A financial planner is someone who maps out your financial goals, gives advice and at times, does the actual investments for you. Having a certification enhances the financial planner’s professional standing but is not mandatory. To practise, a financial planner requires licenses at the Federal and/or State levels.
Federal Securities License
A license is not required for anyone to work as a personal financial advisor but this is necessary if additional services such as selling investment products are performed. The National Association of Securities Dealers (NASD) offers securities licenses if candidates pass the Series 6 or Series 7 examination. NASD permits candidates to retake the exam as many times as required, after specified waiting periods. The Series 6 examination allows a financial planner to sell mutual funds and variable insurance policies. Series 7 is suited to commission-based planners who sell mutual funds, variable annuities, variable life insurance policies or stocks, bonds and options.
State Licenses
State licensing boards may require a financial planner to fulfill some requirements in addition to the Series 6 or 7 exams. One exam generally mandated by State boards is the Series 63 exam, called the “blue sky” test. Financial advisors seeking to sell insurance and annuities products will need to additionally pass the State-administered insurance exams.
Registered Investment Advisor (RIA)
A RIA, registered with the Securities and Exchange Commission (SEC), manages the investments of customers. A RIA charges fees for investment advice, managing investment portfolios and assisting in financial planning.
Registration of a RIA is mandatory under the Investment Advisers Act of 1940. A RIA who manages investments more than $25 million needs to be registered with the SEC, while one managing lower amounts may register at the State level. A registration at the SEC level indicates that the RIA is regulated by the SEC, and is not an endorsement of the RIA’s abilities.
Before selecting a RIA, check the Investment Adviser Public Disclosure (IAPD) website. All SEC-regulated RIAs feature in the IAPD database. It provides information on each advisor’s business, advisory services and fees.
Industry Designations
The world of financial planning has numerous certification programs but no single widely accepted degree of top quality like a MD in medicine. Many private organizations offer certification programs. Financial planners who wish to acquire a certification need to pass a series of tests. Some of the commonly held certifications are:
CFA - Chartered Financial Analyst
CFP - Certified Financial Planner
ChFC - Chartered Financial Consultant
CFS - Certified Fund Specialist
CPA - Certified Public Accountant
PFS - Personal Financial Specialist
RFC - Registered Financial Consultant
CLU - Chartered Life Underwriter
CMFC - Chartered Mutual Fund Counselor
This is not an exhaustive list of credentials as new ones are being formed all the time.
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