understanding gift tax

Understanding Common Advisor Designations

What does it all mean?

Have you ever looked at someone’s business card or credentials and there appears to be a bowl of alphabet soup spilled behind their name?

These credentials must be important, but what do they all stand for?

We will discuss some of the more common credentials a financial planner can have and what they mean for you as a client.

CFP: Certified Financial Planner

The gold standard when it comes to financial planning designations is the CFP®, or Certified Financial Planner™, designation. It is quickly becoming a “must have” designation for financial planners. 

To obtain the CFP® designation, an applicant must complete the education requirement, pass the test, meet experience requirements , and keep up their license through continuing education. 

The education requirement consists of six college level courses, worth 18 credit hours, on the various principles of financial planning. Once the education requirement has been completed, the applicant can sit for the 6-hour test. 

After the test has been completed, the only step left is to obtain 300-hours (2-years) of experience. It is the experience requirement that holds most advisors back from using the designated marks. If a new advisor is a career changer, they can have everything completed but the experience, forcing them to find work before being allowed to use the CFP® designation behind their name.

The CFP® designations gives confidence that the applicant can handle the basic financial planning principals. No great level of detail is given throughout the education program as there is a lot of material to cover from rules and laws to insurance, taxes, and estate planning. 

Series 7 and 66: The Broker’s Licenses 

If you encounter an individual who has their Series 7/66 licenses, you have run across a broker dealer. A broker is not a financial planner but a salesperson of investment products. Their job is to handle your investments and find ways to sell you mutual funds that benefit their company.

A Series 7/66 are a bit different because they cannot take them if they decide to leave their broker. Their brokerage firm sponsors them to have that license. If they leave that brokerage firm, they have 2-years to find another brokerage firm to transfer that license over or they lose it.

Brokers do not have fiduciary duty to the client. They do not hold the client’s best interest; their obligation is to the brokerage house.

CPA or EA: Certified Public Accountant or Enrolled Agent

Death and taxes. 

The only certainties in life. Luckily, we have groups of individuals prepared to help with both of those certainties when they come up. For taxes, we have the Certified Public Accountants and Enrolled Agents. 

You do not need a fancy license or degree to do taxes or even prepare taxes for other people. These individuals, however, have gone out to make sure they have the knowledge and the ability to handle your tax situations and to represent you to the IRS if need be.

The Enrolled Agent is the lesser designation between the two. It requires signing up with the IRS and taking a few tests. The education portion of this designation is self-study and not required if they feel confident, they can pass the tests without it. There are three sections and thus three tests an Enrolled Agent must pass. Test 1 deals with Individuals, test 2 deals with Businesses, and test 3 deals with Representation.

A Certified Public Accountant’s requirements are a lot more strenuous. The education requirement is 150 credit hours that includes the completion of a graduate degree in accounting. Once completed, the applicant can sit for the four, 4-hour tests, including: auditing and attestation, business environment and concepts, financial accounting and reporting, and regulation. 

They too must complete on-going continuing education to continue to use their license.

CFA: Chartered Financial Analyst

If the CFP® is the gold standard for financial planning than the CFA is the gold standard for investments. The curriculum behind the CFA is investment-centric, focusing on putting together efficient portfolios and doing deep financial analysis. 

The basis for the CFA is to certify investment research analysts and mutual fund managers. A financial planner that carries this designation has gone through a lot of schooling and test taking, as this is not an easy program to pass. This also means that this financial planner has a very investment focused practice. You are more likely to find individually tailored portfolios, better forecasting, and better benchmarks when working with an individual with a CFA designation.

CLU: Chartered Life Underwriter

When we talk about gold standards in designations, we must mention the CLU. The CLU represents the education behind life insurance. This is not a license to sell life insurance but a way to show that the applicant has gone out to seek further education in life insurance. 

Insurance products can be extremely complex with each one being slightly different than the next one. Understanding these products, the risks they minimize, and how they work together in an efficient manner takes a lot of additional knowledge.

Along with understanding life insurance, CLU holders can navigate more into estate planning and how insurance, wills, and trusts all play their part.

RICP: Retirement Income Certified Professional

There are three phases to a person’s life. From the ages of 0 – 30, 30 – 60, and 60 – 90. Each phase requires a different mindset and a different type of planning. Those who carry the RICP designation want to focus their attention into the 60 – 90 life phase. 

Distribution planning, social security planning, estate planning, insurance, and Medicare are only some of the issues a RICP is prepared to tackle for their clients.

CDFA: Certified Divorce Financial Analyst

Divorces can be messy. 

The quickest way to cut your assets in half is to go through a divorce. Having a financial planner that understands the process and separation in a divorce can be invaluable both now and in the future. 

Those who hold the CDFA focus on areas of the divorce process, litigation, being the financial expert, or helping a divorcee move forward. Understanding the best way to split assets that is both fair and tax efficient can be tricky, especially if the divorce is contentious.

CSLP: Certified Student Loan Professional

Student loans are continuously thrown into the limelight. Not only do they not seem to be going down, but the debt carried by students only seems to be rising exponentially. 

Understanding the details of private versus federal loans, the multiple repayment plan options, and how best to structure these loans takes the ability of a financial planner that is gone through the CSLP designation. A fairly new designation to the field, the CSLP is run by some of the top student loan financial planners in the United States. They have put together a program that is designed to understand student loans in the context of a client’s overall financial plan.

Conclusion

There is much more to a planner than just the letters that they hold behind their name. Designations are great steppingstones to more and specialized education, but it does not mark a mastery of the topic. Once the designation has been reached, continued experience in that field will yield a mastery level of knowledge and application.

Designations do show you the interest behind the financial planner you are about to hire. These interests have caused them to seek additional resources, some costing them an alarming amount of money and time.

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