When I wanted to jump out of an airplane, I hired a certified jump instructor with lots of experience. When I moved from California to New York in 1983 and wanted to find a top personal physician, a good referral led me to a doctor who was board certified, and it didn't hurt that he had spent time at the
. He had also been practicing for more than 10 years.
Investors looking for a financial planner also are looking for the kind of assurance that comes from a combination of the right credentials and lots of experience. But in financial planning, credentials are a confusing alphabet soup. There are many competing designations, and it's hard to know what to look for.
I'll readily admit to you that I am strongly biased in suggesting that the one credential your planner should have is the CFP, or certified financial planner, designation. As you know, I am a CFP licensee. (For more on this, see a previous column,
Planning for Quality Financial Planning.)
To earn a CFP, you must pass a difficult 10-hour, two-day exam. Typically, only about half the people who take this exam pass it. You also must have three years of full-time experience and adhere to a code of ethics. To stay licensed, you must take 30 hours of approved continuing education every two years.
The CFP designation is endorsed by the
Institute of Certified Financial Planners
, which will merge with the
International Association for Financial Planning
on Jan. 1, 2000, to form the
Financial Planning Association
. I think this new group will become the premier financial planning organization in the country.
As you survey the financial planning landscape, you may run across one of a half-dozen other designations, including ChFC, CFA, CLU, PFP, PFS and CIMA. It might be useful to examine each of these designations and the organizations behind them.
Chartered Life Underwriter
In the late 1920s, Solomon Heubner and some of his colleagues started the
in Bryn Mawr, Pa. Heubner was an insurance professor at the prestigious
University of Pennsylvania
. The American College was known for years as the educator of professional life, health and disability insurance agents. It granted the chartered life underwriter designation after an agent completed 10 rigorous courses. The CLU stands out today as the professional insurance agent of choice.
Chartered Financial Consultant
In the early '70s, a new breed called a financial planner arrived on the scene. These mostly independent agents were like refugees from the insurance and brokerage industries. The planner was more client-oriented and sought to implement planning and investment strategies through a much broader menu of products and services. Even though most earnings were based on commissions, it was a breath of fresh air to the consumer to work with someone not locked into proprietary single products.
Since the late 1970s, the life insurance industry has been trying to find an identity within the financial planning movement. In the 1960s and 1970s, the life insurance folks and the securities folks had little tolerance for each other. It was virtually sinful for a life agent to sell mutual funds.
In the late '70s, the American College decided to jump on the emerging financial planning bandwagon by introducing the chartered financial consultant, or ChFC, designation. This is obtained primarily by life insurance agents attempting to cross over to financial planning. There are 10 required courses, or someone can take a total of 13 courses and get both the CLU and ChFC designations. There is no final comprehensive exam, nor is there an independent board controlling the designations.
The problem with the ChFC designation is the perception that it carries an insurance bias. Perhaps this is why the American College now offers the required curriculum to qualify for the comprehensive exam given by the
CFP Board of Standards
. It is one of 93 colleges and universities that have an approved CFP curriculum.
Personal Financial Planner
National Association of Life Underwriters
is the association that represents life and health agents. In April, its board of directors voted to promote the personal financial planner designation offered by the
University of California at Los Angeles
. One of the purposes of the PFP designation seems to be to provide an alternative to the strong CFP endorsement of the new
Financial Planning Association
. Apparently PFP backers also feel the ChFC designation has not obtained sufficient recognition. To further blur the landscape, the NALU board voted to support changing the organization's name to the
National Association of Insurance and Financial Advisors
. The full membership will vote on this in September.
It is apparent the NALU wants to promote its insurance agents as financial planners/advisers. I think it would be far more consumer-oriented, though politically incorrect, to promote agents' membership in the new FPA and encourage them to obtain the CFP designation.
Personal Financial Specialist
American Institute of Certified Public Accountants
also decided to get into the act a few years ago. They created the personal financial planner section, which offers the personal financial specialist designation.
There is a pattern here. As the new kind of planner embodied in the CFP designation started to emerge and gain recognition, the more historic and traditional "advisory" services and organizations felt the competitive need to protect their turf. So they change names and add names and designations to try to maintain their share of the consumer market for financial planning services.
Chartered Financial Analyst
There are a couple of other designations you may want to know about. These relate primarily to institutional money managers but also might include noninstitutional advisers with large amounts of money under management. One is granted by the
Association for Investment Management and Research
. AIMR grants the chartered financial analyst designation, which requires a very rigorous course of study and examination. This is the designation I look for in mutual fund managers.
Certified Investment Analyst
Yet another designation you should recognize is the certified investment analyst, or CIMA, designation. Started in 1988, it is awarded by the
Investment Management Consultants Association
to people with experience who complete a curriculum at the Wharton School and pass a rigorous exam. The CIMA designations are for individual and institutional investment consultants.
Hopefully this little tour of designations and organizations will equip you to find the right person for the right job. Have a happy, healthy, profitable week!
Vern Hayden is a certified financial planner in Westport, Conn. He is a financial consultant and advisory associate of Financial Network Investment Corp. He also is an owner of Hayden Financial Group. His column is not a recommendation to buy or sell stocks or to solicit transactions or clients. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While he cannot provide investment advice or recommendations, Hayden welcomes your feedback at
As originally published, this story contained an error. Please see Corrections and Clarifications.