Alphabet soup: financial planning designations and what they mean.

In these days of wary consumers, clients usually shop around for personal financial planning services. As a result, CPAs must recognize they are competing with other qualified planners. Comprehensive financial planning has many aspects, including investment planning, risk management and retirement and estate planning. This means other professionals--investment advisers, stock brokers and insurance agents--also offer PFP services to their clients.

These advisers may hold PFP certifications or designations. Since the American Institute of CPAs personal financial specialist designation is relatively new--the AICPA instituted the PFS designation in 1987--many CPAS hold one or more of the other available PFP certifications. Understanding the competition may help CPA planners market their services better. It also may help them decide if obtaining one or more of these designations will enhance their professional expertise.

This article describes the PFS and the three other well-known PFP designations--the certified financial planner (CFP), the chartered financial consultant (ChFC) and the chartered financial analyst (CFA)--in terms of the education, experience and testing requirements for obtaining and maintaining each. The exhibit on page 82 summarizes the requirements for each, and the [WHERE TO GET MORE INFORMATION] explains how CPAs can obtain additional information.

PERSONAL FINANCIAL SPECIALIST

The PFS designation has been awarded to nearly 800 CPAs since 1987. After identifying the need to accredit accounting specialties, the AICPA chose financial planning as the first such specialty and established the PFS program to accredit CPA financial planners. Only licensed CPAs can obtain the designation.

To earn the PFS designation, a candidate must

* Hold a valid and unrevoked CPA certificate.

* Be an AICPA member.

* Have at least 250 hours of experience per year for the preceding three years before taking the exam in the six specified PFP subject areas (listed below).

* Submit a written statement of intent in order to comply with all reaccreditation requirements.

* Pass the PFS exam.

* Submit six references (three from clients and three from other professionals) to substantiate experience.

The PFS program does not have a specific course of study for candidates. The emphasis is on CPAs' PFP experience, which must be in six planning areas:

1. Personal financial planning process.

2. Personal income tax planning.

3. Risk management.

4. Investment planning.

5. Retirement planning.

6. Estate planning.

The six-hour PFS exam is offered twice a year (in January and September). It is composed of multiple-choice questions (50%), objective-format (other than multiple-choice) questions (25%) and case-study questions (25%). Since no partial credit is given, CPAs must retake the entire exam if they do not earn passing scores. The Personal Financial Specialist (PFS) Candidates Handbook provides information for candidates preparing to take the exam. It includes a content specification outline listing the areas covered and the weight of each on the exam. Sample exam questions, a list of useful reference materials and exam-taking suggestions also are provided.

Once CPAs earn PFS designations, they must go through the reaccreditation process every three years. Reaccreditation ensures practitioners continue to perform PFP by requiring at least 750 hours of PFP experience and at least 72 hours of PFP continuing professional education during the three-year period. Additional reaccreditation requirements include maintaining AICPA membership and a valid CPA certificate, submitting a written statement of intent to continue to comply with reaccreditation requirements and completing an internal practice review questionnaire.

The AICPA, through its PFP division, provides practitioners with CPE, marketing and technical support. To provide guidance on the responsibilities of CPAs offering financial planning services, the PFP executive committee issued three statements on responsibilities in personal financial planning practice (SRPFP) including SRPFP no. 1, Basic Personal Financial Planning Engagement Functions and Responsibilities, SRPFP no. 2, Working With Other Advisers, and SRPFP no. 3, Implementation Engagement Functions and Responsibilities. (See "Working With Other Advisers to Provide PFP Services," page 86, for a discussion of SRPFP no. 2.)

As CPAs, holders of the PFS designation must abide by the AICPA Code of Professional Conduct, which requires CPAs to serve the public interest, perform responsibilities with integrity and due care and maintain objectivity and independence.

CERTIFIED FINANCIAL PLANNER

The CFP designation was first awarded in 1972 by the College for Financial Planning in Denver. In 1985, the International Board of Standards and Practices for Certified Financial Planners (IBCFP) assumed responsibility for overseeing the CFP examination process and awarding CFP licenses. Currently, there are over 23,000 licensed CFPs, some of whom are CPAs.

To qualify for the CFP license, candidates must

* Complete a financial planning education program registered with the IBCFP.

* Pass the IBCFP comprehensive certification examination.

* Have related work experience (the number of years varies with the level of education).

* Sign the IBCFP declaration to uphold the IBCFP Code of Ethics and Professional Responsibility.

The IBCFP maintains a list of registered education programs. Some are bachelor's or master's degree programs at colleges and universities around the country. Many others are certificate programs in financial planning and are designed specifically to prepare applicants for the CFP exam. The most well-known certificate program is the CFP professional education program offered by the College for Financial Planning. This is a six-part, self-study program that usually takes two years to complete. It is possible, however, for students to accelerate the program and complete it in one year.

