En español | When you walk into my office, you'll see a beautiful crystal plaque recognizing the recipient as one of “America's Top Financial Planners.” It's from a very prestigious-sounding organization that has a mailing address on Pennsylvania Avenue in Washington, DC.
But before you assume I'm bragging, let me reveal that this plaque was bestowed upon my dog, Max Tailwag'er, and I use it to illustrate how many in the financial services industry buy their way into bogus credentials in an effort to build credibility. The more credibility we create, the more likely you are to hand your money over to us.
There are well over 100 financial designations. Some require training, experience, rigorous testing and background checks, while others can basically be purchased while putting in little or no time. SmartAsset.com lists a few of the more rigorous designations as:
- CPA (certified public accountant)
- CFP (certified financial planner)
- ChFC (chartered financial consultant)
- CFA (chartered financial analyst)
Some financial designations target seniors. Designations and awards, like the example I gave above, are for sale and require no more vetting than handing over your credit card number. My dog was also offered a spot in a physicians’ magazine as a top adviser for doctors. As previously mentioned, many designations are just used to build credibility, and some awards also target seniors specifically.
So how do you know if the adviser wanting your money truly has expertise and worked hard to build the necessary skills? Here are a few steps to figure that out.
Step 1: Start with the Financial Industry Regulatory Authority (FINRA)
FINRA is the main self-regulatory body of the financial services industry. This FINRA tool lists 213 financial designations, although some of the designation issuers are now defunct. It gives the following information:
- Name of the issuing organization
- Prerequisites, such as education
- Examination type
- Continuing education requirements
It also notes whether the organization has a process to confirm the adviser holds that designation, whether it has a complaint process and whether it lists those who have been disciplined. The tool has hyperlinks that can make it easy to check out a financial adviser.
If the organization is defunct or appears to be a slam-dunk certification, look elsewhere.
Step 2: Do 10 minutes of internet research
If the designation looks legitimate on the FINRA tool, or if you are checking out an award not listed by FINRA, then a quick internet search may help. You can type in phrases like “obtaining the XYZ designation” and see what's involved. One senior designation I looked at entailed paying some money and attending a three-day seminar in Las Vegas.
If it's an award or list of top advisers, look to see what's involved or if anyone has written about it, such as the award given to my dog. That same organization also issues top doctor, dentist, lawyer and other awards, and there are many articles online exposing these pay-for-prestige practices.
Next check out that person. In addition to any complaint or disciplinary action by the organization issuing the designation, financial regulators also list actions. FINRA's Broker Check and the Security and Exchange Commission's Investment Adviser Public Disclosure website are two good places to look. Don't assume that because the issuing organization shows no discipline that other organizations (or the government) haven't disclosed misdeeds. In 2019, The Wall Street Journal noted there were more than 6,300 CFP certificants who had clean records on the CFP website but that had disclosures on the FINRA website, including felony charges.
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Step 3: Ask tough questions
If the adviser passes the first two steps, it's time to ask tough questions. You could ask:
- What was involved in getting this award and who nominated you? Did you have to pay for the plaque or award?
- What did you have to do to be awarded this designation? See if it matches what is shown on the FINRA tool.
- Ask the adviser if he or she is a fiduciary and is technically obligated to put your interests first.
Use the AARP Interview and Advisor tool to help you ask the right questions to find the professional who's right for you.
Step 4: Understand what they are doing with your money
No matter how real any award or designation may appear to be, always understand what the organization is doing and how much you are paying. I call this the “trust but verify” approach. I've seen so-called fiduciaries put their clients in outrageously expensive, complex and inappropriate products, so blind trust can be very dangerous.
Simplicity is usually superior to complexity. Complexity is often used to sell a product that the consumer can't understand. Ask the adviser how much you'll be paying in total costs, including any vehicle (such as mutual funds or exchange-traded funds) being used. Get that person to put it in writing. If they won't, be concerned.
Wrapping it up
Many people in the financial services industry target seniors because we've worked a long time to build a nest egg and they want a piece of that nest egg. That's OK if the adviser is providing services that are worth paying for. Unfortunately, many in the financial services industry are more interested in their own financial well-being than in yours.
You should also remember that virtually anyone can fill an office with prestigious-looking credentials and call himself or herself a financial planner. “For seniors, it is the financial equivalent of the Wild West,” says Harvard economics professor David Laibson. “Many so-called planners are free of almost all regulatory oversight or constraints.” Laibson told me this a decade ago, but nothing has changed.
I hope this four-step process will allow you to delve into the designations and awards of an adviser you're thinking about hiring — and help you to protect your own finances.
Allan Roth is a practicing financial planner who has taught finance and behavioral finance at three universities and has written for national publications including The Wall Street Journal. Despite his many credentials (CFP, CPA, MBA), he remains confident that he can still keep investing simple.