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Glossary


Alphabet Soup...MBA, CFA, CPA, CFP, EIEIO

The business card with the name and then...THE LETTERS. What are they? what do they mean? Why should I care? Fret no more, here is a guide to many of the initials in the investment and financial planning world.

MBA- Masters in Business Administration. This usually provides a broad grounding in business disciplines. While the degree confers no assurance of investment knowledge, one study found that investments "managed by graduates of the highest-ranked MBA program tend to do better than those managed by alum on no-name B-schools or managers with no MBA." (Tatiana Semfin, "Bad New for the CFA Crowd," Forbes, April 25, 2005, p.30.)

Ph.D.- Doctorate of Philosophy. A preparation for teaching in most fields. Usually not investment related.

CPA- Certified Public Accountant. Contrary to what many think, an accountant’s training generally does not include training in investments, although a small minority of accountants are also investment professionals.

CFA- Chartered Financial Analyst. An in-depth financial analysis certification. Does not involve training in financial planning.

CFP- Certified Financial Planner. A fairly widespread certification that includes training in estate planning, taxes, insurance and investments.

ChFC- Chartered Financial Consultant. The insurance industry’s version of the CFP.

CLU- Chartered Life Underwriter. Has received training in life insurance, but not the broader investment markets.

RIA- Registered Investment Advisor. Not a certification and does not represent any specific training. A legal status that involves registering with the SEC or state authorities and allows an individual or entity to offer investment advice for compensation. This registration does not allow the sale of investment products for commission.

What’s in a Name?

Many people have justifiably expressed confusion over various terms used by those in the investment industry. We present the following guide to help.

Financial Planner - a general term used by a very wide spectrum of service and product providers. This designation involves no specific training and can be used by anyone. There are however, many competent and ethical professionals who use this designation, so it is always important to look behind this name. Financial Planners are usually divided into 3 groups:

1) Commission-only - More commonly called stock brokers or insurance agents. All of their fees come from commissions on products they sell. Not necessarily the best way to go for objective advice.

2) Fee-based - able to take commissions on products, but also charges on a fee basis. Fees are charged one of three ways, flat, hourly, or as a percentage of assets. As long as commissions are involved, the advice may not be objective.

3) Fee-only - Compensated only by fees with no commissions. Again, either flat, hourly or a percentage of client assets. This provides the most objective advice free of any conflict of interest.

Financial Consultant - This, like financial planner, is by itself an almost meaningless term. Usually this term is another way of saying commissioned broker. As an example, Merrill Lynch, the nations largest brokerage firm has, in fact, no brokers only "Financial Consultants".

Financial Advisor - See Financial Consultant.

Investment Advisor - A very general term that can mean almost anyone that provides any kind of financial planning, investment advice or sells investment products.

Asset Manager - Generally refers to someone who manage investments for a fee. Normally not associated with financial planning or selling investment products for a commission.

Aside from the name it is always important to ask the investment professional how they are compensated. Don’t be shy. As a rule, fee-only compensation helps to ensures that the advice and service that you receive is objective and in your best interest.

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