What's in a Name? When It Comes to Financial Planners, Not a Lot By K.C. Swanson Staff Reporter 5/22/01 3:23 PM ET

Not long ago, it seemed as if it made sense to make investment decisions on your own, given that the market was going straight up. But at this point, possibly a little seasick from the market, you may be thinking about getting some financial-planning advice from a professional.

A word of advice: Be sure you understand the differences among qualifications for investment advisers. Because, while some credentials are highly respected, awarded only after candidates pass difficult exams, other titles -- like "financial consultant" or "financial adviser" -- are basically meaningless. "There's no one sine qua non in the field of financial planning. There are many [minimum] standards, but none rise to the level of M.D., J.D. or C.P.A.," says Gary Schatsky, a New York-based fee-only adviser and attorney.

So what can you expect from someone who bills himself as an investment adviser? In some cases, not a whole lot. Most state regulators don't require advisers to have completed a minimum level of education, such as having earned a bachelor's degree (states regulate advisers from firms with assets of less than $25 million, and sometimes they regulate representatives from bigger firms, too). At the minimum, they typically require investment advisers to pass a three-hour minimum competency exam or an equivalent test.

The Securities and Exchange Commission, which regulates all investment adviser firms with more than $25 million in assets, doesn't set any minimum requirements at all. "Somebody might have a hard time selling services if they didn't have impressive credentials to lay out in a disclosure document, but there's no statutory or regulatory requirement for experience or background," says SEC spokesperson John Heine.

Granted, all this applies to minimum standards. To get higher-level credentials, advisers are often required to have work experience and may have to pass long, rigorous tests to receive their credentials. But even for some of the best-known financial-planning accreditations, the bar is set lower than in some other high-paying professional fields. For example, you aren't required to have finished college to get a credential as a certified financial planner (CFP) or chartered financial consultant (ChFC). That's not to say those credentials aren't difficult to get, though -- just that it's possible to earn them without a lot of formal education.

With that in mind, here's a quick survey of some of the accreditations you might encounter and what they represent.

Some of the Qualifications for Financial Advisers
Credential	Typical Candidates	Education Requirements	Work Experience Requirements	Qualifying Exam
Certified Public Accountant (CPA)	Accountants	In most states, at least a bachelor's degree plus 150 semester credit hours	In most states, at least two years of public accounting experience	Two-day, 15-1/2-hour exam
CPA-Personal Financial Specialist (CPA-PFS)	CPAs who are members of the main trade association and have completed the PFS requirements	Bachelor's degree required plus 75 credits in personal financial-planning topics	At least 1,000 hours of financial planning; references from six clients or professionals	Six-hour PFS exam or another qualifying exam covering financial-planning topics, in addition to passing the 15-1/2-hour CPA exam
Certified Financial Planner (CFP)	Financial planners -- may include insurance agents, banking professionals, stockbrokers, CPAs	Bachelor's degree not required. Completion of curriculum at a school registered with the CFP Board of Standards	Three years if candidate has bachelor's degree; five years if not	Two-day, 10-hour exam covering broad range of financial planning topics
Chartered Financial Analyst (CFA)	Securities analysts, money managers and investment advisers who focus on investment analysis	Bachelor's degree required. Completion of self-study curriculum focused on investment decision-making	Three years of related work experience	Three separate six-hour exams taken over a three-year period
Chartered Financial Consultant (ChFC)	Financial professionals such as accountants, attorneys, bankers, insurance agents and brokers	Bachelor's degree not required. Completion of eight-course financial planning curriculum	Three years of business experience (bachelor's or graduate degree may qualify for one year)	Two-hour exam for each of the courses
Source: American Institute of Certified Public Accountants (AICPA).

If you're looking for an adviser, besides becoming familiar with the standards for financial planners, you should also beware of potential conflicts of interest. "If caveat emptor ever had broad applicability, it would be in the financial plain. Conflicts of interest are the rule, not the exception," says Schatsky. Many of those who may promote themselves as advice-givers have other priorities, too, he says. "Who wants to stand up and say in reality what 90% of the quote financial advisers or consultants would say: 'Hi, I'm a salesperson, can I also give you advice?' "

Because a financial planner with an incentive to carry out lots of trades may have something other than your best interests at heart, it's generally a good idea to select someone who charges on a fee rather than a commission basis. You may also want to ask a planner for a description of any conflicts of interest in writing. The Certified Financial Planner Board of Standards suggests asking if anyone besides you could benefit from a planner's recommendations, such as companies that sell insurance policies and funds, or accountants and/or attorneys you may be referred to.

Advisory firms are also required to provide you with a disclosure form called Form ADV, which should give both general background on a company and details of any disciplinary actions taken against them in court. In part two of the form you'll find details on advisers' educational background. "That lets you know if somebody's a plumber full time and an adviser part time," says Melanie Lubin, securities commissioner for the state of Maryland.

Finally, it's smart to contact your state regulator to verify that an adviser is licensed and to check for any complaints that may not be included in Form ADV. For a list of state regulators, visit the NASD Regulation Web site.

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