When choosing a financial advisor, pay attention to what certifications they’ve obtained. Common certifications you’ll see include certified financial planner (CFP), chartered financial analyst (CFA) and certified public account (CPA). Advisors earn these designations to assure clients that they have the training, experience and ethical standards needed to provide sound financial advice. One that is less common but still important is the certified trust and financial advisor (CTFA) certification. Make sure you know exactly what this means if you come across a financial advisor with this certification who you are considering working with.
What Is a Certified Trust and Financial Advisor?
The certified trust and financial advisor, or CFTA, certification is intended for bankers, brokers, financial planners and tax and trust professionals. The certification covers several areas, including fiduciary and trust activities, financial planning, tax law and planning and investment management.
The American Bankers Association (ABA) awards the CFTA certificate. To get the certificate, advisors must possess a certain combination of experience and education, pass a test and sign an ethics statement. To keep the certification, they have to complete continuing education requirements.
The ABA is a national trade association for the banking industry headquartered in Washington, D.C. The ABA lobbies public officials and regulators, informs the public about banking activities, sets industry standards and provides education and certification to its members. In addition to granting the CFTA certificate, the ABA provides certificates in marketing, compliance, IRAs and retirement services.
The ABA requires CFTA applicants to have at least three years of wealth management experience. Qualifying wealth management experience includes giving advice on trusts, estates, retirement accounts and similar matters.
Applicants with three to five years of experience must also complete a wealth management training program. There are four program options available. Those with at least five years of experience don’t need to complete a wealth management training program but must have a bachelor’s degree. Applicants with 10 years or more of wealth management experience don’t need either a wealth management training program or a bachelor’s degree to earn the CTFA certification.
Assuming the banker has the required experience or combination of experience and education, he or she can take the CFTA exam. To maintain their certification, CTFAs must complete 45 continuing education credits every three years and uphold the certification’s code of ethics. They also have to pay an annual fee of $275 to the ABA to renew the certification.
The CFTA Exam
The exam you must take to earn a CFTA is a 200-question, multiple-choice test. Test-takers have four hours to complete the test. The test covers five main topic areas. Fiduciary and trust activities, financial planning and tax law and planning each comprise 25% of the exam. Investment management is another 20% of the exam, while ethics is the remaining 5%.
Here’s a sample exam question provided by the ABA:
Question: “Distributions from which of the following CANNOT be rolled over into an IRA?”
- Money purchase pension plan
- Profit-sharing plan
- Rabbi Trust
The answer on this one is No. 4, Rabbi Trust.
Another sample question from the test is:
Question: “A client faces a 30% federal income tax rate and a 5% state tax rate. Municipal bonds issued in the client’s state of residence are exempt from state taxes. Considering current income only, and not adjusting for the federal deductibility of state taxes, which of the following represents a proper comparison of bond attractiveness?”
- A 10% Treasury bond is more attractive than a 7.20% municipal bond issued by a state of which the client is not a resident.
- A 6.00% bond issued by the client’s state of residence is more attractive than a 7.20% municipal bond issued by another state.
- An 18% corporate bond is more attractive than a 12% municipal bond issued by the client’s state of residence.
- A 6.75% municipal bond issued by the client’s state of residence is more attractive than a 7% municipal bond issued by a U.S. territory.
The correct answer to the second sample question is No. 1.
CTFA Ethical Standards
In addition to passing the test, CFTA applicants must sign and abide by the ABA’s code of ethics. This code states that the certified professionals must generally “maintain a high standard of conduct, competency, knowledge, professionalism, integrity, objectivity and responsibility as they discharge their duties in the practice of their profession.”
The code of ethics further requires signers to promise that they will avoid conflicts of interest or excessive gambling, debt or speculation. They also have to promise to guard client information unless required to reveal it by law.
Finally, the ethics code requires signers to state that they have never been found guilty or signed a consent decree for various criminal violations. These include breaking securities laws, embezzlement, fraud and misappropriation of funds.
The Bottom Line
Financial advisors and others who want to show they have a firm grasp of financial and trust-related topics obtain the CTFA. Candidates take a test to show their knowledge. To maintain the certification, CTFAs must complete continuing education requirements, pay a fee and uphold the certification’s code of ethics.
Tips for Finding a Financial Advisor
- Looking for a CTFA or a financial advisor with another certification? Find one using SmartAsset’s free financial advisor matching service. You answer a few questions. Then, we match you with up to three advisors in your area, all fully vetted and free of disclosures. You talk to each advisor and make a choice about how to move forward.
- Make sure you have a list of questions ready to ask each advisor you talk to. That will help you make an informed decision.
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