The CFP comprehensive certification exam is a two-day, 10-hour exam and is offered twice each year (in February and July). It includes multiple-choice questions, matching items and case problems or problem sets with multiple-choice responses. The six areas covered are

1. Fundamentals of financial planning.

2. Insurance planning.

3. Investment planning.

4. Income tax planning.

5. Retirement planning and employee benefits.

6. Estate planning.

As is the case with the PFS exam, no partial credit is given; a failing score means the entire exam must be retaken. In its General Information Booklet, the IBCFP provides a detailed topic outline and a list of publications that may help candidates prepare for the exam.

The experience requirements for CFP licensure depend on the candidate's level of formal education. The basic requirement is three years of PFP-related experience for those who have an undergraduate degree (in any major) from an institution accredited by one of the six regional accreditation agencies and who have completed a PFP curriculum registered with the IBCFP. Candidates with undergraduate degrees in financial planning from IBCFP-registered institutions need two years of experience. Only one year of experience is required for individuals with graduate degrees in business or consumer economics or J.D. degrees from accredited institutions. Four years' experience is required of those who have associate's degrees in business from accredited institutions and who complete an IBCFP-approved curriculum. Even candidates with no college education may become CFPs if they have five years of financial planning experience and complete an IBCFP-approved curriculum.

Maintaining the CFP license requires 30 hours of CPE every two years, annual license renewal and a signed statement disclosing any ethics violations, legal proceedings, etc. The IBCFP enforces its Code of Ethics and Standards of Practice and can suspend or revoke the license of any CFP who violates the code. The code requires CFPs to abide by the principles of integrity, objectivity, competence, fairness, confidentiality and professionalism.

CHARTERED FINANCIAL CONSULTANT

The ChFC designation has been awarded since 1982 to over 23,000 financial consultants by the American College in Bryn Mawr, Pennsylvania. The ChFC often is associated with the chartered life underwriter (CLU) designation, also granted by the American College. Since the CLU is an insurance designation, those who hold both usually have insurance backgrounds. The American College also offers degree programs for a master of science in financial services and a master of science in management.

Candidates for the ChFC designation must

* Pass 10 courses.

* Have three years of business experience immediately preceding the date of the designation (an undergraduate or graduate degree may qualify for one year of experience).

* Abide by the American College Code of Ethics.

The ChFC program consists of eight required and two elective courses, which can be taken through self-study or formal classes. Required courses include

1. Financial planning fundamentals.

2. Income taxation.

3. Life and health insurance.

4. Investments.

5. Wealth accumulation planning.

6. Estate planning.

7. Financial planning applications.

8. Retirement planning.

Students with certain professional designations may apply for a transfer of credit for certain courses. In particular, CPAs may be allowed credit for the income taxation course.

To complete each required course, candidates must pass a two-hour objective exam. Exams can be taken on a computer or with paper and pencil. Computer exams are available year-round; however, traditional exams for most courses are given only once each year. Candidates are allowed one year to retake failed exams before having to reregister and pay full tuition again. There is no final comprehensive exam for ChFCs; only the 10 individual course exams must be passed. Once candidates earn ChFC designations, they can earn CLU designations by passing three additional required courses. Likewise, CLUs can earn ChFCs by passing three additional courses.

CLUs and ChFCs enrolled in the program after July 1, 1989, are required to complete 60 hours of CPE every two years. Those who enrolled before that date can choose to participate voluntarily in the professional achievement in continuing education program. The Code of Ethics, adopted in 1984, applies to all students in the ChFC and CLU programs who matriculated on July 1, 1982, or later and to earlier matriculants who consent voluntarily to abide by it. The code requires designees to render the same service to clients they would apply to themselves, to act with honor and dignity and to maintain a high level of professional competence through continued studies. Sanctions for code violations include temporary or permanent suspension of the right to use the ChFC or CLU designation.

CHARTERED FINANCIAL ANALYST

The CFA designation has been awarded to some 14,500 investment professionals by the Institute of Chartered Financial Analysts (ICFA) in Charlottesville, Virginia, since 1963. The ICFA defines "financial analyst" as a person who "has spent and/or is spending a substantial portion of his/her professional time collecting, evaluating or applying financial, economic and related data for direct application to the investment process." CFAs are more often securities analysts, portfolio managers and investment advisers than personal financial planners. However, in using a team approach to financial planning one might consider having a CFA assist with investment planning.

To earn CFAs, candidates must

* Have a bachelor's degree or the equivalent in professional work experience.

* Complete the registration and enrollment form to enter the CFA study and examination program and pay the required fees.

* Provide three acceptable references from investment professionals.

* Sequentially pass the level I, level II and level Ill exams.

* Have at least three years of experience as financial analysts.

* Have evidenced a high level of professional, financial, business and personal conduct.

