Selecting the right financial adviser

What's better: a CFP or a CPA-PFS?

What's the difference between a fee-based financial adviser and a fee-only one?

Being a consumer of financial services these days can be maddening. One reader asked, "Can you give me a rundown about what these designations mean so I can select the right type of adviser to help me with my retirement planning?"

Absolutely. Let's start with the basics: There is a difference between a license and a designation. Conducting certain sales activities in the securities and insurance industries can require both state and federal licensing. Additionally those who are Registered Investment Advisers (RIAs) are licensed to provide advice and must put their clients' interests first ("the fiduciary standard"). Those licenses require passing standardized tests and some continuing education. However, many professionals engaged in providing financial advice also rely on outside designations, which are often more rigorous than the licensing exams, in order to differentiate themselves from those who sell product versus those who sell advice.

The financial professional designations include:

In addition to being fee-only, NAPFA advisers must be fiduciaries and must provide information on their background, experience, education and credentials, and are required to submit a financial plan to a peer review. After acceptance into NAPFA, members must fulfill continuing education requirements.

The requirements make NAPFA members among the tiniest percentage of registered investment advisers, with only 2,500 total current members. I asked John Ritter, NAPFA board member and public policy chairman, about setting the bar too high, making it too exclusive a club. He responded that NAPFA advisers want "to be the ones carrying the torch, in front of the industry."

Certainly you can get good advice from someone without these designations, but knowing what they mean can help you ask the right questions about the services and fee structures they provide, so you can make an educated choice.