How do I save for retirement and pay down debt at the same time? Which are the right investments to help me retire early? What’s the best way to leave a legacy for my family and favorite charities, and not the IRS? Help, I need a budget!
All of these questions fall into the bucket of “money management.” But among the dozens of types of financial advisors you can ask — a planner, manager, analyst, consultant, coach — which one to choose?
What’s in a name?
Mix and match these words and you’ll come up with at least a dozen legit professional designations: (Financial, investment, money, asset, portfolio) plus (planner, coach, counselor, advisor, manager, strategist, specialist, professional, practitioner).
There are a few important descriptors to add to the list: “Certified,” “registered” and “accredited.” These qualifiers signal that someone has trained for and passed an exam to earn credentials in a particular niche of financial advice. Some are also required to earn ongoing credits to keep their skills fresh and get recertified. And they may also be required to take the fiduciary oath that requires them to put the client’s interest above their own.
Use the Financial Industry Regulatory Authority’s (FINRA) professional designations lookup tool to decode the acronyms following a money pro’s name.
How these types of financial advisors can help
Under the umbrella of “financial advisors” are about a dozen types, each with their own area of focus and required certifications. In general, they fall into two camps: Financial planners and investment advisors.
Financial planners are the broad subject-matter experts. If you need a blueprint to help tackle multiple saving, spending and investing goals, a financial planner can help you out. If you want to focus solely on your investments, an investment advisor is your ticket.
Here are the types you’ll come across most often and how they can help you:
Financial planner: A financial planner can help you create a long-term financial plan that incorporates all of the moving parts of your money life. This includes advice on retirement planning, estate planning, taxes, insurance, budgeting, etc. Beware: Anyone, regardless of background, can call themselves a “financial planner.” However they cannot use any of the professional designations without getting tested and certified. Which leads us to some of the designations you should look for before you hire someone…
Certified financial planner (CFP): This financial planner has completed countless hours of coursework and passed a rigorous exam to earn the CFP designation from the Certified Financial Planner Board of Standards. Like doctors, they must also perform three years of hands-on work in the industry before becoming accredited. They’re also subject to a background check and must adhere to an ethics code and uphold the fiduciary standard (putting clients’ needs first, always). Some CFPs specialize in certain aspects of financial planning and might refer you to other experts for help completing certain tasks, like taxes or estate planning.
Chartered financial consultant (ChFC): There’s a lot of overlap in how CFPs and ChFCs are trained. The ChFC is a newer designation (from the American College of Financial Services) but the training is equally rigorous. But instead of passing a giant exam at the end of training, students must pass each training module one at a time. Plus they are not held to the fiduciary standard. ChFC students can specialize in financial planning issues for certain types of clients. If you’re going through a divorce, have a family business, have a special needs child, a chartered financial consultant may be a good first phone call to make. Often you’ll see a financial pro with both sets of initials after their name.
Financial coach: Like a tennis coach or a weight-loss coach, a financial coach’s job is to help you reach a goal. They mostly focus on the fundamentals of money management, and help people who have struggled financially tackle their fears, biases and unhelpful habits. Since they tend to focus on the savings side (and dealing with debt), a financial coach is good for you if you need help corralling your finances, setting reasonable savings goals and sticking to a budget. Financial coaches can earn the FFS designation (Financial Fitness Coach) from the Association for Financial Counseling & Planning Education. They aren’t licensed to recommend specific products or offer anything more than broad investment advice. If you need more specific advice you’ll need to see a financial planner.
Financial counselor: Financial counselors mainly serve those who need help getting out of debt, dealing with bills and building up emergency reserves to fend off financial disaster. Credit counselors and housing counselors are types of financial counselors. These money pros are well-versed in the barriers low-income households face. There are various entities that offer official certification in coaching and counseling, including the Association for Financial Counseling and Planning Education offers an Accredited Financial Counselor (AFC) designation.
Chartered financial analyst (CFA): This type of financial advisor’s expertise is in financial analytics. They focus on portfolio management and analysis. Most likely an individual wouldn’t hire someone who is solely a CFA. That’s because people with just this designation tend to work behind the scene at investment firms, banks and insurance companies. However, many CFPs also obtain a CFA from the CFA Institute, so you’ll often see this designation alongside others in the string of letters after a financial advisor’s name.
Investment advisor (sometimes called a registered investment advisor (RIA)): A person who focuses on managing investments. An investment advisor can put together the right mix of assets in your portfolio to help reach your goals and remain aligned with your tolerance for risk. To become an RIA an individual must pass the Series 65 exam and file certain disclosure forms with the SEC. Once they do, they are legally required to act as a fiduciary for their clients. If they manage more than a certain amount of money they must register with the SEC.
Wealth manager: High-net-worth clients who require comprehensive, ongoing financial management and advice may hire a wealth manager to be at their beck and call. There are several certifications available, including Wealth Management Certified Professional (WMCP) from the American College of Financial Services and Wealth Management Specialist (WMS) from the College for Financial Planning. You’d talk to a wealth manager if you have a high net worth and either own complex investments or want to diversify into some that aren’t run-of-the-mill (like hedge funds).
Certified public accountant (CPA): One of the more well-known certifications, the financial pro with this certification can provide advice on reducing your taxes and arranging your assets (like your retirement investments and real estate holdings) to minimize what you owe the IRS. If you have a particularly complicated tax situation, hiring a CPA can save you a lot of headaches and money. Same if you’re a business owner: A CPA is training in accounting and can help manage your books. Note that CPAs can earn additional certification to provide financial planning services by becoming a personal financial specialist (PFS).
Weed out the bad apples
Once you’ve decided which type of financial advisor you need, it’s time for the screening process.
The vast majority of financial professionals are committed to giving good, unbiased advice. But there’s plenty of room for conflicts of interest due to the way the industry is set up (thanks to commissions and kick-backs). You’ll want to check their credentials and see if there have been any disciplinary actions and what conflicts of interest there might be.
You can find out all of that by running a search at Investor.com (to check a firm). The site uses regulatory and proprietary data, searching SEC, state regulator databases, professional designation websites and FINRA. Check out individual advisors using FINRA’s BrokerCheck tool. As mentioned earlier, you’ll also want to ask any potential advisor these probing questions for a gut check and to see if it’s the right fit.