Industry Designations for Financial Advisors
You may come across planners with a variety of credentials. The most common are:
|CFA - Chartered Financial Analyst|
|CFP - Certified Financial Planner|
|CFS - Certified Fund Specialist|
|ChFC - Chartered Financial Consultant|
|CLU - Chartered Life Underwriter|
|CMFC - Chartered Mutual Fund Counselor|
|PFS - Personal Financial Specialist|
|QFP - Qualified Financial Planner|
|RFC - Registered Financial Consultant|
All these designations are awarded by private organizations. While they suggest that a planner has a certain amount of experience or training, none is required or recognized by any federal or state government or regulatory agency. Planners voluntarily choose to obtain these. Many talented planners hold no designations; other talented planners hold several.
Federal Securities Licenses
To sell securities, planners must hold a federal securities license, offered by the National Association of Securities Dealers. Most planners hold either the Series 7 (which cover all forms of investments except commodities) or the Series 6 (limited to mutual funds, unit investment trusts and closed-end funds.)
State Insurance Licenses
Advisors wishing to offer life insurance and annuities must pass state-administered insurance examinations.
Registered Investment Advisors
Any person who provides financial planning services for compensation must be registered with the Securities and Exchange Commission or their state regulatory authority. Stockbrokers, insurance agents, attorneys and accountants are exempt, provided that their investment advisory services are merely incidental to their work. All other planners must register as investment advisors. Therefore, do not work with any planner who is not registered.
Planners who hold an NASD securities license are registered with a broker/dealer, and it is through that firm that they buy and sell investments for their clients. The B/D has the responsibility of supervising the activities of the advisor, and verifying that his recommendations are suitable for the client. Consequently, NASD-licensed planners may place his/her NASD license with only one broker/dealer. Many who work within the B/D framework complain about what they consider to be massive amounts of regulatory scrutiny on their practices - all done in the name of consumer protection - while many others, both within and outside the broker/dealer community, complain that NASD and B/D supervision is inadequate to properly safeguard consumers.
Planners who hold state insurance licenses are actually licensed not by the states, but by individual insurance companies; passing the state exam permits the companies to grant agents a license. An agent is permitted to hold licenses with multiple insurance companies, and most planners do, enabling them to offer the products of many insurance companies. Thus, planners who hold both NASD and insurance licenses process their investment transactions through their B/D and their insurance transactions through one or more insurance companies (one of which, by the way, might be their B/D!).