If you’ve been on the hunt for a financial professional who can give you good advice, you may have been impressed — or perhaps just confused — by all those letters you see attached to different people’s names. Do those impressive-sounding credentials really carry any weight, or are they as worthless as the paper they are written on?
Just a few of the designations you might encounter include CFP®, RICP®, BCM, CAC, CHFC, CLU, WMS, CFS and, well, the list goes on and on.
When you see all those certifications, you can’t help but think, “Those are some pretty impressive credentials. These people must know what they’re talking about.”
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Maybe so.
And maybe not.
A license vs. a designation vs. a certification
To begin with, let’s distinguish licenses from designations. Financial professionals obtain a license after they pass the test deemed necessary by the regulating authority, such as the state, FINRA or the SEC. A designation or certification is an additional credential that can be gained by those who already hold a license.
Some certifications require substantial effort and a comprehensive education. But plenty of others can be obtained by attending a daylong seminar.
We need to raise the bar on standards
Frankly, in my opinion, one of the significant faults in the financial advising industry is that the barriers of entry are low. Someone with limited education or experience can pick up a license of some sort after passing a test, hang out a sign and — voila! — he or she is advising people on their life’s savings.
So am I saying that, in a time when many people are calling for less regulation, I would like to see more of it in my profession?
Yes, that’s exactly what I’m saying.
And I think the profession may be moving in that direction. As far as I’m concerned, that’s a good thing.
Think of it this way: If you go to a doctor’s office, you want to consult about your health with someone who has Dr. in front of their name or M.D. after it. You’d be uncomfortable if you learned you had entrusted your physical health to a person whose training amounted to a couple of weekends spent in seminars.
Yet people do that often with their financial health, which I would argue is equally as important as your physical health. I’ve seen it time and time again: When someone loses their financial health, their physical health is often quick to follow suit.
Most other professions require some sort of formal education even beyond the professional licenses the practitioners must hold. Doctors, lawyers and CPAs all must have specific degrees relating to their business practices in addition to taking difficult board exams, for example.
But in the world of financial professionals, you could drop out of high school, pass the required test, and get a securities license, which enables you to call yourself a “financial adviser” and go to work.
In my opinion, it simply shouldn’t be that easy — too much is at stake.
Certified Financial Planners have extensive training
What kind of education, training, knowledge and experience do you expect your financial adviser to have? I personally hold the CFP® designation.
Among the requirements to become a CFP®: a bachelor’s degree from an accredited college; a 10-hour board exam to demonstrate your financial-planning knowledge; 6,000 hours of financial planning experience; and a thorough background investigation that would review criminal history, civil complaints, job terminations, bankruptcies, customer complaints and other activities that might be of concern.
In my opinion the CFP® certification process shows that the right types of requirements and training for the profession already exist — it’s just a matter of requiring all who want to call themselves financial professionals to obtain those credentials.
I think we’re headed there, and it’s long overdue. More and more individuals are walking into my office seeking exactly that. Do yourself a favor and take the time to understand the letters after your financial professional’s name. You may be pleasantly surprised, or you may just find you don’t have what you had hoped for.
What do your provider’s credentials stand for?
If you want to look designations up for yourself, the Financial Industry Regulatory Authority (FINRA) has a website for you to do just that: http://www.finra.org/investors/professional-designations.
Ronnie Blair contributed to this article.
-
13 Answers to Pressing Social Security QuestionsFrom smart claiming strategies for couples to tips on maximizing your monthly check, we have advice that can help you.
-
Keep Tax Collectors at Bay with Muni Bond FundsMunicipal bonds can be good insurance against inflation — and interest is tax-free. But as with all investments, understanding risk is key.
-
Eight Tips From a Financial Caddie: How to Keep Your Retirement on the FairwayThink of your financial adviser as a golf caddie — giving you the advice you need to nail the retirement course, avoiding financial bunkers and bogeys.
-
Just Sold Your Business? Avoid These Five Hasty MovesIf you've exited your business, financial advice is likely to be flooding in from all quarters. But wait until the dust settles before making any big moves.
-
You Were Planning to Retire This Year: Should You Go Ahead?If the economic climate is making you doubt whether you should retire this year, these three questions will help you make up your mind.
-
Are You Owed Money Thanks to the SSFA? You Might Need to Do Something to Get ItThe Social Security Fairness Act removed restrictions on benefits for people with government pensions. If you're one of them, don't leave money on the table. Here's how you can be proactive in claiming what you're due.
-
From Wills to Wishes: An Expert Guide to Your Estate Planning PlaybookConsider supplementing your traditional legal documents with this essential road map to guide your loved ones through the emotional and logistical details that will follow your loss.
-
Your Home + Your IRA = Your Long-Term Care SolutionIf you're worried that long-term care costs will drain your retirement savings, consider a personalized retirement plan that could solve your problem.
-
I'm a Financial Planner: Retirees Should Never Do These Four Things in a RecessionRecessions are scary business, especially for retirees. They can scare even the most prepared folks into making bad moves — like these.
-
A Retirement Planner's Advice for Taking the Guesswork Out of Income PlanningOnce you've saved for retirement, you'll need your nest egg to support you for as many as 30 years. For that, you need a clear income strategy, not guesswork.
