Adviser Credentials: What to Look For

In my last blog, I started a conversation about adviser credentials by telling you a little bit about the ones we have here at AMDG Financial. I also mentioned that not all adviser credentials are created equal. The Financial Industry Regulatory Authority, or FINRA, has devoted an entire section of its website to deciphering more than 100 professional designations for consumers, but just reading through the various designations and their requirements may not be enough to help you evaluate whether a credential is rigorous enough. In this blog, I’ll tell you what I look for in a credible credential, and provide you with some additional tools to help you make sense of the “alphabet soup” proliferating among advisers these days.

The “Why” Behind Credentials

Advisers spend time and money earning credentials for a variety of reasons. While credentials help those who want to stay competitive and up to date on rules, regulations and best practices, another primary reason for their popularity is that they lend a degree of credibility to less experienced practitioners, making it easier for them to market to consumers.

In the U.S. and most other countries, no title protection exists for the terms “financial adviser” or “financial planner.” That means anyone can hang out a shingle and offer financial advice, whether it’s related to insurance, investments, or comprehensive financial planning. Over time, some advisers started using credentials to help differentiate themselves and the services they offer, and that created a market for even more education and certification programs.

It’s important here to understand the difference between certifications, licenses, certificate programs and accreditation. All of these terms fall under the general umbrella of “credentialing,” according to Institute for Credentialing Excellence, or ICE. You can find ICE’s descriptions of each on its website.

Q2 2018 Market Commentary

What I Look for in a Credential

Different credentials come in handy for different reasons, so sometimes, weekend courses or short online programs can really add value to someone looking to get an overview of a topic or an update on a specific issue. But, these types of programs should not be the basis for determining an adviser’s credibility. Here are some of the things I look for when evaluating a credential as an indicator of an adviser’s standing:

  • Competency vs. knowledge: Typically, certification programs focus on building competency, not just knowledge. Here’s the difference: knowledge indicates that someone has studied a body of knowledge and has been tested against it. Competence shows that an individual can apply that knowledge, along with other skills and abilities, to work with a client in a dynamic situation. In the way that knowledge represents “book smarts”, competence represents taking those “book smarts” and combining it with “street smarts” to provide a client with a real-world solution to his or her problem. Street smarts could include skills learned on the job, certain inherent abilities, or experience with a particular situation. Assessments in competency-based certification programs often require candidates to prepare a case study or capstone project to show they can apply the knowledge they’ve learned.
  • A code of ethics with “teeth:” Many professional standards-setting organizations include a code of ethics and professional responsibility in their standards. This helps to create a benchmark for professional behavior that clients, businesses and other professionals can count on when dealing with the adviser. Many credentials have codes of ethics and require professionals to sign off on compliance with the standard. Even better are those certification programs that include a complaint system and use a disciplinary committee to enforce the code. CFP Board, for example, regularly publishes a list of CFP professionals it has sanctioned on its website, as does CFA Institute and the AICPA.
  • A fiduciary standard: Acting as a fiduciary is a hallmark of professionalism for financial advisers and should be a requirement for certification and licensing, even if the professional is not legally required to act as a fiduciary in his or her job. For example, by law, a stock broker does not have to be a fiduciary, but many brokers have certifications that obligate them to place their clients’ interests first. In some cases, you may receive fiduciary advice from an adviser on how to allocate your investments, but the adviser may also still sell products for a commission. If the adviser is listed in the Securities and Exchange Commission’s Investment Adviser Public Disclosure (IARD) website, it means he or she is a fiduciary when providing advice, but not necessarily when recommending a product. This is confusing, but important stuff! You may want to learn more before you engage that adviser (see my blog on this important topic!)
  • A Continuing Professional Development/Continuing Education requirement: Education courses are often a snapshot in time. All of the concepts taught are current as of that day, but as we all know, things change – frequently. Strong credentials require professionals to keep learning to maintain their certification or license. In Michigan, CPAs must earn 40 annual hours of continuing education credit (AICPA also has requirements for its members). CFP professionals must earn 30 hours of continuing education credit (including two hours of CFP Board-approved ethics training) every two years. CFA Institute does not require, but does recommend, a minimum of 20 hours of continuing education, with two hours of ethics training, each year.

Education and Experience

Some, but not all, financial credentials require a college degree and a certain number of years of experience for financial professionals to even qualify for a certification program. I agree that both education and experience are important to an adviser’s success, and I believe those of us who have already met those qualifications have an obligation to help mentor those in the process.

Questions to Ask

            When interviewing a financial adviser, it’s typical to ask a lot of questions about how the adviser works with you, whether he or she is a fiduciary, what the fees and/or commissions are, etc. But it’s also fair game to ask whether the adviser has ever faced criminal charges, formal investigations or disciplinary actions. If the adviser is a fiduciary, you can check the veracity of the his or her answers on the IARD website. In addition, you can check with the certifying body if the adviser is a CPA, CFP®professional or CFA®charterholder. Clients who feel they have been a victim of misconduct can also file a complaint against their adviser through these organizations. If you don’t find your adviser listed on the IARD website, it could be because the person or firm works directly with a broker or insurance agent whose goal is to sell a financial product. In this situation, the adviser would not be required to act as a fiduciary.

Clients of financial advisers have a number of resources available to help them vet any firm or adviser; yet many don’t – possibly because they aren’t aware these resources exist. Now that you’ve read this, I hope you’ll help spread the word to friends and family members. And as always, please feel free to contact us if we can help.

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