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.
Remember, though, that background is only one aspect of a planner.
By way of example, many assume that a CPA has far greater knowledge in the area of income taxation than other financial professionals. What most do not know is that the CLU exam has more questions in reference to taxation than does the exam the CPA is required to take.
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.
A particular area of specialty doesn’t necessarily mean anything either. CPAs major in accounting, with most of the college courses in accounting focusing on the historical point of view. They look at historical data, place it on a form, and then prepare a tax return or financial statement. A good CPA to assist with financials and money management is necessary for every business.
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.
If you would like to make a comment, please fill out the form below.
