According to the Wall Street Journal article by Jason Zweig and Mary Pilon, “Is Your Adviser Pumping Up His Credentials?”, there are 210 different professional designations for financial advisers. How on earth are you supposed to know which ones are credible and which ones are lame?
The WSJ further quotes Denise Voigt Crawford, securities commissioner for the state of Texas and past president of the North American Securities Administrators Association. “State securities regulators have been very worried about this. We are taking a growing number of administrative actions against people using designations as part and parcel of fraudulent securities activities, especially with older people.”
Since Ms. Crawford is not available to accompany you to interview financial advisors, how are you supposed to protect yourself from the ones who are holding out bogus credentials? In this article, I’ll talk about financial adviser credentials. In next month’s column, I’ll talk about choosing a financial adviser.
Keep in mind that credentials help advisers make more money. Zweig and Pilon note that according to a “2007 study by the Financial Industry Regulatory Authority (Finra), 46% of older investors are more likely to accept financial guidance from someone with a professional designation – and 17% of investors would be more receptive to advice from a ‘certified adviser for senior investing,’ even though such a credential doesn’t exist.” I don’t have room to list all 210 credentials, so I am going to give you the most that I can in the space that I have. I strongly recommend that if you are looking to work with a financial adviser, do your research and educate yourself on his or her credentials.
CFA (Chartered Financial Analyst) Only 42% of candidates pass the three required exams after 900 hours of studying in accounting economics, ethics, finance and math. This process can take several years.
PFS (Personal Financial Specialist) Every PFS holder must be a CPA (Certified Public Accountant). Usually you will see “CPA/PFS”. These CPAs have met education and experience requirements and have passed a comprehensive exam on financial planning. Many PFS advisers focus more on tax-efficient financial planning than just tax work. CPAs must pass a 14-hour exam and must get 40 hours of continuing education on an annual basis.
CFP (Certified Financial Planner) These advisers must also meet education and experience requirements and pass an exam. They must get 30 hours of continuing education every two years.
RIA (Registered Investment Adviser) This is NOT a credential. It simply means that the person has registered with the either the SEC or the state securities board and has paid a registration fee.
CLU (Chartered Life Underwriter) This is generally thought of as the highest professional designation for a life insurance agent. They must have extensive experience and courses from The American College.
ChFC (Chartered Financial Consultant) These are typically insurance agents with several years of experience. They have passed courses in financial planning from The American College and want to expand their business into other kinds of financial planning. They may also have a CLU credential because the academic requirements are the same.
CDFA (Certified Divorce Financial Analyst) These folks have to pass an exam and take 20 hours of continuing education every two years. I have this designation. It focuses on the sub-specialty of divorce financial planning. On its own, it is not a heavy weight credential. Look for a certificate holder who is also a CPA, CFP or both.
CSA (Certified Senior Advisors) To get this, you need to pass a 150 multiple choice question exam and have some experience or training in working with seniors. According to the WSJ report, in 2007, the Society of Certified Senior Advisors “began requiring CSAs to disclose to clients that ‘the CSA designation alone does not imply expertise in financial, health or social matters,’ among other things.”
That’s only eight of the 210 credentials available to financial advisors. Unfortunately, we don’t have enough room to touch on the other 202 designations. If you are interested in more of this kind of article, drop me an email via my blog site.
Beware of investment advisers who hold themselves out as experts for retirees and seniors. Check their credentials. Do your research.