The list goes on and on. Today, the Financial Industry Regulatory Authority’s website lists a total of 235 credentials that you might find adorning a financial advisor’s business card. (FINRA doesn’t endorse any of them.) A total of 25 new designations were added last year alone, according to advisors who track these listings.
“The number of professional credentials financial advisors can add to their business cards has exploded in recent years,” says Patrick Lachse, assistant professor of finance at Indiana University Southeast.
Most of these new specialties are designed to provide professional training in specific areas of financial planning, and they are given a way to advertise that specialty to clients. But it can be hard for investors to know whether those titles are worth much. There are no industrywide standards for certification, and the requirements to achieve them vary widely. Therefore, investors need to do the legwork to find out what their advisor’s title actually represents.
Mr. Lach, for one, is a financial advisor who can add nine letters to his name: PhD, CFA (Chartered Financial Analyst) and CFP (Certified Financial Planner). He calculates that it took him thousands of hours to acquire those qualifications—so he was shocked to interview other mentors who could have achieved them with a weekend-long program and multiple-choice exams.
“It was a wake-up call,” says Mr. Lach, who is now researching the potential for creditworthiness to mislead individual investors. Educational requirements and these sometimes fly-by-night credentials are dangerous.”
“I suspect that a significant majority of them are just designed to enhance one’s resume,” says Harold Evensky, a veteran financial advisor and founder of Evensky & Katz/Folds Wealth Management. What more than a marketing gimmick.”
many needs
This proliferation of credentials reflects the growth and diversification of the financial planning business. As traditional pension plans gave way to defined-contribution plans like 401(k), individual investors had to shoulder the burden of managing their own money, each with unique situations and questions. A 55-year-old high-school teacher with two adult children has very different needs than a 40-year-old entrepreneur with young children from two marriages or a 35-year-old single parent whose child has special needs. It is logical that each would seek the most appropriate advisor to help address their unique challenges.
This is why many advisors are adding more credentials and more letters after their names to their lists. Cecil Pope Staten, a financial advisor in Athens, Ga., works primarily with millennials who acquired heavy student-debt loads along with their medical educations.
Young doctors or dentists who don’t plan student-loan repayment properly can jeopardize their other financial objectives, says Mr. Staton, so “I felt compelled to earn the CSLP. [certified student loan professional] To better serve our customers.”
To earn the designation they were required to take the equivalent of four graduate courses and pass a comprehensive exam on the finer points of analyzing student loans.
Like many of his peers, Mr. Staton is also a CFP-Certified Financial Planner – a certification that investors often view as the gold standard. To add CFP to their name, advisors must complete two years of part-time study, pass a 10-hour exam and have a few years of actual experience working with clients, either independently or as someone who as a trainee with who already holds the CFP designation. Maintaining that CFP requires continuing education and compliance with ethical standards.
But Mr. Staton says the CFP curriculum doesn’t cover student loans and the growing planning challenges around student debt in sufficient depth. Other consultants agree, pointing out that each credential indicates either additional expertise or a commitment to a specific area of planning. Just as someone with a heart condition needs a doctor — but more specifically a cardiologist rather than a dermatologist — many advisors note that there is a growing degree of specialization in financial planning.
But drawing parallels between the expertise between physicians and financial advisors is problematic. To become a doctor — and then a cardiologist — requires a college degree and years of additional education and training and maintaining a license. Hospitals and regulators monitor all compliance. The financial-advisory world offers nothing comparable.
“Caveat emptor, or buyer beware, is fine when you’re buying a new TV,” says Mr. Lach.
He would like to see an easy-to-read guide to each consultant’s credentials, which describes the rigor (or lack thereof) of the education required to earn the designation, what type of exam (if any) is required, was, and what is required is to maintain that credential over time (just a few hundred dollars a year or a few dozen hours of continuing education).
The area that has attracted the most scrutiny over the past decade is designations that suggest or claim that an advisor has expertise in working with seniors, which has been identified as of particular concern by the Consumer Financial Protection Bureau. marked as an area. Most states now prohibit advisors from marketing themselves as having completed special programs that enable them to offer advice on topics such as retirement-income planning, if the groups offering those credentials have the credentials to verify. There are no “reasonable standards” for whether those who receive the credential are competent, including approval by a business-standards group.
Whose responsibility?
Who should be responsible for overseeing claims of expertise and verifying that credentials reflect skill is a matter of debate. State regulators oversee many aspects of financial planning and advice but mainly concern themselves with police complaints and bad behaviour; Industry bodies try to establish and maintain standards. Still, fewer than a dozen of the 235 or so credentials listed on FINRA’s website are evaluated and approved by either of the two relevant independent accreditation authorities, the American National Standards Institute or the National Commission for Certification Agencies, Mr. Evensky notes.
The American College of Financial Services, which offers educational programming for select credentials, tries to limit the number of programs it supports by offering these courses.
To be useful, a credential “must reflect a genuine understanding of a body of knowledge that is unique and in demand by investors,” says Michael Finke, professor of wealth management at the institute. But it is ideal – and he acknowledges that while one can try to assess how worthwhile a credential is, to find out whether it requires completing courses at an accredited institution such as a college, which may not go very far.
“No governing body determines what is and is not legal,” he says, adding that he wants industry leaders and regulators to work together to fix that shortcoming.
The CPA designation requires financial experts to survive a demanding curriculum and exam. An additional useful credential, the PFS, or Personal Financial Specialist, can help identify an accountant who has achieved a certain level of advisory expertise.
A third certificate may provide more limited insight into one’s expertise in the advisory field but testifies to their intellectual strength and their determination. CFA (Chartered Financial Analyst) is a notoriously difficult title to earn (to obtain it, candidates take three exams over several years), but you can find CFAs working as analysts or portfolio managers in the investment-management industry. are more likely to do. Advising individual investors.
A new, bizarre or unusual credential isn’t automatically a warning sign, seasoned consultants agree. If someone has a CFP, or other key credential, a short certification can be a useful clue about their specialty. Conversely, a long list of credentials—none of which are in original, hard-to-obtain programs—can serve as a prompt to ask tough questions about an individual advisor’s experience and expertise. and may seek more references from customers other than you. usually will.
“The flood of additional designations with lower standards has really diluted the benefits of having a few good ones,” says Matt Chansey, a consultant in Tampa, Fla.
Mr. Chansey has earned 17 different credentials at various points in his career, each representing some area of expertise, such as long-term care planning.
“But at that point I only maintained the CFP,” he added. “Others have helped make me a smarter and more useful advisor when working with clients, but that is no reason to pay hundreds or thousands of dollars in fees to maintain it every year when clients are unable to understand struggle for what the credential means.”