Some Problems With Recent Alphabet Soup Credentials.


1         At a time when people seem more desperate than ever for trust­worthy investment advice, probably with good reason, there has been a huge increase in the number of credentials that can be brandished by financial advisers.  Some of them can be “earned” with nominal, or even minimal, study and expense.  Increasingly, regulators declare, they are being used in marketing efforts aimed at older, wealthier investors, with the hope being to gain their trust and sell them inappropriate investments that generate high fees.  State securities regulators are more involved with this type of abuse than the SEC would be, and the recent proliferation of designations that are not properly understood by most investors, and the resultant potential for abuse, has them alarmed.  They report an increasing number of administrative actions against people using these designations as a vehicle to promote fraudulent securities activity; and for some reason, they say, this type of marketing seems to be commonly tar­geting older people..


2         Professional certifications, of course, arose decades ago as a way to facilitate identifying qualified practitioners.  Who could have fore­seen them being used in this manner, aiding fraudsters and tricksters in nefarious marketing schemes?  Many of the older, more established credentials, of course, require long study, demand continuing educa­tion, and enforce strict codes of ethics.  Many of the newer creden­tials require comparatively little effort.  In recent years, the number of available financial credentials has increased almost exponentially.  According to the Financial Industry Regulatory Authority (FINRA), which oversees how investments are marketed to the public, there are at least 95 different professional designations for financial advisors, which is almost twice as many as existed as recently as 2005.  FINRA only has a regulatory role where securities, the sale and marketing thereof, are involved, so who knows how many more exist that are beyond FINRA’s regulatory reach?.


3         As for the number of people carrying the various credentials, this too seems to be on an upward trend.  There are now slightly more than 60,000 certified financial planners (CFPs) in the United States, about 70 percent more than there were 10 years ago.  Also, the American Academy of Financial Management, which offers 17 different desig­nations, reports that it now has more than 45,000 members, whereas it only had a few hundred in 2000..


4         This is not to say or even imply that the vast majority of financial ser­vices professionals are not honest and competent.  Some credentials feature rigorous study, while others can probably be qualified for in a weekend, or may even be obtainable by writing a check.  The prob­lem is that members of the public, at least all but the most financially and otherwise sophisticated, often cannot distinguish between these various credentials..


5         While there is nothing inherently wrong with collecting credentials, there can be no disputing the fact that these credentials, however significant, meaningful, or otherwise, can help advisors to make more money.  This is also true of those who market themselves as “experts,” whatever the meaning of that term may be, which nebulous meaning probably invites abuses in marketing in that area..


6         As previously mentioned, a large percentage of the questionable marketing techniques that we have been discussing seem to target older people.  Accordingly, in March 2008, the North American Securities Administrators Association, the group of state securities regulators, devised a template for states to follow in regulating professional designations that relate specifically to older investors.  In brief, these guidelines prohibit the use of a designation that comes from a self-conferred body, is primarily used for marketing, lacks continuing education requirements, and lacks disciplinary standards for those who hold it.  A version of the guidelines have been adopted by 28 states..


7         So what should investors do?  Ask plenty of questions about any initials after an adviser’s name.  Which organization grants the cre­dential?  How much study was required?  What must be done to maintain the designation?  Is there a code of ethics?  Contact the organization that sponsors any credential that you have not heard of.  Ask what is required to earn the designation, other than writing a check.  Is the adviser in good standing?  How are complaints from consumers handled?  Does the group and/or organization display all disciplinary actions on its website?