The Alphabet Soup of Financial Certifications (2024)

What Are Financial Certifications?

Financial certifications, aka financial designations, are credentials that investment and financial industry professionals use. Represented by a trio or duo of letters after a name, they indicate a degree of education/training and specialization on the part of the individual.

If you have trouble telling the difference between a CFA®, CFP®, CIC, ChFC, or any of the other financial certifications, you're not alone. How do you sift through this alphabet soup to find the best financial professional for you? Let's look at the nine most popular designations with a brief explanation of the education and expertise each designation signifies and the kind of work done by the professionals holding them.

Types of Financial Certifications

Key Takeaways

  • Represented by a trio or duo of letters after a name, financial certifications indicate education/training and specialization on the part of an industry professional.
  • Common certifications for financial planners and investment advisors include the CFP (certified financial planner), CFA (chartered financial analyst), and ChFC (chartered financial consultant).
  • Other designations include the CPA (certified public accountant) and the CLU (chartered life underwriter).
  • While some certifications indicate a state-issued license to practice, others are simply awarded by industry associations or institutions.
  • Most certifications require candidates to put in many hours of study and pass exams, have a certain amount of experience, and meet high ethical and professional standards.

Certified Financial Planner (CFP)®

Those with the CFP® designation have demonstrated competency in all areas of financial planning. Candidates complete studies on dozens of topics, including stocks, bonds, taxes, insurance, retirement planning, and estate planning. The program is administered by the Certified Financial Planner Board of Standards Inc.

In addition to passing the CFP certification exam, candidates must also complete qualifying work experience and agree to adhere to the CFP board's code of ethics, and professional responsibility and financial planning standards.

A financial planner works with individuals to help them understand their options and make financial decisions suited to their personal financial situation and goals. Because of the nature of their work, people place a good deal of trust in these individuals. The CFP board posts information on the financial planning process and current licensees, which lets clients of CFPs verify if their financial planners' designations are in good standing. The last thing anyone needs is to choose a CFP whose certification has been revoked.

Chartered Financial Analyst (CFA)®

This designation is offered by the CFA Institute (formerly the Association for Investment Management and Research [AIMR]). To obtain the CFA charter, candidates must successfully complete a difficult three-part exam and gain at least 4,000 hours work experience over a minimum of three years, among other requirements. In passing these exams, candidates demonstrate their competence, integrity, and extensive knowledge in accounting, ethical and professional standards, economics, portfolio management, and securities analysis.

CFA charter holders tend to be analysts who work in the field of institutional money management and stock analysis, not financial planning. These professionals provide research and ratings on various forms of investments.

Certified Fund Specialist (CFS)

As the name implies, an individual with this certification has demonstrated his or her expertise in mutual funds and the mutual fund industry. These individuals often advise clients on which funds to invest in and, depending on whether or not they have their license, they will buy and sell funds for clients. The Institute of Business and Finance (IBF) has offered the Certified Fund Specialist designation and training since 1988. The course focuses on a variety of mutual fund topics, including portfolio theory, dollar-cost averaging, and annuities.

The knowledge these CFS designees hold is kept current through their continuing education requirements.

Chartered Financial Consultant (ChFC)

Individuals with the Chartered Financial Consultant (ChFC) designation have demonstrated their vast and thorough knowledge of financial planning. The ChFC program is administered by the American College of Financial Services. Candidates must complete an exam in financial planning, including income tax, insurance, investment, and estate planning, and are required to have a minimum of three years of experience in a financial industry position.

Like those with the CFP designation, professionals who hold the ChFC charter help individuals analyze their financial situations and goals.

Chartered Investment Counselor (CIC)

Given by the Investment Adviser Association, CFA charter holders who are currently registered investment advisors can study for this is a designation. The CIC program's focus is on portfolio management. In addition to proving their high-level expertise in portfolio management, CIC candidates must also adhere to a strict code of ethics and provide character references.

Individuals who hold the CIC charter tend to be among the financial world's major players, such as those who manage large accounts and mutual funds.

Unfortunately, this designation is no longer offered. The organization only maintains the existing designations of those who already hold it.

