Some Financial Adviser Credentials Are Not Trustworthy

If you’re working with a Certified Financial Planner, you might feel confident that you are working with a fiduciary — someone who is required to put your interests ahead of their own. Unfortunately, you could be wrong, because under current rules, CFPs are not required to remove all conflicts of interest. They’re just required to be more upfront about them with their clients.

Starting on October 1, 2019, that could change, because that’s the date the CFP Board has decreed that all of its Certified Financial Planners must become fiduciary advisers or risk forfeiting their CFP designations.

It seems there’s finally a way to find an adviser who’s working only for you, instead of a broker who’s trying to sell you something, right? No, not really.

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Confused? I’ll bet. To clear this up, and help you find unbiased financial advice, let’s explore the different adviser credentials, what they mean and how you can look beyond them to find the help you need.

First, Let’s Set Some Context

There are dozens of financial adviser credentials and designations, far too many to digest. But if you’re going to shop for a professional adviser within this trillion-dollar industry, it seems logical to use his or her credentials as some kind of guideline.

The fact is, the great majority of financial advisers are really salespeople — and most clients don’t realize advisers at brokerage firms are allowed to play by different rules. There’s no agreed-upon, uniform standard of conduct that applies to all financial advisers. Nor is there any one specific professional degree that advisers are required to earn in order to offer you advice.

Furthermore, it may shock you to learn that the majority of investment advisers working at brokerage firms don’t legally have to act in your financial best interest. That’s even more reason their credentials (or lack thereof) would seem vitally important.

As it turns out, only a handful of adviser credentials truly matter. The rest are practically meaningless — merely window dressing.

So which titles, if any, are significant?

It Depends on The Kind of Advice You Need

A HOLISTIC FINANCIAL PLAN

A real financial plan is comprehensive and looks at every aspect of your financial life. The most widely recognized (and respected) credential for holistic financial planning is, in fact, the CFP®, which stands for Certified Financial Planner™. It’s the one planning designation that consumers actually recognize. It is also evidence that the adviser has, at a minimum, passed an exam for investment, insurance, estate, tax, retirement, education, ethics and has a grasp of the financial planning process.

A CFP is also required to fulfil three years of real-world planning experience.

The key to remember is that the CFP designation doesn’t guarantee competency. Even more important, the CFP initials behind an adviser’s name don’t guarantee fiduciary-level responsibility for the investment recommendations offered — at least not as set forth by the U.S. Securities and Exchange Commission.

Starting this fall, the CFP board will require all of its Certified Financial Planners to follow the fiduciary standard to “put one’s client’s financial interests above their own.” The idea that an adviser must be fiduciary would seem pretty obvious. Who would want to take advice from someone not willing to accept that level of accountability? But this new CFP mandate may give consumers a false sense of security because the brokerage firms that employ many CFP advisers are not also held to the fiduciary standard. That means the conflicts of interest are still there.

If the firm where the adviser works isn’t willing to step up, then both the firm’s and the adviser’s interests are still not aligned with their clients’. The brokerage adviser or any adviser who sells products was, and still is, a salesperson who gets paid to sell, not advise.

Meanwhile, there are independent CFP financial advisory firms already registered with the SEC or state regulators that are fiduciaries. That’s because the registered investment adviser is operating under a different business model where the adviser and his firm both work for you. Both must accept full fiduciary responsibility under SEC rules and be willing to put that oath in writing, and on the company’s letterhead. In other words, the independent CFP’s fiduciary duty is enforced; the CFP at the brokerage firm follows whatever his brokerage firm’s legal policies dictate — which almost always falls short of fiduciary behavior.

The bottom line for consumers: The CFP title is still a tool, but it’s not a panacea.

INVESTING GUIDANCE

Perhaps you’re deciding how you want to reposition your portfolio. An established, well-rounded CFP may be perfectly qualified to help. In addition, there are three specific investment advice credentials worth knowing about:

• One is the Certified Investment Management Analyst (CIMA) certification, which is associated with The Wharton School of Business at the University of Pennsylvania.
• The second is the Certified Private Wealth Advisor® (CPWA®), which comes from the renowned Chicago / Booth School of Business. Only a few thousand advisers (out of a half a million) have earned these titles. Think of them as “post-CFP” credentials. Both are ‘‘nice-to-have” but not “need-to-have” titles.
• For investment advice, you may also come across an adviser who is a Chartered Financial Analyst. The CFA® is taken seriously because this coursework requires three levels of rigorous study and a much deeper dive into pricing individual stocks and other assets. Most who pass all three levels wind up as institutional stock analysts, not as individual financial advisers and as such, those who do work as advisers can demonstrate a deeper understanding of securities valuation. (Again, there’s no assurance an adviser who attaches any of these titles to his name is a fiduciary. To ensure that your adviser is always working in your best interests, just ask if he or she is, in fact, a fiduciary.)

