The internet has only expanded the glut of information, and it’s not always clear which sources are the most reputable. Making matters even more confusing, there’s a slew of certifications for financial advisers. Maybe you only wanted to ask a few questions of a financial expert, but now you’ve got to wade through an alphabet soup just to figure out whom to ask.
Regardless of the credential, it’s important to know two things about your adviser. How do they get paid? Many advisers collect commissions for selling you certain kinds of products. We prefer advisers who are fee-only, so everyone is clear about the incentives. It’s also key that any adviser you use is a fiduciary, meaning he or she has a legal duty to act in your best interest. Why would you want conflicted advice?
Here’s a rundown of some of the most common financial designations, and what makes them different:
Certified Financial Planner™ (CFP®)
A certified financial planner™ has jumped through quite a few hoops and has real-world experience advising people on money. Every CFP® has completed courses on topics like insurance, estate planning, retirement, taxes and investing; passed the CFP Board’s ethical requirements; and has undergone a 10-hour, 285-question exam. In addition, he or she must have at least three years of job experience in the financial planning industry, or a two-year apprenticeship under a CFP®.
Bottom line: Certified financial planners™ are great generalists. They are qualified to advise you on almost any question about your financial situation, such as how to gain control over your budget, what kind of insurance you need, how to make sure your investment portfolio reflects your long-term goals and how to address your estate planning needs.
As we go over other designations below, you’ll see why the CFP® is our favorite broad-spectrum accreditation. While many other designations mean someone is an expert in a particular area like taxes or insurance, the CFP® designation is the most prestigious all-encompassing one around. (And that’s why all of the financial advisers working for LearnVest Planning Services’ action program are CFPs®.)
Certified Public Accountant (CPA)
This is the oldest financial credential in America, for accountants. The CPA exam includes topics like accounting, auditing, bookkeeping, taxes and ethics. Note that all CPAs are accountants, but not all people who call themselves accountants are CPAs, so keep an eye out.
The CPA designation is all about accounting and doesn’t include training in other areas of personal finance. If a CPA wishes to gain a broader financial education, she can get certified as a personal finance specialist.
Bottom line: If you’re looking for a well-trained accountant, CPA is the way to go. CPAs can help you prepare your taxes, advise you on how to organize your investments and estate planning so you pay the least in taxes over time, and guide you on how to save for college and retirement in tax-favorable ways.
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If you need advice on anything beyond the realm of taxes, a CPA may not be the most qualified person to help you, unless she has the dual CPA/PFS certification.