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Degrees of Trust

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By Jack Waymire


For investors in search of an advisor, a long list of credentials can seal the deal. But sometimes those credentials spell trouble.


There are likely thousands of financial advisors in your community, and every one of them wants to invest your assets. But they have a major marketing challenge: They know you want to work with experts. Yet what if they’re better at selling their services and cultivating relationships than generating returns?

One way advisors earn the trust of potential clients is through the degrees that follow their name. Ethical advisors spend years studying and taking exams to obtain credentials. Unethical advisors, however, take shortcuts. They buy fake credentials the same way con men buy fake university degrees, and use them to convince you that they are financial experts.

Recognizable Credentials

Most investors—even sophisticated ones—know almost nothing about how to verify and judge financial credentials. The most recognized financial credential in America is CPA, certified public accountant; in a survey of 3,250 people conducted by my firm, Paladin Research, 97 percent of respondents knew what the initials stand for and what services CPAs provide. At 11 percent, CFP—certified financial planner—was the next most recognized credential. All other financial service credentials were recognized by less than 5 percent of respondents.

The fact that most people have such rudimentary knowledge of financial credentials opens the door to deceit. Advisors can use just about any credential to create the appearance of expertise. What if an advisor presented a business card that showed: “Bernard Madoff, CRQ, IAF, RIE”? Would you assume he was a financial expert? Would you take 15 minutes and validate the quality of these bogus credentials?

Using credentials to convey expertise is a no-brainer for financial advisors who are better at marketing than advising. Advisors have no mandatory disclosure requirements and no restrictions on the credentials they can advertise. They know that few investors conduct due diligence. A few states, such as Nebraska, have an approved list of advisor credentials on their websites. But for the most part, investors are on their own.

Evaluating Credentials

High-quality credentials have the following characteristics: meaningful prerequisites, rigorous curricula, proctored examinations and at least 15 hours of continuing education per year. But there are plenty of degrees that advisors can acquire which feature very different characteristics: five-page printouts for curricula, no tests and no continuing education requirements.

My firm has identified more than 260 financial certifications and designations advisors are currently using. The vast majority are worthless. The five best are: CFA (chartered financial analyst), CIMA (certified investment management analyst), CFP (certified financial planner), CPA (certified public accountant), and ChFC (chartered financial consultant).

Free Validation Services

There are three ways to check the quality of advisor credentials. Each requires only a few minutes of your time.

FINRA (finra.org), the regulatory authority for stockbrokers and broker/dealers, has an online database of 140 certifications and designations that financial advisors use.

Paladin (paladinregistry.com) has a database of those 260 financial certifications and designations. Its free “check a financial credential” service offers a report and quality rating for each designation.

You can also Google the names or acronyms of the credentials.

If you can’t find anything about a credential, it may very well be discontinued. Be skeptical if the sponsor’s website looks like a credential mill, or provides no disclosure for investors. Above all else, remember: It’s not the quantity of credentials a financial advisor has that matters, but the quality.

Jack Waymire is the founder of Paladin Registry, a leading provider of information services to investors who rely on financial advisors.

 

This article originally appeared in the February/March 2014 issue of Worth.

Read More From The February/March 2014 Issue:

Q&A With Michelle Goad of PS Dept.

Into The Woods: Behind The Scenes At Thos. Moser Cabinetmakers

Looking For Dr. Right

The Top 10 Iconic American Restaurants

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