RETIREMENT ADVICE

If you have five years or less until the date you think you want to retire, you’re most likely in need of some serious cash flow analysis and overall financial planning. The primary concern will be creating an income stream from your savings once you stop getting a paycheck from work.

Again, here’s where real-world experience beats any title, any day. There are a handful of designations that have some meaning:

• The College for Financial Planning offers: Chartered Retirement Planning Counselor (CRPC) and Chartered Retirement Plans Specialist (CRPS).
• In addition, the American College of Financial Services lets you earn the Retirement Income Certified Professional® (RICP®) designation. These specific certifications offer studies that mainly focus on retirement income strategies.
• Meanwhile, a PFS designation stands for Personal Financial Specialist; these advisers must also be Certified Public Accountants. So you’re getting tax know-how with an adviser who holds a PFS.

DO SPECIAL SITUATIONS REQUIRE SPECIAL CREDENTIALS?

Sometimes. Take divorce, for example. If you’re navigating a difficult family breakup, there’s an adviser credential specifically known as a Certified Divorce Financial Analyst (CDFA®). Advisers who hold this title have studied the financial issues that impact divorcing couples for at least two years.

So dig into just about any niche of financial advice and you’ll likely find credentials that appear relevant. Again, they might be “nice to have” but truly specialized advice comes from the advisers who have developed the expertise from years of working with clients in those situations.

Here’s a Short-List of Other Credentials You’ll Likely Come Across

AIF® – (Accredited Investment Fiduciary®) and AIFA® (Accredited Investment Fiduciary Analyst®)

Both of these fiduciary adviser designations attest to a Code of Ethics. This can be confusing because it may be a strong sign that the adviser cares about following the best practices of the fiduciary standard; but again, actual behavior has to align with the pledge.

It’s dangerous to rely solely on any of these labels — there are too many advisers who claim to be fiduciaries, but also come with a long list of conflicts of interests. Since there’s no actual audit of these advisers’ fiduciary practices, the risk to consumers is getting lulled into a false sense of security. The truth is there are many excellent and truly fiduciary advisers who do not carry this credential.

CPA – Certified Public Accountant

Some advisers are also CPAs and can help with tax and estate planning, harvesting losses, stock options and timing decisions. A CPA is always a great addition to any adviser’s in-house bench team, but beware of the CPA who’s licensed to sell investments but is not registered as an investment adviser. Why? Because he or she can recommend a high-fee insurance product that will definitely put big commissions into that adviser’s pocket, but not necessarily be a viable investment for you.

Credentials That Are Truly Red Flags

Some credentials are actually a warning sign because they signal a salesperson is posing as an adviser and using fancy credentials to boost credibility. If you’re approached by someone with a certification related to elder care, for example, regulators warn this has everything to do with trying to gain your trust and nothing to do with retirement planning. Honestly, we’ve heard too many horror stories about this category of credentials to trust any of them.

These acronyms include:

• CEPC, Certified Elder Planning Consultant
• CSP or ASP, Chartered or Accredited Senior Planner
• “Senior Specialist,” which is not a credential at all, just a self-imposed title

The One Document That Matters Most: A Fiduciary Oath

In the overlapping world of financial advice, investments, insurance, real estate and accounting, credentials and titles can only tell you so much — but real, hands-on experience from a fee-only independent fiduciary adviser holds more credibility than many of these fancy-sounding acronyms, even the CFP.

What is worth seeking out are two labels — “fiduciary” and “fee-only” — and you want those in writing. (The Committee for the Fiduciary Standard has a fiduciary oath form (www.thefiduciarystandard.org/wp-content/uploads/2015/02/fiduciaryoath_individual.pdf) that you can print out for your adviser to sign.) Fee-only is important because truly fiduciary advisers work only and directly for you, so they’re paid by you. Not for a bank, brokerage firm or insurance company where they accept commissions that come out of your pocket, too often without your knowledge.

Adviser credentials are truly subjective. Think of it this way, just because someone passed a driver’s test doesn’t automatically make them a good driver.