* Have applied for membership or be a member of a constituent Financial Ananlysts Federation society.

* Comply with the Association for Investment Management and Research Code of Ethics and Standards of Professional Conduct.

The CFA study program basically is one of independent or self-study. Candidates use the ICFA study guides and required textbooks and readings to learn the body of knowledge and prepare for the exams. The body of knowledge includes seven major topic areas:

1. Ethical and professional standards.

2. Financial accounting.

3. Quantitative analysis.

4. Economics.

5. Fixed-income securities analysis.

6. Equity securities analysis.

7. Portfolio management.

The exams are structured in four functional areas representing the steps in the investment decision-making process. Level I covers tools and inputs for investment valuation and management. Level II covers asset valuation. Level III covers portfolio management and asset allocation. The fourth area, ethical and professional standards, is included in all three levels.

Candidates must pass three comprehensive exams sequentially. The six-hour exams are given annually on the first Saturday in June, and candidates can take only one exam each year. Thus, the study and examination process takes at least three years to complete. Candidates spend about 160 hours preparing for each exam. The level I exam uses multiple-choice, problems and short essay questions. Levels Il and Ill use problems, cases and essays. Candidates must sit for the first exam within three years of initial registration and complete all three exams within seven years. If these deadlines are not met, candidates must reregister but do not have to retake any previously passed exams.

CFAs must comply with the Association for Investment Management and Research Code of Ethics and Standards of Professional Conduct. The code requires financial analysts to conduct themselves with integrity and dignity, act in a professional and ethical manner, act with competence, use proper care and exercise independent professional judgment. The Standards of Professional Conduct include provisions for disclosure of conflicts, additional compensation arrangements and referral fees. Also, financial analysts must preserve the confidentiality of client information and maintain independence and objectivity. Noncompliance with the code and standards subjects CFAs to disciplinary sanctions, which may include suspension or revocation of the CFA charter. Currently, CPE is not mandatory; however, voluntary CPE is encouraged.

BASIC REQUIREMENTS

In marketing their services, financial planners should consider which designation or combination of certifications they need. Providing high-quality professional services is possibly the best marketing and practice tool financial planners can have.

EXECUTIVE SUMMARY

* AS CONSUMER INTEREST in personal financial planning grows, planners' interest in obtaining one or several financial planning designations is on the rise.

* THE PERSONAL FINANCIAL specialist (PFS) designation has been awarded to nearly 800 CPAs by the American Institute of CPAs. Candidates must meet experience requirements, pass an exam and submit client and professional references.

* OVER 23,000 INDIVIDUALS hold the certified financial planner (CFP) designation granted by the International Board of Standards and Practices for Certified Financial Planners. Candidates must complete a financial planning education program, pass a comprehensive exam and have related work experience.

* THE AMERICAN COLLEGE has granted more than 23,000 financial professionals the chartered financial consultant (ChFC) designation. Candidates must pass 10 financial planning courses and have three year's business experience.

* THE CHARTERED FINANCIAL analyst (CFA) designation has been awarded to some 14,500 investment professionals by the Institute of Chartered Financial Analysts. Candidates must have bacherlor's degrees or equivalent experience, pass three exams and have at least three year's experience as financial analysts.

* THE PFS, CFP and ChFC designations all have continuing education requirements for designees. All four designations, including the CFA, hold designees to a strict code of ethics.

WHERE TO GET MORE INFORMATION

The following publications and associations provide information on financial planning certifications. These organizations also provide lists of planners holding their designations. Personal Financial Specialist (PFS)

Candidates Handbook American Institute of CPAs Personal Financial Planning Division Harborside Financial Center 201 Plaza III Jersey City, New Jersey 07311-3881 1-800-TO-AICPA

The CFA Candidate Program Instructions for Registration and Enrollment Association for Investment Management and Research Department of Candidate Programs 5 Boar's Head Lane P.O. Box 3668 Charlottesville, Virginia 22903-0668 [phone]

Annual Catalog College for Financial Planning 4695 South Monaco Street Denver, Colorado 80237-3403 [phone]

IBCFP General Information Booklet IBCFP Code of Ethics and Professional Responsibility International Board of Standards and Practices for

Certified Financial Planners 1660 Lincoln Street Suite 3050 Denver, Colorado 80264 [phone]

Action Information Guidelines for CLU/ChFC Studies The American College Code of Ethics The American College 270 South Bryn Mawr Avenue Bryn Mawr, Pennsylvania 19010 [phone]

SUSAN W. ELDRIDGE, CPA, is a PhD student and research assistant at the University of North Carolina at Chapel Hill. She is a member of the A rican Institute of CPAs and the North Carolina Association of CPAs. KEVIN S. BARRETT, CPA, PhD, is assistant professor of accounting, Walker College of Business. Appalachian State University, Boone, North Carolina.