Financial advisors have an alphabetical set of credentials. what do they mean?

The list goes on and on. Today, the Financial Industry Regulatory Authority’s website lists a total of 235 credentials that you may find adorning a financial advisor’s business card. (Finra doesn’t endorse any of them.) A total of 25 new hires were added in the last year alone, according to the advisors who track these lists.

“The number of professional credentials that financial advisors can add to their business cards has just exploded in recent years,” says Patrick Lash, assistant professor of finance at Indiana University Southeast.

Most of these new majors are designed to provide professional training in specific areas of financial planning, and to give them a way to advertise that major to clients. But it can be difficult for investors to know whether these titles hold much value. There are no industry-wide standards for certification, and requirements to obtain them vary widely. Therefore, investors need to do legal work to find out what their advisor’s name really stands for.

Mr. Lach, for example, is a financial advisor who can add nine letters to his name: Ph.D. CFA (Certified Financial Analyst) and CFP (Certified Financial Planner). It took him thousands of hours to earn those qualifications, by his estimation — so he was surprised to encounter other counselors with credentials obtainable through a program that spans a weekend and a multiple-choice exam.

“It was a wake-up call,” says Mr Lash, who is now looking at the potential for misleading retail investors. These educational requirements and credentials are sometimes worrisome.”

“I suspect the vast majority of them are designed just to improve someone’s resume,” says Harold Evensky, veteran financial advisor and founder of Evensky & Katz/Foldes Wealth Management. And certainly, there is no governing agency to warn people what is useful and what is more of a marketing gimmick. “

Many needs

This proliferation of credentials reflects the growth and diversity of the financial planning business itself. As traditional pension plans gave way to defined contribution plans like 401(k), individual investors have 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 vastly different needs than a 40-year-old entrepreneur with young children from two marriages, or a 35-year-old single parent with special needs. It makes sense for each of them to look for the type of counselor best suited to help them meet their unique challenges.

This is why many counselors add more credentials to their list and more letters after their names. Cecil Bob Staton, a financial advisor in Athens, Georgia, works primarily with millennials who have racked up huge student debt burdens along with their medical education.

Young doctors or dentists who don’t properly plan their student loan repayments could jeopardize their other financial goals, Mr. Staton says, so “I felt compelled to earn a CSLP.” [certified student loan professional] To better serve my customers.”

Earning the designation requires taking the equivalent of four postgraduate courses and passing a comprehensive examination in the nuances of student loan analysis.

Like many of his peers, Mr. Staton is also a CFP Certified Financial Planner – credentials that investors often view as the gold standard. To add a CFP to their name, counselors must complete two years of part-time study, pass a 10-hour exam, and have a few years of real-world experience working with clients, either independently or as an intern with someone who already has a CFP designation. Maintaining that CFP program requires continuing education and compliance with ethical standards.

But Mr. Staton says the CFP curriculum doesn’t cover the growing planning challenges surrounding student loans and student debt in sufficient depth. Other advisors agree, noting that each credential indicates either additional expertise or a commitment to a distinct planning area. Just as a person with a heart condition needs a doctor—but more specifically a cardiologist, not a dermatologist—many counselors note that there is an increasing degree of specialization in financial planning.

But drawing an analogy between specialization between physicians and financial advisors is problematic. To become a physician — and then a cardiologist — requires an associate’s degree, years of additional education and training, and maintenance of licenses. Hospitals and regulators monitor compliance. The world of financial advisory offers nothing that can compare.

“Buyer caution, or buyer beware, is one thing when what you’re doing is buying a new TV. It’s quite another matter when you’re entrusting your life savings to someone else,” says Mr. Latch.

He would like to see an easy-to-read guide to each advisor’s credentials, describing the rigor (or lack thereof) of education required to obtain the designation, what type of exam (if any) is required, and what it takes to maintain that certification over time (only 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 or so is hires that indicate or claim that the advisor has experience working with seniors, which the Consumer Financial Protection Bureau has identified as an area of ​​special interest. The majority of states now prohibit counselors from marketing themselves as having completed special programs that enable them to provide advice on topics such as retirement income planning if the groups offering these credentials do not have “reasonable standards” to verify that those who receive the credentials are competent, including In that approval by the Business Standards Group.

Whose responsibility?

Determining who should be responsible for overseeing claims of experience and verifying that credentials reflect skills is a matter for debate. State regulators oversee many aspects of financial planning and advice, but are largely concerned with monitoring complaints and bad behavior; Industry bodies try to set and maintain standards. However, less than a dozen of the 235 or so credentials listed on Finra’s website are still being evaluated and approved by either of the two relevant independent accreditation authorities, the American National Standards Institute or the National Commission of Certification Agencies, as Mr. Evensky points out.

The American College of Financial Services, which offers educational programming for select credentials, is trying to limit the number of programs it tacitly supports by offering these courses.

For it to be useful, says Michael Fink, Professor of Wealth Management at the Foundation, “it must reflect a true understanding of the body of knowledge that is unique and required by investors. It can try to assess the feasibility of accreditation by seeing whether it requires coursework completed at accredited institutions such as college , and that may not be sufficient.

“There is still one governing body that determines what is legitimate and what is not,” he says, adding that he would like to see industry leaders and regulators work together to fix this shortcoming.

The CPA designation requires financial experts to survive challenging curriculum and exams. A useful additional credential, PFS, or Personal Financial Specialist, can help identify an accountant who has also achieved some level of consulting experience.

A third credential may provide more limited insight into someone’s consulting expertise but testifies to their intellectual ingenuity and determination. A CFA (Certified Financial Analyst) is a hard-earned title (to get it, candidates take three exams over several years), but you’re more likely to find CFAs working as analysts or portfolio managers in the investment management industry than advising individual investors.

Seasoned advisors agree that having new, quirky, or unusual credentials is not automatically a warning sign. If someone has a CFP, or other basic credential, a smaller certification can be a helpful indication about their major. Conversely, having a long list of credentials–none of which are found in hard-to-obtain core programs–may serve as a cue to ask tough questions about an individual consultant’s experience and expertise, and to seek references from clients other than usually your own.

“The influx of additional hires with lower standards has diminished the benefits of having some really good features,” says Matt Chancey, a consultant in Tampa, Florida. “Most clients don’t know what any of these messages represent.”

Mr. Chancey himself at various points in his career has held 17 individual credentials, each representing a specific area of ​​expertise, such as long-term care planning.

“But the only one I kept around that whole time was a CFP,” he notes. “Others have helped make me a smarter and more helpful advisor when working with clients, but that’s no reason to keep paying hundreds or thousands of dollars in fees to maintain each year when clients struggle to understand what the credentials mean.”