What to Look For in a Financial Professional


Financial services is a young profession and there’s a lot of squabbling going on with regard to what designations are best. There are 100x as many salesmen out there as financial professionals, though, and a bunch of the designations were designed to give them credibility. Quite a lot of the credentials people have can be obtained with a week-end cram course.

For tax prep the professionals are CPAs or lawyers, but you have to confirm they specialize in tax. (A less rigorous credential is E.A., but you can be sure they always specialize in tax.) For someone specializing in investment portfolio construction, a CFA is the professional standard, though they aren’t likely to do planning or tax work. For financial planning professionals who do it all, either the CFP® or the CPA/PFS are equivalent, but CFPs are required to adhere to a fiduciary standard and there’s a bit more wiggle room with CPA/PFS. A ChFC® probably came up through the insurance industry path. They have some level of professional-level knowledge, but are specifically designed NOT to be fiduciary since they often sell proprietary insurance products on commission. That credential has a taint of conflict-of-interest.

The “registered representative” who is “fee-based” is a pure salesman. They are required to disclose this on their card, but I don’t think most people realize that “registered representative” means “not a fiduciary financial professional.” They can be perfectly lovely, but they’re more equivalent to the clerk at CVS than your doctor. The best they can promise is that they won’t try to sell you something outright unsuitable for you, whereas a fiduciary won’t be trying to sell you ANYTHING; they’re advising you what’s in your best interest (preferably for a pre-determined fee disclosed upfront.) CFP® and ChFC® use trademarks to try to help keep these sought-after credentials from being abused.

The premier group championing professional fiduciary financial planning services is the National Association of Personal Financial Advisors. NAPFA has around 2,000 active members and is the first place I’d start to find a fee-only fiduciary advisor.  There are a number of groups under the overall umbrella of NAPFA that you’d choose based on personal preferences. I’m in the retainer-based tax-focused sub-group, the Alliance of Comprehensive Planners. But some of my friends are in the subscription-based virtual-conference-model group XYPlanners. Another sub-group are the hourly-based Garrett Planning Network. Many NAPFA advisors work under an “assets under management” (AUM) model based on your net investable assets, but that’s becoming less common as more of us move to a retainer or subscription model. As knowledge workers, the subscription model works best since it’s so important for us to really know our clients. (Otherwise the answer to almost every question will be “it depends!”)

The Financial Planning Association is older than NAPFA. Quite a lot of those people came up through sales channels but they’re struggling to become more professional. Where-as “fee-only” has a fiduciary duty, must avoid conflicts of interest, must disclose fees and avoids moral hazards, the older “fee-based” model works on commissions and must merely avoid selling you something unsuitable.  You can find some good CFP® advisors there who are struggling to climb out of the commission-based well. but it’s hard going. Help them out by asking them to sign a fiduciary oath and disclose all sources of revenue if you choose to work with one.

In the glossary below I have bolded the credentials I either hold or used to hold. (I was an EA, then dropped it after becoming a CPA, and am now a CFP®in addition to CPA.)

Glossary:

ChFC®: A chartered financial consultant – a financial planning professional who came into the profession as an insurance agent – not fiduciary, without a rigorous entrance exam. It was created in 1982 as a non-fiduciary alternative to CFP® that can make money on insurance commissions and squeezed to the top alphabetically.

CFA: A Chartered Financial Analyst, an investment credential – not necessarily fiduciary or works with clients.

CFP®: A Certified Financial Planning professional – covers taxes, investing and planning, a fiduciary professional

CPA: A Certified Public Accountant – an accounting credential – not necessarily fiduciary but must disclose compensation methods

CPA/PFS: A CPA who has a specialty as a Personal Financial Specialist, roughly equivalent to a CFP® or ChFC® in education requirements.

E.A.: Enrolled agent: registered with the IRS as a tax specialist