| |
Selecting a financial advisor
is one of the most important decisions you will
make–especially if that advisor will be involved in
decisions affecting your retirement nest egg. One factor
most people consider is the advisor’s designations. The
three most common designations are the
Certified Financial
Planner™ (CFP®), Chartered Life Underwriter (CLU), Chartered
Financial Consultant (ChFC), but there are many others.
These designations are designed to give you the impression
that one advisor is more qualified than another and thus a
better choice for you. But is that true? Read on as I reveal
the hidden truth behind these confusing designations.
Although designations are important, there are other aspects
that I believe are even more critical. These include how an
advisor is compensated, whether or not they are required to
act in your best interest, the type of products/investments
they have access to and their money management style. (Other
articles in the Secrets To Choosing A Financial Advisor deal
with these other topics and can be found under the article
archives at
www.guardingyourwealth.com.)
Terms like insurance agent, registered representative and
registered investment advisor relate to how an advisor is
licensed with the state or SEC. Designations like CFP®, CLU
and ChFC describe education and training beyond the basics
required to be licensed. Adding to the confusion, there
isn’t any correlation between how an advisor is licensed and
the designations he/she may have.
Any advisor you chose should probably have one of these
designations. They require months and months of study and
show that the advisor is committed to the profession and
their personal ongoing education. It is also less likely
that an advisor with one of these designations is
inexperienced and new to the field.
The Certified Financial Planner™ designation shows education
on all aspects of financial planning. It requires the
completion of 5 courses dealing with investments, insurance,
taxation, estate and retirement planning. After a test on
each course is passed, there is a comprehensive 8 hour exam
covering not only the grasp of the relevant facts, but the
ability to apply those facts correctly in real life
situations. The pass rate on the CFP® exam is around 50% and
the CFP® designation requires three years of related work
experience.
The Chartered Financial Consultant designation is similar to
the CFP® designation in that it teaches the fundamentals of
financial planning. The Chartered Life Underwriter
designation provides an advisor in-depth knowledge of the
life insurance business. They both require the completion
(and testing) of 8 courses similar to those that must be
passed for the CFP® designation. Unlike the CFP® designation,
the ChFC and CLU designations do not require a comprehensive
test after all the courses have been completed.
Which designation is better? It depends on what you need in
an advisor. If you have a situation requiring the advanced
use of life insurance then the CLU designation can be
important. For instance, maybe you are a small business
owner needing to use insurance to fund a buy/sell
arrangement with your partners.
If you want an advisor who has a broad understanding of all
areas affecting your financial health, the CFP® and the ChFC
designations are important. Those advisors have the
knowledge to provide help with budgeting, structuring a
diversified investment portfolio and helping you with
retirement, insurance and estate planning.
Other designations, such as the Certified Senior Advisor
(CSA), the Certified Financial Manager (CFM) and the
Certified Funds Specialist (CFS) don’t carry the same weight
as the three mentioned above. These and a myriad of other
designations tend to be very easy to get and require little
time or effort.
So what’s the bottom line? Know the designations of any
advisor you consider, but keep that information in balance
with more important issues, such as how they’re compensated,
their investment philosophy and overall experience. I’ve
known of advisors with every designation who have given
their clients unethical advice, such as putting 100% of
their assets into a single investment, like an equity
indexed annuity. Remember that any advisor paid on
commission will have a hidden conflict of interest. So don’t
let a large set of initials behind a name unduly influence
your choice.
If you would like free, unbiased advice submit your
questions to www.guardingyourwealth.com/askjeff.htm.
Mr. Voudrie is a Certified Financial Planner™, nationally
syndicated newspaper columnist and President of Legacy
Planning Group, Inc., a Private Wealth Management Firm in
Johnson City, TN. He can be reached toll-free at
1-877-827-1463 or at
jeff@guardingyourwealth.com. |
|
|
