In any business, acquiring the knowledge, experience and expertise necessary to perform well for clients or customers is critical to success. In the investment arena, this is especially true because the financial markets are highly complex, and because so much is at stake. With your life savings on the line, understanding the background of the advisor you are working with could make all the difference.
Early in my career, I realized that to do a good job for my clients, I would need to do everything possible to understand the markets and the multitude of investment vehicles available to investors. I started in the business in 1990 with Lehman Brothers after completing a degree in Finance and passed the series 7 and 63 licensing tests, after about 4 months with the firm. Soon after I also passed my commodities licensing test—the series 3. I worked for Lehman in Houston for about 3 years before taking a position with Sutro & Company in La Jolla. I immediately began studying for the CFA, or Chartered Financial Analyst designation, and secured my CFA in 1997. I went on to get my CFP and CIMA designations, along with my series 24, 8, and 65, as well as my insurance license (all of my licenses except for the 65 are now inactive—I just don’t need them anymore).
I have always believed in educating myself. From a purely business perspective, the financial world is highly competitive, so having the right credentials is critical to success. On a much more important level, doing all one can to be the best they can be at their job, to do the best job possible for their clients, is paramount.
While I would not go so far as to say that professionals in the investment arena cannot do their jobs without having credentials, I will say that, at least in my opinion, those who do not put forth the effort to educate themselves to the best of their ability, do not exhibit the level of passion, responsibility, and initiative that I would demand as a client. With that said, there is no substitute for experience. Those advisors who have been in the business for twenty, thirty, forty years and more, certainly have a lot to offer. However, gaining those key credentials can only add value to that experience.
It is important to understand the requirements of the most recognized credentials in the investment business, to get a sense of what it takes to obtain them, and how they help the advisor do a better job for their clients. For investment management, the CFA is the top designation, period. There are certainly many others, but nothing even comes close. Anyone calling themselves a “Portfolio Manager” or “Investment Manager” should have a CFA, and if they don’t, as a client, I would want to know why they do not have it. To complete the CFA program and receive a CFA Charter, the applicant must first meet the minimum initial requirements.
To sit for the CFA exams, the applicant must:
- Have a Bachelor's (or equivalent) degree
Ø or be in the final year of their bachelor's degree program at the time of registration
Ø or have four years of qualified, professional work experience
Ø or have a combination of work and college experience that totals at least four years (Note: Summer, part-time, and internship positions do not qualify)
- Understand the professional conduct requirements (they will be asked to sign the Professional Conduct Statement and Candidate Responsibility Statement)
Once the initial requirements have been met, the candidate can then sit for the exams. There are three levels of the CFA exam—Level I, II, and III. Level I is given in June and December each year. Levels II and III are only given once per year, in June. This means that it takes a minimum of 2 ½ years to complete the program, assuming the candidate passes each Level the first time, and that they take Level I in December, and then immediately take Level II the following June. (I have never personally known anyone to do this.)
The CFA exams cover the following topics:
- Ethical and Professional Standards
- Quantitative Methods
- Financial Reporting and Analysis
- Corporate Finance
- Equity Investments
- Fixed Income
- Alternative Investments
- Portfolio Management and Wealth Planning
The CFA exam process is by far the toughest series of tests I have ever taken. Nothing else comes close. Anyone who has successfully completed the CFA program and has been awarded their CFA Charter has demonstrated a significant commitment to their career as an investment professional, as well as a strong commitment to ethical conduct in all that they do.
The CFP (Certified Financial Planner) is the top credential for financial planning professionals. As with the CFA, I would say that anyone offering financial planning services absolutely must have the CFP certification. The CFP also has stringent requirements for candidates:
- Completing the Education Requirement
- Pass the test—The CFP® Certification Examination tests the candidate’s ability to apply financial planning knowledge to client situations. The 10-hour exam is divided into three separate sessions. Because of the integrated nature of financial planning, however, each session may cover all topic areas. All questions are multiple choice, including those questions related to case problems. The exam is administered three times a year - generally on the third Friday and Saturday of March, July and November - at about 50 domestic locations.
- Experience Requirement—At least three years of qualifying full-time work experience are required for certification. Qualifying experience includes work that can be categorized into one of the six primary elements of the personal financial planning process. Experience can be gained in a number of ways including:
- The delivery of all, or of any portion, of the personal financial planning process to a client.
- The direct support or supervision of individuals who deliver all, or any portion, of the personal financial planning process to a client.
- Teaching all, or any portion, of the personal financial planning process
- Applicants must also pass the Fitness Standards for Candidates and Registrants and a Background Check and pay their certification fees.
The CIMA (Certified Investment Management Analyst) designation is the top credential for investment management consulting. The CIMA professional integrates a complex body of investment knowledge to provide objective investment advice and guidance to individuals and institutions. That knowledge is applied systematically and ethically to assist clients in making prudent investment decisions. The CIMA certification program requires that candidates meet all eligibility requirements, including experience, education, examination, and ethics.
There are many other high-quality credentials available to investment professionals. I have written about those that I have because I know them well and because I believe them to be the best. What is more important, however, is the level of commitment it takes for professionals to invest their time, energy, and money into the process of acquiring these and other credentials. As a client, I would want and expect to see this level of commitment from my financial professional, and if I did not see it, I would be concerned. There are far too many inexperienced “advisors” hired by banks and investment firms, who do not possess either the commitment or capabilities to manage the hard-earned assets of their clients. I believe most clients assume that these firms require their financial professionals to obtain education and credentials.
Unfortunately, this is not the case. Many “advisors” do not have college degrees, much less advanced degrees, certifications, or designations. The responsibility ultimately lies with the client to ensure that their financial professional is qualified.