Financial Planning: What Those Professional Designations, Credentials & Titles Really Mean

Recently I wrote an article about how to choose someone you can really trust for financial planning and advice, and in it, I explained what it meant for a financial professional to have fiduciary responsibility to his or her clients. I will continue exploring this topic by discussing how you can evaluate the expertise that is implied by a particular title or professional designation.

Financial planning professionals use a variety of financial licenses and designations to market their services to you. Some of these titles have valuable significance but others are downright misleading. As a consumer of these services, you must be aware that titles and designations may misrepresent where the advisor’s true interest lies and may not represent that person’s ability to give you appropriate, knowledgeable advice. These confusing credentials can leave consumers who are unaware vulnerable to costly and unsuitable recommendations. There has been a dramatic increase of this type of financial abuse and the deceptive practices that go along with it, especially with regard to seniors, rising to the attention of state and federal regulators. Because of this, some new regulations are being implemented at the state level. However, taking protective measures is still predominantly in the hands of the consumer. You must be aware that the recommendations of many “financial advisors” (and the myriad of other financial professional titles) may be highly influenced by their particular compensation profit motives, which they may or may not disclose to you. For many reasons, this creates a conflict of interest which could result in advice that is not in your best financial planning interest.

Separating Fact from Fallacy

Research on your part is required to separate valid designations from those which deceptively imply that the person is qualified to advise you in financial planning matters. You may need to inquire further about the designations. Here are some basic questions to get you started:

  • Qualifications: What does a personal need to do to qualify for the title? Are there educational and experience requirements or other standards for qualifying? Does the title require the person to adhere to a strict, applied code of ethics?
  • Training: What did the training consist of? Was it merely a quick one- or two-day class followed by a quick test? Is a certain minimal amount of experience required? Does the training for this designation or title, along with other qualifications, truly signify that this person has adequate knowledge and expertise to advise clients in financial planning matters?
  • Legitimacy: Is the credential respected and acknowledged by the rest of the financial industry, including regulators? Or is it merely a marketing spin from a salesperson who is presenting themselves as more qualified than he or she really is?

Don’t Be Fooled by the Alphabet Soup!

The acronyms that follow a professional advisor’s name in the financial planning world are sometimes referred to as “alphabet soup.” There are over fifty financial designations in use, and yet only a handful of them are considered to meet adequate standards. Some of these are highly valued designations. However, an impressive-sounding title does not mean it is legitimate.

Accreditations which are valued and respected by other professionals in the financial industry require a higher standard of qualifications. These qualifications may include a combination of experience, quantity and/or quality of education, a continuing education requirement, and affiliated regulations on practice standards. There may also be repercussions for violations. In addition, some accreditations entail licensing that compels the financial planning advisor to adhere to fiduciary responsibility, therefore requiring that all recommendations are held to the client’s “best interest” standards.

Which Designations Can I Trust?

Following are some of the financial designations that (generally speaking) require designees to complete a recognized accreditation process:

  • Certified Financial Planner™ (CFP®): CFPs operate with high standards and respect for their clients’ financial planning wishes. Their financial advice is based on a comprehensive financial planning process. CFPs adhere to stringent standards to obtain and retain clients.
  • Certified Public Accountant (CPA®): CPAs specialize in accounting and taxation.
  • Personal Financial Specialist (PFS): These professionals are CPAs with additional training in financial planning.
  • Chartered Financial Consultant (ChFC®): This designation requires extensive, comprehensive financial training. This designation is usually obtained by professionals working in the insurance industry.
  • Chartered Life Underwriters (CLU): This designation is for insurance specialists.
  • Chartered Financial Analysis (CFA®): CFAs generally work for institutions, providing investment and portfolio management. CFAs must meet extensive educational and rigorous professional standards.

Salespeople in practically every industry have been known to present themselves as being more qualified than they are by simply purchasing a quick, easily obtainable, impressive-sounding title to add to their name, and the financial services industry is no different. They do this presumably with the hope that it will increase their clientele. Unfortunately, they are often right, as many naïve consumers buy into these designations. There has been a lot of this type of abuse recently, especially in financial planning products and services marketed specifically to retirees and seniors. As noted earlier, the press and state regulators have been trying to enlighten consumers by limiting and controlling the deceptive tactics frequently used in marketing titles and designations, but you must still be very careful when choosing a specialist to advise you on financial planning matters.

Buyers Beware

So do your homework before deferring trust to a financial advisor. Find our whether the advisor’s designation is really a badge of experience and knowledge that involved a process of accreditation, and whether the designation means the advisor must adhere to certain regulations. Or is the designation merely a bogus credential used to imply that the advisor can provide you the best advice you are looking for? There are lots of quality—and highly qualified—financial planning advisors. Don’t be led astray by being penny-wise and pound-foolish when it comes to getting assistance with financial direction: what might seem to be low-cost or free could very well end up being very costly.