Headline: Do You Have Credentials?

Date: 1/24/2021

Body : I was reading over my past blog posts and it occurred to me that I might have been using some bad language.   NO, not THAT bad language, rather, I might have been using financial credentials in a manner that is unfamiliar to you, and I never really looked closely at what they mean.    To be sure, there are about 1,000,001 different credentials out there; t can really help one feel confidence (or motivation to change advisors) if one knows what the long string of letters after the surname, really means.

OK, let’s start with some of the ones you most likely have some exposure to.

Attorney–>To be certain, attorneys come in several flavors.  Very often, in the financial realm, you might find tax attorneys, eldercare attorneys, probate attorneys; The list goes on.  But, there are several broad distinctions of attorneys that can come in handy to know.

These professionals know the law and how it applies to their individual cognate areas.   They have gone through 4 years of Undergraduate education, 3 years of Law School and have passed the State Bar Exam.  After this, they get the initials J.D. after their surname.   No, this does not denote “Juvenile Delinquent” though some might qualify.   J.D. stands for “Juris Doctorate”, and they sometimes use “Esq” after their surname, instead.  “Esq.” stands for “esquire.”   In the financial realm, they can help you setup many arrangements like estate plans, partnership agreements, Wills and Advanced Directives.  On a whole, despite the many jokes made at their expense, they are an honorable and indispensable group of professionals.  Most important, almost anything you tell them has to be kept confidential, under penalty of law.

CPAs–> “CPA” stands for Certified Public Accountant.   These professionals do all types of accounting-related duties.     In Private Industry, they keep track of expenses and revenues, report results to executives and are in charge of reporting to outside agencies (e.g. the IRS).   In Public Accounting, these professionals are most often encountered  when filing taxes, though they are in other areas, such as financial planning, and the like.

These professionals also have to go through a rigorous education, there is the CPA Exam (dreaded by all), and then, they are required to do Continuing Professional Education hours.   Currently, in MD where I am licensed, one has to maintain 80 such hours each 2 years, and be able to justify all 80 taken.    They are licensed by the State, and usually members of the AICPA, which does a lot of education and is a HUGE endorsement for a CPA firm.

Pocket Credentials

Please excuse my poor attempt at humor.    These “Pocket Credentials” though usually less onerous than the qualifications listed above, do have rigorous standards.  In alphabetical order, here is a list of the more common professional credentials you might find.   Please be aware, licensing regulations do sometimes vary state-to-statee

CFA–> The CFA designation stands for “Certified Financial Analyst.”   This is a challenging course of study with 3 levels of testing on cognate areas including: accounting, economics ethics, money management and security analysis.  (Each exam requires over 300 hours of preparation time, and usually, fewer than 50% of students pass each level.)   To receive the charter, the prospect must also have 4 years of relevant professional experience in investment decision making.  After successfully passing all 3 “levels” of the exam process, the CFA is held to a high ethical standard by the issuing authority.  These professionals can be found in many different financial fields.   One study, by the CFA Institute, found these professionals in the following fields of study:

  • 13% Research Analyst
  • 9% Corporate Financial Analyst
  • 8% Accountant or Auditor
  • 7% Consultant
  • 5% Risk Analyst/Manager
  • 5% Relationship Manager/Account Manager
  • 5% Credit Analyst
  • 5% Portfolio Manager

CFE–>CFE stands for “Certified Fraud Examiner.”   This person is hired by a company to do a forensic examination of their books and procedures, and determine where the potential for fraud is.  If hired after a theft is suspected to have occurred, they are charged with the responsibility to do interviews of all employees of the company.  The examiner is trained to do interviews in concentric circles.   First, they speak with employees suspected of no wrong-doing whatsoever, to get a feel for normal policies and procedures.  With this understanding, they approach people who should’ve seen or known about the fraud, and often get these people to confess that there was a fraudulent scheme, and often get details including the upper level managers or executives involved.   Then, in the final interview, the examiner has all of the details and confronts the miscreant with details to confirm.  (I have taken the exam, and it is quite difficult, requiring hundreds of hours of preparation.)  A CFE must have GREAT technical skills in reading journal entries and financial statements, and match this with significant “soft skills” of interviewing and rapport-building. 

CFP–> CFP stands for “Certified Financial Planner.”  They too have strict educational requirements, rigorous testing and an ethical requirement to the issuing authority.   But, the CFP has something more, too.   They are held to the “fiduciary standard” which requires them to act in the absolute best interest of their clients, instead of recommending investments that are merely “suitable.”  (This was covered in a previous post.)

A CFP can help you design and implement a Financial Plan, that encompasses: saving for a house, saving for a college education for your child, or saving for retirement.   They do many other things besides.  Some CFPs are generalists and others specialize in one or more subject areas.  These highly educated professionals are charging fees commensurate with their qualifications; in 2018, they would charge on average $1.871 for designing a Financial Plan and $235 for hourly service.   Though their fees can be quite high, if you go with a CFP, you often avoid conflicts of interests you might encounter when dealing with other professionals.  (If they do receive a commission for recommending an investment, they must disclose it.)

EA–> Stands for “Enrolled Agent.”  (I work for the IRS.   It is not uncommon for somebody to retire from the Service, wait the requisite time, and then become an Enrolled Agent.) These professionals have extensive experience having worked for the IRS, and are now empowered to represent clients before the IRS.  After passing their exam, these professionals have to maintain 72 hours of continuing professional education every 3 years.    You might not have heard of this group of professionals, but they tend to be quite knowledgeable.  

RIA–>Stands for “Registered Investment Advisor.”  These professionals are also held to the “fiduciary standard”, requiring them to place the interest of their clients in front of their own interests.    The RIA is required to pass either the Series 65 Exam, or the equivalent;  This exam is administered by FINRA, and tests knowledge of Law pertaining to being an investment adviser.    To achieve most independence, you might want to opt for a fee-only RIA, but this is not the only consideration.   The RIA might only be an adviser, and turn over to somebody else the money to execute your trades.   Be sure to understand the business practices of your RIA thoroughly.  Quarterly, you should receive updates on the ideas in the manager’s plan.  Check the FINRA website for possible violations of law or professional conduct.

The Verdict

Whew!!  I understand you might feel that we just swam through a bowl of vegetable soup!!  I assure you, this is only the “A, B, Cs” of financial professionals.  There are so many more, one’s head can easily begin to spin.   But, the bottom line is this: do your homework.   When you are picking out a financial advisor,

  1.  Speak with friends and family to get referrals you can trust.
  2.  Understand precisely how the professional is being compensated.
  3.  Ask lots of questions until you know that you feel confident that they are a good or bad fit.

Do these things and I suspect that your luck will soon re-emerge.


Chartered Financial Analyst (CFA) Definition (investopedia.com)

Association of Certified Fraud Examiners – FAQ Certification (acfe.com)

CFP: What Is a Certified Financial Planner? – NerdWallet

Enrolled Agents – Frequently Asked Questions | Internal Revenue Service (irs.gov)


What Is a Registered Investment Advisor or RIA? (thebalance.com)

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

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