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There are scores of credentials for financial professionals. Some are very good indicators of the person’s training and skill, while others indicate knowledge of a more limited scope. Still, credentials can serve as one indicator of a financial advisor’s qualifications.
This fact sheet lists widely recognized credentials that relate to financial planning and investment advice. Use this information to evaluate the financial professional you are considering. Find out what credentials they have. If the person is a broker or investment advisor, verify that they have the required license or registration. Do they hold at least one of the major designations that are meaningful for the type of services you need? If you need a financial plan, for example, CFP® or PFS are strong credentials. Both require extensive training and continuing education in financial planning. But if you need help with debt problems and managing your spending, the AFC is much more relevant.
Licensing or registration is legally required for brokers, investment advisers and insurance salespeople.
Brokers, legally known as registered representatives, must be licensed to sell financial securities. Different licenses allow them to sell different types of investments. The most basic license is a Series 6, which allows the person to sell only mutual funds, variable annuities, and variable life insurance products. Series 7 licenses the individual to deal in all securities products, including stocks and bonds. Series 63 covers state-specific securities laws.
Brokers with only a Series 6 are limited in what they can sell. They may be focusing on the sale of commission life insurance and annuity products.
Investment advisers: Most investment firms and individual investment advisers must register with either the US Securities and Exchange Commission (SEC) or state securities regulators. These firms and advisers are known as RIAs—registered investment advisers. Advisers covered by a firm’s RIA rather than registering individually are known as investment advisor representatives or IARs. States may require that IARs pass the Series 65 exam.
Advisers register with the SEC by filing Form ADV, which includes disclosures about compensation, qualifications, and potential conflicts of interest. The advisor must also provide this information to potential and continuing clients
State securities regulatory requirements may be similar to the SEC. For example, most require advisers to file form ADV with the state.
Some firms or persons are not required to register as investment advisers. Some professionals (i.e., attorneys, journalists, or teachers) are not considered to be investment advisers if their advice is solely incidental to their main profession. Others are investment advisers but are exempted from registration due to their limited number of clients, or the limited nature of their investment advice.
Investment advisers are fiduciaries—they are required to put the client’s interests first by recommending the investments that are best for the client. Brokers are not subject to those requirements, even if they provide investment advice. Read Who is a Fiduciary? to learn more about fiduciaries.
There is no regulation of the terms financial planner or financial advisor. There is no required licensing or registration, unless they are acting as a broker or an investment advisor. Therefore, you will need to do a careful assessment of the person’s qualifications. Understanding the credentials described in this fact sheet can help.
Insurance salespersons must hold licenses for each category of insurance they sell, in each state where they sell insurance.
“Alphabet soup” is one way to describe the myriad acronyms that financial professionals list after their names. Many designations represent substantial education, training, and/or experience. Most, but not all, require continuing education to retain the designation. Understanding the meaning of these designations (the area of study; whether continuing education is required and if so, how much; the amount of relevant experience required to obtain the designation, and whether the designation can be revoked for unprofessional conduct) can help you evaluate and compare the qualifications of different financial professionals.
The following chart lists selected credentials commonly held by various types of financial advisers. This list focuses on licenses or registrations that are required by law for certain practitioners or that are widely recognized by other financial professionals and associations.
There are many other credentials that are not included here, and new ones are being created all the time. The CFP website describes many of them at http://www.cfp.net/learn/ under “Financial Professionals” and “Terminology and Credentials.” The Financial Industry Regulatory Authority (FINRA, formed in 2007 by combining the National Association of Securities Dealers with the certain functions of the New York Stock Exchange) provides an extensive list of credentials with links to the issuing organizations at http://apps.finra.org/DataDirectory/1/prodesignations.aspx.
When choosing a financial professional, don’t be too impressed by titles or large displays of framed certificates until you’ve determined the value of the credentials they represent. Some credentials may even be misleading.
In a December, 2005 news release from the North American Securities Administrators Association, NASAA President and Wisconsin Securities Administrator Patricia D. Struck said, “Individuals may call themselves ‘senior specialists’ to create a false level of comfort among seniors by implying a certain level of training on issues important to the elderly. But the training they receive is often nothing more than marketing and selling techniques targeting the elderly.”
According to the news release, 26 cases against “senior specialists” were opened in 2005 by securities regulators in several states. These “specialists” often promoted equity indexed annuities to senior citizens. Struck advised, “Before doing business with any investment professional, all investors, especially senior investors, should check with their state securities regulator to determine whether the individual is properly licensed and if there have been any complaints or disciplinary problems involving the individual or his or her firm.”
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Download the credentials chart as a PDF to learn about some of the credentials you may encounter as you choose a financial professional.