What Does the Designation Say About Your Financial Planner?

Your advisor's designation can tell you a lot about their background and expertise. Some of the more common financial planning designations include Chartered Financial Consultant (ChFC), Certified Public Accountant (CPA), Chartered Life Underwriter (CLU), Certified Financial Planner (CFP), or attorney (JD), among others. These indicate backgrounds in finance, accounting, business, law, and insurance.

Remember, though, that background is only one aspect of a planner.

For example, you might naturally assume that CPAs have greater background in income tax than other professionals. But that's primarily due to their experience, not their CPA designation. Did you know that the CLU exam has more questions about taxation than does the CPA exam?

The CFP designation is a more widely recognizable designation than is the ChFC. This is in part due to better marketing for the CFP. The ChFC designation requires more courses and has more rigorous exams than does the CFP.

Even areas of specialty don't mean everything. CPAs, for example, major in accounting. College accounting courses take a historical perspective. They look at recorded historical data -- which the CPA then records, puts on a form, and prepares as a financial statement or a tax return. Every business owner should have a good CPA who can assist with financial statements and money management.

The problem is that they are seldom able to take a future driven approach. That is the difference between a CPA and a financial planner. Even colleges recognize that the accounting program is different than the finance program. The financial planner takes a proactive, analytical, and long-term strategic approach. They are not reactive to the data, but influence the direction the data will take.

Typically the very worst financial advice comes from journalists. They are infamous for taking extreme positions, glorifying unreasonable returns, and sensationalizing stories in order to sell magazines. Remember, if it sounds too good to be true, it probably is.

Designations are an important criterion in assessing a financial advisor. Fully explore the planner's background and experience. Often the common assumptions of background are not totally accurate as to expertise.