Our Thinking

The 3 Certifications that Matter

August 8th, 2016

Certifications should indicate a higher level of education and expertise, which should lead to better results for you.  Thus, it seems to wise to look for them when hiring an advisory firm. However, there are over 160 designations, so how do you pick the right ones?

In our view, there are three that make a significant difference, the Certified Financial Planner, CFP®, the Certified Investment Management Analyst, CIMA®, and the Chartered Financial Analyst, CFA®.

A Certified Financial Planner (CFP) has to complete 18 to 24 months of study, pass a rigorous ten-hour exam (63% pass rate), and work for three years as a financial planner before earning the designation.

A Charted Financial Analyst (CFA) has to sequentially pass three six-hour exams that are widely considered to be among the most challenging in the investment profession, adhere to the CFA Institute Code of Ethics and Standards of Professional Conduct, and have at least four years of work experience in an investment decision-making role. Since the first CFA exam was given in 1963, the combined global pass rate for all three levels of the exams is 52 percent.

The Certified Investment Management Analyst (CIMA) designation is awarded by the Investment Management Consultants Association to individuals who successfully complete a year-long program focusing on investment policy, asset allocation, manager search and selection, ethics, and performance measurement. To earn the CIMA designation, individuals must have three years of experience in investment consulting,  pass a Level I entry exam (61% pass rate),  pass Level II exam after attending a week-long classroom program at Wharton, MIT, or Chicago, and then pass a Level III certification exam (63% pass rate).

The bottom line is, If you want a firm to do both financial planning and investment management for you, ensure that their planner is a CFP®, and that their investors are either a CIMA® or CFA®. Otherwise, you could be trusting someone with lots of letters after their name that don’t mean much. For more on the subject, below is an excerpt from “Advisor Designations, What does Certified really mean?”, written by CNBC’s Deborah Nason.

Professional designations abound, and clients have come to expect to see them listed after a financial advisor’s name. But are they meaningful?

 According to a 2015 study commissioned by the Investment Management Consultants Association, “69 percent of investors with more than $1 million in investable assets say it’s important or critical for their advisor to hold voluntary certifications in addition to required licenses and registrations.”

The website of the Financial Industry Regulatory Authority features a database of more than 160 such designations, with a separate web page highlighting the few that are nationally accredited by either the American National Standards Institute or the National Commission for Certifying Agencies.

So what exactly does “certified” mean? And if a designation is not certified nationally, can it still be trustworthy?

“It’s important to understand that a certification is different than a designation,” said Sean Walters, executive director and CEO of IMCA, which offers the Certified Investment Management Analyst, or CIMA, certification. The mark, inaugurated in 1988, is held by about 8,000 certificants.

“A designation refers to any letter after your name, which in itself does not imply continued competency,” he said. “Make sure a certification has ongoing requirements, which the vast majority do not.”

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