Beware of Financial Advisor "Alphabet Soup"
Do you know the difference between an Accredited Estate Planner, a Certified Senior Advisor and Certified Financial Gerontologist? Would your parents?
Many financial professionals are betting that you don't, and that you won't take the time to find out what the letters behind their name actually signify.
Believe it or not, there are more than 50 financial "titles" that imply expertise in helping older Americans, but many mean next to nothing, according to the federal Consumer Financial Protection Bureau.
"Consumers risk paying for an adviser they believe has a breadth of experience, but who, in reality, simply paid a website for multiple designations," an April 13, 2013 report from the Bureau states.
Credentials may be pure marketing because the requirements to earn them vary widely. For example, an adviser may have gone to class for several years, passed difficult exams and paid thousands of dollars for an accredited designation with a continuing education requirement every year thereafter. Or they may have taken an online webinar and an open book test for an unaccredited credential that sounds just as impressive.
What is the danger of a bogus credential?
"If I can deceive you into believing I am an expert in the field you need an expert in, I have a high chance of gaining control of your money. Then I sell you the products that make me the most money," says Jack Waymire, founder of the Paladin Registry. Paladin Registry rates 250 designations in the financial advice, planning, investing, and insurance industries with a free online search tool found at PaladinRegistry.com. (Simply type in the credential, and view its rating.) Of those 250 designations, only 25 are deemed high quality; the rest are low quality or mediocre.
Waymire cites five credentials with five-star ratings on Paladin Registry: Chartered Financial Analyst (CFA), Certified Financial Planner (CFP), Certified Public Accountant (CPA), Chartered Financial Consultant (CFC), Personal Financial Specialist (PFS), and Chartered Life Underwriter (CLU).
How should you go about finding a financial adviser?
According to Lisa Dieter of Morgan Stanley Smith Barney in Glenview, the best way is to reach out to your network and find a similarly situated friend, and get a referral that way. "There are some natural safeguards that way," she explains. "For example, if I treat a client's friend badly, I know I could risk losing the client.
"The key is for them to go to like-situated people. For example, if a widow has $200,000 and goes to her friend who has $3 million, the widow might be small potatoes to her friend's adviser and not receive adequate attention."
By the way, Dieter holds the Certified Financial Planner credential, one of the most difficult and time-consuming to achieve.
Other ways to check
In addition to checking credentials on the Paladin Registry, there are other ways to check an adviser's professional record that Dieter recommends.
The Financial Industry Regulatory Authority has FINRA BrokerCheck at finra.org. There, you can search an adviser by name to see his or her record. The other way is to ask for references and actually check them.