In the complex world of finance, it makes sense that there are many types of financial certifications available. Although the titles may seem similar, each financial certification is designed to help with a specific need.
If you are interested in a career in financial management it might be confusing to determine what credentials you might need. So, let’s take a closer look at the different types of financial certifications available.
Top financial certifications
Without the right information, it can be difficult to distinguish the difference between different financial certifications. Although it may seem like a sea of alphabet soup, each represents a financial skill set tailored to a particular need. Whether you are interested in selecting a personal finance professional to assist you or are hoping to become a certified professional, it is important to understand what each certification means. Here’s what you need to know about each:
Certified Financial Planner - CFP
A Certified Financial Planner (CFP) is knowledgeable in a wide range of financial topics. With this knowledge, a CFP can examine an individual’s entire financial portfolio and make recommendations in the form of a financial plan to move towards their financial goals.
In order to become a CFP, they’ll need to take a series of courses before passing a seven-hour test. The CFP will not provide an individual with this certification unless they pass the rigorous exam with 70% or higher. As a CFP, you’ll know the ins and outs of personal finance to help clients make the best decision for their life. In terms of financial certifications, a CFP is one of the most comprehensive.
Chartered Financial Analyst - CFA
The CFA Institute grants a Chartered Financial Analyst (CFA). Professionals with a CFA are experts of investments. A CFA can use this knowledge to manage investments for clients. Before receiving the CFA title, the CFA Institute requires that candidates obtain at least four years of relevant work experience. Plus, they’ll need to master ten investment topics over the course of three exams.
Certified Public Accountant - CPA
A Certified Public Accountant (CPA) is a more common type of certification designed for accountants and tax preparers. This certification is one of the more difficult to obtain. A CPA will have to pass an intense exam after completing 150 hours of coursework requirements set forth by the American Institute of CPAs. With their knowledge, a CPA can help clients to manage their personal finances with a focus on minimizing tax liabilities.
Chartered Financial Consultant - ChFC
A Chartered Financial Consultant (ChFC) performs a similar role to a CFP. In fact, the ChFC was created as an alternative to the CFP requirements. Before entering this program, a ChFC will need to obtain three years of work experience in the financial industry. ChFCs will undergo a series of intense coursework and a comprehensive exam before receiving their documentation. The American College of Financial Services runs the ChFC program. With four months (plus tuition fees), obtaining a ChFC is completely possible.
Charted Life Underwriter - CLU
A Charted Life Underwriter (CLU) most often works in the insurance industry. American College of Financial Services runs this program in addition to the ChFC program. Professionals with this certification have completed a series of ten courses and passed 20 hours of exams. At the end of the program, they will have a deep understanding of life insurance, health insurance, and other insurance-related topics.
Chartered Alternative Investment Analyst - CAIA
Chartered Alternative Investment Analysts (CAIAs) have extensive knowledge surrounding advanced investment topics such as hedge funds and real estate. In order to obtain this certification, a financial professional would need to complete coursework through the CAIA Association. Typically, it will take a year for them to complete their coursework and pass their exams. In the end, they can confidently manage alternative investment opportunities for clients.
Financial Risk Manager - FRM
A Financial Risk Manager (FRM) works to manage the risk found in global financial markets. Typically, a professional with this certification would work for a major firm, such as a bank, to safeguard against potential liabilities in the marketplace. But they can also help individual clients manage their investments. In order to obtain this certification, an individual would need to pass an eight-hour exam conducted by the Global Association of Risk Professionals.
Certified Management Accountant - CMA
A Certified Management Accountant (CMA) is similar in some ways to a CPA. But instead of working with private individuals, a CMA will likely work with large corporate clients. A CMA has extensive knowledge of accounting and management. With that, they have the skills to make strategic decisions for large businesses. The Association of Accountants and Financial Professionals in Business (IMA) administers an extensive exam to those wishing to secure this certification.
Certified Fund Specialist - CFS
A Certified Funds Specialist (CFS) has expert knowledge of mutual funds. With this experience, a CFS can advise clients on a variety of mutual fund topics. The Institute of Business and Finance offers the training to become a CFS.
Certified Financial Education Instructor - CFEI
The Certified Financial Education Instructor (CFEI) certification is offered by the Financial Educators Council. It is ideal for someone looking to become a financial coach. As a CFEI, you'd be required to complete f 40 Professional Development Hours (PDH) broken down into two areas. The first is the Methods of Teaching: Teaching Techniques, & Best Practice. And the second is on Content Knowledge, where graduates must display competency in personal finance topics.
Acting as fiduciary
As you decide what financial certification makes sense for you, you’ll likely come across the term ‘fiduciary.’ Although a fiduciary is not a financial certification, it is an important piece of the puzzle for people determining which financial professional to work with.
A fiduciary is a financial professional or firm that is legally bound to act in the best interests of their client. Unquestionably, a fiduciary is obligated to set aside their personal interests and do what is best for the client. This legal and ethical obligation can help to ensure that the fiduciary works to put client needs first.
Of course, many professionals that choose to pursue one of the certifications above may also choose to become a Certified Financial Fiduciary (CFF). With that, you'll be professionally bound to work in your clients' best interests.
Which financial certification is right for me?
If you are considering different financial certifications to propel your career further, you have a long list of potential options. Take some time to determine why you want to get into the financial services industry. Are you looking to become an expert investor for major firms? Or do you want to help everyday people tackle their personal finances in the best way possible?
Look for certifications that will help you meet your goals. For example, if you want to help people with their tax liabilities, then becoming a CPA may be the best fit. Once you have a better idea of your goals, you'll be able to select a certification more easily.
Beyond your goal for the certification, you should consider the return on investment. You don’t want to pay for an expensive certification without a potential competitive upside. Run the numbers to make sure the ROI is worthwhile.
The bottom line
The financial certifications of a professional can help you determine if they will be able to help with your unique financial situation. Although there are many options, the right professional with a financial certification, or a combination of certifications, can help you manage your money effectively. As you explore your options, make sure that the professional you work with has the qualifications that make you comfortable.