Certified Investment Management Analyst (CIMA)

The Certified Investment Analyst (CIMA) designation focuses on asset allocation, ethics, due diligence, risk measurement, investment policy, and performance measurement. As this certification signifies a high level of consulting expertise, only individuals who are investment consultants with at least three years of professional experience are eligible to try for the CIMA. The Investments & Wealth Institute, formerly the Investment Management Consultants Association, offers CIMA courses.

Individuals who hold CIMA designations are required to prove their expertise through continual recertification, which requires CIMA designees to complete at least 40 hours of continuing education every two years.

CIMA designation holders tend to have careers with financial consulting firms, which involve extensive interaction with clients and managing large accounts.

Chartered Market Technician (CMT)®

The CMT® designation is granted by the New York-based CMT Association. The CMT is the highest level of training within the discipline of technical analysis and is the preeminent designation for practitioners worldwide. Technical analysis provides the tools to successfully navigate the gap between intrinsic value and market price across all asset classes through a disciplined, systematic approach to market behavior and the law of supply and demand.

Earning the CMT demonstrates mastery of a core body of knowledge of investment risk in portfolio management, including quantitative approaches to market research and rules-based trading system design and testing. CMTs likely would be employed in the sales and trading departments of sell-side firms, as research analysts in firms that provide technical analysis to their clients, or working as portfolio managers and investment advisors.

Certified Public Accountant (CPA) and Personal Financial Specialist (PFS)

A certified public accountant (CPA) is a designation provided to licensed accounting professionals. The CPA license is provided by the Board of Accountancy for each state.

Those holding the CPA designation have passed examinations in accounting and tax preparation, but their title does not indicate training in other areas of finance. So, those CPA holders who are interested in gaining expertise in financial planning in order to supplement their accounting careers need to become certified as personal finance specialists (PFS).

The PFS designation is awarded by the American Institute ofCPAs to those who have taken additional training and already have a CPA designation.

Public accountants⁠—individuals working for a firm that provides accounting and tax-related services to businesses and publicly traded companies—must hold a CPA designation.

Chartered Life Underwriter (CLU)

This designation is issued by the American College and those who hold it work mostly as insurance agents. The CLU designation is awarded to persons who complete a five-course program of study with exams. The course covers the fundamentals of life and health insurance, pension planning, insurance law, income taxation, investments, financial and estate planning, and group benefits.

Advantages and Disadvantages of Financial Certifications

It's important to realize that not all certifications are created equal. While some, like the CPA, reflect a state-issued or -sanctioned license (allowing the person to legally practice or do certain activities), others are simply industry-awarded designations. They may indicate a certain degree of experience and education but aren't mandatory qualifications to work in the field.

While certifications are not everything, you should give extra credit to investment professionals who have them. Most of these certifications require candidates to put in many hours of study and meet high ethical and professional standards.

For instance, to get the CFA designation, candidates must normally put in a minimum 250 hours of reading per exam, and there are three exams to pass. The tests are so intensive that normally less than 40% pass the level 1 exam each time it's offered. Those who make it through all three levels to become charter holders are also bound by a code of ethics and rules of professional conduct, among other requirements.

Although all of these exams are intense and the hours can be long, these designations should be only one part of your criteria when deciding on a financial professional.

Which Certifications Should a Financial Planner Have?

The CFP (certified financial planner) is a particularly prestigious designation. One of the oldest in the profession, it requires years of experience, successful completion of standardized exams in several areas, a demonstration of ethics, and a college degree—as well as ongoing education in the field.

If a planner wants to delve more deeply into investments and advise clients about them, they might also obtain a CIMA (certified investment management analyst).

Which Financial Certifications Boost Income?

The certified investment analyst designation seems to. According to an Investments & Wealth Institute-commissioned survey, the financial advisors who are members of CIMA practices (defined as having at least one practice member with a CIMA certification) report earning a higher annual income compared to financial advisors who are members of practices with no CIMA certification. Some 12% of advisors at CIMA practices earn more than US$380,000, compared to 3% of advisors at practices with no CIMA designation.
A CPA also seems to offer a good return on investment. While the median salary of an accountant is $78,000 per year, according to the Bureau of Labor Statistics, senior CPAs with over 20 years of experience command an average annual salary of $150,000.

How Do I Get Financial Certifications?

Financial certifications are usually awarded by a designated industry group, association, or degree-granting institution. Their requirements often include the taking of certain courses and the passing of exams, a certain number of years' experience or apprenticeship in the profession, a college degree, membership in the association, and a commitment to ongoing education in the field.

