What do your financial advisors initials mean?

by Russell Dunkin on November 3, 2009

Alphabet SoupI was pleased to read today that the state of Oregon is proposing becoming only the 9th state to regulate what has become an alphabet soup of financial industry designations.  I initially heard about this on The Oregonians personal finance blog this morning.

The unfortunate secret in the industry is firm titles tend to be based on sales volume, not education.  For example, the Senior Vice President may have graduated high school, worked a few years selling cars, before selling investments.  As long as you’re aware of this, and okay with it, that’s fine.  Too often though, an impressive title is not questioned.

The trouble for Oregon, and consumers nationwide, is how do you know what designations or titles mean what?  FINRA, the regulatory organization for brokerage firms, maintains a website cataloging 86 designations currently in use.  By listing a designation, FINRA does not warrant it is acceptable to use.  The nice thing about the list is that you can research what is required to hold the designation, if anything.

For example, I am proud to have earned my CFP® designation.  The website lists the prerequisites for sitting for the exam (bachelors degree, 3 years industry experience), along with education requirements, test type (certification exam), and continuing education requirements (30 hours over 2 years).  Compare this to the Wealth Management Specialist which requires a self study test, and no ongoing requirements.

So who can you trust?  Are certain designations more reliable than others?  The article suggests, and I agree, that clients would be well served to work with a planner who has adheres to a fiduciary standard (that is they require the advisor to put the clients interests ahead of their own).  It states that three designations that require this standard are the Certified Financial Planner™, Registered Investment Advisor, and Investment Advisor Representatives.

Because I am a CFP®, working for a Registered Investment Advisory firm, I obviously agree with the steps the State of Oregon is taking.  Ultimately, however, it is up to you to decide.  I have to believe there are quality advisors who work on commission and who do not have advanced designations.

What do you think? Are you working with an advisor?  Have you reviewed their designations to learn what they mean, and if  so, are you comfortable with the answers?   I’d love to hear your thoughts and experiences here.

photo by fdecomite

Tagged as: CFP®, financial advisor, wealth management

  • Nick Kadylak
    My comment was not meant as an ax-grind; it was more of a response to what I consider ax grinding by RIA's always claiming brokers are out to harm their clients. I do generally agree that clients should seek out independent advice and advisors with professional designations. Clients do, however, deserve to know the tradeoffs for this. As an RIA, you are subjected to 3-5 year exams by the SEC. FINRA regulated brokers go through yearly exams to help prevent wrongdoing, as well as 3-5 year SEC reviews. Professional designation boards do not have the power of subpoena and enforcement like FINRA does, as the article points out. Personally, I would love to see all brokers and advisors under a 100% fiduciary standard to help protect clients. Maybe I seem defensive on this issue, but its only because I believe that you can be a fine advisor and act in a clients best interest even if you are paid through commissions. Full disclosure: I work for b/d-RIA hybrid, with over half of my revenue coming from the RIA side.
  • Regulating titles and initials would give the consumer a good foundation from which to make an informed decision. Of course, as always, a good consumer would still need to do their own research before signing on the dotted line! Great post, Russell.
  • Nick Kadylak
    http://www.investmentnews.com/apps/pbcs.dll/art... This guy was convicted of fraud, barred for life from the securities industry by FINRA, his insurance license was revoked, and yet he is still a CFP IN GOOD STANDING. Glad to see these professional designations are protecting the public!!
  • Nick, the situation described in the article link you provided is unfortuate. I guess I'm not sure that what point you are making via your comment, however. Are you saying that the CFP designation is not a valid credential, that it does not show a level of knowledge and dedication on the part of most advisors who hold it simply because the CFP Board seems to have let this one advisors transgressions go unpunished? C'mon Nick let's get real here. Any profession is going to have a few bad apples. Sometimes the regulatory process does not work as well as those of us who strive to be honest and do what is right for our clients would like. But to take this one case or even a few cases like this and to surmise that the public isn't better off seeking out advisors with the CFP and other valid designations is a bit silly. Your comment sounds a bit like an axe grinding away to me.
  • While there are no doubt multiple extreme examples like this, the point is not about one group or another protecting consumers. An advisor who is a fiduciary CFP could commit fraud. Nothing is impossible. The point is my opinion about what a consumer should be looking for when deciding to hire an advisor, and as a basis for an evaluation. Our industry hands out titles and "initials" based on little qualifications or ongoing education requirements, and that leads to a great deal of confusion among our clients or potential clients.
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