Looking to consult a financial expert but unsure of where to begin? It's essential to grasp the distinctions among these credentials.
Designations after a financial professional's name indicate that they have passed a standardized test in their specialty. However, these titles alone don't guarantee that they are the right choice for your needs.
Derek Gabrielsen, a wealth advisor, emphasizes that while these credentials add credibility, they shouldn't be the top priority when selecting a financial adviser. A CFP may not necessarily be the best fit for you or your investment strategy. These designations are valuable but should serve as a starting point in your search.
Here's a breakdown of common financial designations and tips on choosing the right professional.
CPA
Certified Public Accountants have passed the Uniform CPA Exam and fulfill annual continuing education requirements. They often handle tax preparation for individuals and businesses and provide auditing services for corporations.
If you face an IRS audit, a CPA can represent you, as can an attorney or an Enrolled Agent. While essential for certain corporate accounting tasks, hiring a CPA for personal tax preparation isn't always necessary. Many qualified tax preparers can do the job effectively for less.
CFP
Certified Financial Planners have met the standards set by the Certified Financial Planner Board of Standards. This certification requires education, examination, experience, and adherence to ethical guidelines, along with ongoing fees. If you're looking for investment management or financial planning assistance, a CFP might be the right choice. Note that they must also have a FINRA license to sell securities.
CRPC
Chartered Retirement Planning Counselors have completed specialized training from the College for Financial Planning, focusing on retirement strategies. They possess extensive knowledge of various retirement income sources, cash flow, asset management, and estate planning.
RIA
Registered Investment Advisors are registered with the SEC or a state agency and are held to a fiduciary standard, meaning they prioritize their clients' needs above their own. This standard contrasts with other advisors who may sell products suitable for clients but also profitable for themselves. CFPs and CRPCs at RIA firms must adhere to this fiduciary duty.
CFA
Chartered Financial Analysts have received their designation from the CFA Institute, focusing on research and analytics in investment management. They possess advanced skills in financial analysis of various assets and typically work with companies rather than individuals.
EA
An Enrolled Agent is a federal tax practitioner authorized to represent taxpayers in front of the IRS. They can provide tax advice and help prepare returns. If you're facing an IRS audit, having an EA can be beneficial.
FINRA
The Financial Industry Regulatory Authority grants licenses for selling securities. Advisors must hold specific licenses to sell various products. For instance, a Series 6 license permits the sale of mutual funds, while a Series 7 allows for individual securities. Without a FINRA license, advisors can't legally sell securities.
While knowing these designations is beneficial, don't overemphasize their importance. It's crucial to ask about a professional's expertise and approach but also to build a relationship based on trust. Establishing a solid financial plan should be your primary goal.
