-level investment credential” that demonstrates a charter holder’s “mastery of the skills most needed for investment analysis and decision making in today’s fast-evolving global financial industry.” To earn the CFA® charter, candidates must have at least four years of qualifying investment work experience, and pass three rigorous examinations. The exams cover topic areas such as ethical and professional standards, quantitative methods, economics, financial reporting and analysis, corporate finance, and portfolio management. Each six hour exam requires approximately 300 hours of study with levels II and III offered only once a year. CFA® charter holders can be found working in over 135 countries, and the Financial Times stated, “Among the countless degrees around the world, the Chartered Financial Analyst qualification has become the gold standard.”
Anyone can call themselves a financial planner, but only those who have fulfilled the certification requirements of the CFP® board can claim the status as a CERTIFIED FINANCIAL PLANNER™. Prior to sitting for the CFP® exam, candidates must complete a comprehensive course of study at a college or university offering a curriculum that covers financial planning, insurance, income taxation, retirement planning, investments, and estate planning. The exam, formerly a ten hour test over a two-day period, will be reduced to single day, six hour exam later this year. The exam tests a candidate’s “ability to integrate and apply a broad base of financial planning knowledge in the context of real life financial planning situations.” After completion of the exam, candidates will be awarded the CFP® designation upon satisfying the three year full-time work experience and ethics declaration, which includes a detailed background review.
Earning a designation does not indicate a better advisor; rather it indicates an advisor’s commitment to education, to his/her clients, and establishes a baseline for their competency. The CPA, CFA®, and CFP® designations require their members to abide by a stringent code of ethics, have several years of work experience, complete ongoing continuing education requirements, and demonstrate a mastery of a body of knowledge through a comprehensive examination. These three designations are highly-regarded credentials in the financial world, and should be a requirement as you narrow down your search for a trusted advisor. n
Tom Reynolds, CPA & Matt Reynolds CPA, CFP®
Co-Managing Partners, CRA Financial
Robert T. Martin, CFA, CFP®
This article is for informational and educational purposes only and should not be relied upon as the basis for an investment decision. Consult your financial adviser, as well as your tax and/or legal advisers, regarding your personal circumstances before making investment decisions.