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Financial Planning Titles: A list of acronyms after an adviser's name might look impressive, but those seeking credible advice need to sort through designations

January 7, 2008

inancial F Planning Titles A list of acronyms after an adviser's name might look impressive, but those seeking credible advice need to sort through designations

Investing your money is overwhelming enough already-especially with all the available options-without having to fret over whether a financial adviser has the credentials to keep your retirement account afloat.

Sure, there are a litany of fancy titles financial planners can earn that may help ease your concerns. But what do they really mean? With more than 90 designations conferred by 72 associations, it's difficult to distinguish between the reputable and the questionable.

Several organizations conferring these titles require many hours of study and passage of rigorous testing, while others might send a certificate upon receiving little more than a check. Indeed, seeing "accredited," "certified" or "chartered" on an adviser's business card can create an alphabet soup of confusion.

Lawyer Mark Maddox likely can decipher what a third of the designations mean, but only because he has a huge advantage. He's an investor attorney and former Indiana securities commissioner.

"The vast majority of people have no ability to evaluate whether a particular designation is appropriate for what they are looking for," he said. "The fact of the matter is, it's a crap shoot."

To be sure, CFA, CFP, CTFA, ChFC and CLU are just a handful of the more common certifications vexing investors searching for a money manager. And even if you know what they mean, do you know whether an adviser or broker charges a flat fee or a commission? While the differences between some brokers and investment advisers are blurring, as more brokerage firms morph into advisers, some basic distinctions remain. Brokers sell in-house products and typically are paid on commission. If there are no trades, they don't get paid. Conversely, advisers tend to be independent and are paid a fee to manage the assets of a client. At any rate, all designations are distinct from academic degrees awarded by universities, such as an MBA. They are different from the licenses Indiana and other states require for one to pursue a career as a stockbroker or financial planner. Whereas state licensing is a minimum requirement, professional designations often represent the level of career development one has achieved. The two most prevalent are the CFP, which stands for certified financial planner, and CFA, or chartered financial analyst. Uncertainty conjured by the two titles prompted University of Arkansas at Little Rock professors last year to analyze the designations. "The growth in the number of financial services credentials has created confusion for the general public and finance students alike," the professors wrote. "Students may wonder whether and which of these numerous credentials to pursue."

Tough road to CFA

The CFA designation is the most difficult to achieve and entails three rigorous exams in which 250 hours of study are recommended for each. The Virginia-based CFA Institute administers the tests.

Worldwide, roughly 83,000 people have earned the CFA designation, including nearly 54,000 in the United States. But membership is increasingly international. By 2003, fewer than half the candidates seeking the designation lived in North America. Most are in Asia or Europe.

As Charlotte Lippert, president of the CFA Society of Indianapolis, can attest, completion is a monumental achievement. Only about one in five who seeks the designation receives it.

"It's probably one of the toughest things I've ever done," she said. "It's like running a marathon. It's not how smart you are; it's about how many hours you put in and how badly you want it."

The institute offers the first level of the three, six-hour exams in June and December. The remaining two are given just in December. Besides passing the tests, recipients need a college degree and four years of professional experience.

CFAs are required to adhere to a strict ethics code, which they renew annually in a pledge.

The CFA designation is a qualification for finance and investment professionals, particularly in the fields of investment management, investment banking and financial analysis of stocks, bonds and their assets. They often provide financial advice for large institutions and investment planning for corporate pension funds, as well as managing investment portfolios.

CFP most prevalent

If the CFA is the most demanding, the CFP is the most recognized. The Denverbased Financial Planning Standards Board Ltd. has bestowed nearly 100,000 professionals with the CFP designation.

Passing two-hour exams given in five parts, in addition to a comprehensive final exam, are among the requirements to receiving the certification. Three years of professional experience, or five years without a college degree, is needed as well. Thirty hours of continuing education must be completed every two years.

Bill Owen, president of the Financial Planning Association of Greater Indiana, received his designation in 2002. He said having the CFP credential complements the tax and financial planning work he does as a certified public accountant.

Investors "at least know [CFPs] have gone through the type of preparation to learn the process of financial planning," Owen said.

CFPs typically offer personal financial, investment and estate planning advice, and work at financial planning and acounting firms, insurance companies and banks.

Best of the rest

But even the insurance and banking industries confer their own designations. More than 3,800 financial professionals nationwide have earned the certified trust and financial adviser certification, or CTFA, which was established in 1990 by the American Bankers Association.

Professionals who receive the designation are fiduciaries who serve an affluent clientele. They offer fee-based advice on such matters as wealth preservation, real estate, long-term health care, charitable giving, insurance needs and tax strategies.

To qualify for the certification, individuals must have certain levels of experience and education, pass a comprehensive exam, and agree to abide by a code of ethics.

For insurance agents, the most popular designations for financial-planning purposes are chartered life underwriter and chartered financial consultant.

The CLU and ChFC designations both can be earned by completing courses from the not-for-profit American College in Bryn Mawr, Pa. The CLU curriculum is focused particularly on risk management, and the ChFC courses on financial planning.

It's common for insurance agents to have multiple designations, said Roger Ronk, executive vide president of the locally based Independent Insurance Agents of Indiana Inc.

Every new designation means investors need to be even more vigilant. Maddox recommends a background check to determine whether an adviser has accumulated any complaints. Because, as Maddox said, "one is too many."
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