What Can Your Financial Advisor's Designation Tell You?
The advisor's designation tells you about his educational background. Designations include Chartered Financial Consultant (ChFC), Certified Financial Planner (CFP), Certified Public Accountant (CPA), Chartered Life Underwriter (CLU), or attorney (JD), among others. These signify backgrounds in finance, business, accounting, insurance, and law.
Background is, however, only one aspect of a financial advisor.
Many very naturally assume that CPAs have a much stronger background in tax law and tax planning than other similar professionals. Their proficiency most often is related to their experience, not their CPA designation. You probably didn't know that the CLU exam has more questions regarding income 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.
But a CPA is not the same as having a financial planner. Most colleges will have two separate programs for accounting and finance. Financial planning is more accurately applied economics. Its approach is future driven. Rather than a historical or current perspective, it takes a long-term strategy and analysis. It's proactive, not reactive.
The worst financial advice comes from journalists. They are notorious for describing an extreme market position, emphasizing the sensational in order to sell magazines. In my view, journalists are more concerned with making a story than reporting one. Seldom do I read the complete facts as given to the reporter, but rather a hazy half-truth intended to make a warped yet sensational point. Seldom do I find good judgment.
A designation may help in determining the financial planners areas of expertise, but don't get pigeonholed into common assumptions of such designations.
Background is, however, only one aspect of a financial advisor.
Many very naturally assume that CPAs have a much stronger background in tax law and tax planning than other similar professionals. Their proficiency most often is related to their experience, not their CPA designation. You probably didn't know that the CLU exam has more questions regarding income 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.
But a CPA is not the same as having a financial planner. Most colleges will have two separate programs for accounting and finance. Financial planning is more accurately applied economics. Its approach is future driven. Rather than a historical or current perspective, it takes a long-term strategy and analysis. It's proactive, not reactive.
The worst financial advice comes from journalists. They are notorious for describing an extreme market position, emphasizing the sensational in order to sell magazines. In my view, journalists are more concerned with making a story than reporting one. Seldom do I read the complete facts as given to the reporter, but rather a hazy half-truth intended to make a warped yet sensational point. Seldom do I find good judgment.
A designation may help in determining the financial planners areas of expertise, but don't get pigeonholed into common assumptions of such designations.
About the Author:
Hank Brock is president of Brock and Associates, LLC, a firm specializing in retirement, estate, tax, and business planning. For more detailed information on selecting a financial planner, visit us online.
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