The Bottom Line

If you have to deal with a financial professional, it's important that you know the extent of his or her expertise in different areas of finance. Now you have an idea of what some of the designations mean and what they require from those who hold them.

As a financial expert with extensive knowledge in the field, I can provide a comprehensive breakdown of the concepts mentioned in the article "What Are Financial Certifications?" The article delves into the various financial certifications, their significance, and the expertise they represent. Let's break down the key concepts:

Financial Certifications Overview:

1. Financial Certifications:

  • Definition: Credentials used by investment and financial professionals, denoted by letters after their name.
  • Significance: Indicates a level of education, training, and specialization.

2. Popular Financial Certifications:

  • CFP (Certified Financial Planner):

    • Issuer: Certified Financial Planner Board of Standards Inc.
    • Requirements: Competency in various financial planning areas, passing the CFP certification exam, work experience, and adherence to ethical standards.
    • Role: Helps individuals make financial decisions based on their personal situation and goals.
  • CFA (Chartered Financial Analyst):

    • Issuer: CFA Institute.
    • Requirements: Successful completion of a three-part exam, 4,000 hours of work experience, and a demonstration of competence in various financial areas.
    • Role: Analysts in institutional money management and stock analysis.
  • ChFC (Chartered Financial Consultant):

    • Issuer: American College of Financial Services.
    • Requirements: Exam in financial planning, three years of industry experience, and expertise in income tax, insurance, investment, and estate planning.
    • Role: Similar to CFP, analyzes individuals' financial situations and goals.
  • CIC (Chartered Investment Counselor):

    • Issuer: Investment Adviser Association (No longer offered, only maintains existing designations).
    • Requirements: High-level expertise in portfolio management, adherence to a strict code of ethics, and character references.
    • Role: Held by major players managing large accounts and mutual funds.
  • CIMA (Certified Investment Management Analyst):

    • Issuer: Investments & Wealth Institute (formerly IMCA).
    • Requirements: Focus on asset allocation, ethics, due diligence, risk measurement, and ongoing recertification.
    • Role: Consultants with expertise in managing large accounts.
  • CMT (Chartered Market Technician):

    • Issuer: CMT Association.
    • Requirements: Mastery in technical analysis, demonstrating knowledge in investment risk, portfolio management, and rules-based trading system design.
    • Role: Employed in sales, trading, research, or as portfolio managers and investment advisors.
  • CPA (Certified Public Accountant) and PFS (Personal Financial Specialist):

    • Issuer: Board of Accountancy and American Institute ofCPAs.
    • Requirements: CPA requires passing exams in accounting and tax preparation. PFS is an additional designation for CPAs interested in financial planning.
    • Role: CPAs work in accounting and tax-related services.
  • CLU (Chartered Life Underwriter):

    • Issuer: American College.
    • Requirements: Completion of a five-course program covering life and health insurance, pension planning, and more.
    • Role: Mostly work as insurance agents.

3. Advantages and Disadvantages:

  • Not All Certifications Are Equal:
    • Some are state-issued licenses; others are industry-awarded designations.
    • Certifications may indicate experience and education but are not mandatory qualifications.
  • Importance of Certifications:
    • Certifications require extensive study, exams, and adherence to high ethical and professional standards.
    • They provide a level of assurance for clients in the expertise of financial professionals.

4. Income Boost and Considerations:

  • Certified Investment Analyst (CIMA):
    • Linked to higher annual income for financial advisors.
  • CPA:
    • Offers a good return on investment, with senior CPAs earning higher salaries.

5. Obtaining Financial Certifications:

  • Issuer: Designated industry groups, associations, or institutions.
  • Requirements: Vary but often include exams, years of experience, a college degree, and ongoing education commitments.

6. Bottom Line:

  • Importance of Knowing Expertise:
    • Essential to understand the extent of a financial professional's expertise.
    • Certifications provide insight into the individual's knowledge and qualifications.

In conclusion, the article provides a detailed exploration of various financial certifications, their requirements, and the roles of professionals holding these designations. It emphasizes the importance of considering certifications as part of the criteria when selecting a financial professional.

The Alphabet Soup of Financial Certifications (2024)

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