Decoding financial advisor designations:  are these for real?

Have you ever thought that decoding advisor designations reminded you of watching the movie The Da Vinci Code?  It seems like every advisor has letters at the end of his or her name, but what do they mean? Do any of the designations actually demonstrate a degree of capability to manage your portfolio?

The Financial Industry Regulatory Authority (FINRA) does not approve or endorse any professional credential or designation. Yet, on their website, they recognize 190(!) different designations that a financial advisor might list as a credential.  Many state securities and insurance regulators, however, do not allow financial professionals to use a designation unless it has been accredited by either the American National Standards Institute or the National Commission for Certifying Agencies. That narrows the list down to 9 designations

But even with this narrowed list, the question remains the same: do any of them demonstrate capability?

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We’re not here to stand on a soapbox and tell you all of these designations are silly or stupid. Some of them are a clear demonstration of aptitude, such as the Chartered Financial Analyst (CFA) designation, for example. Instead, we want to make sure you’re not getting the wool pulled over your eyes by automatically assuming that the letters at the end of your advisor’s name are worth the business card they are printed on. Some are not.

When investigating the legitimacy of a designation, check out the issuing organization, the continuing education requirements, and whether the organization takes complaints from investors. 

Here are some considerations:

  1. Ease of obtaining the designation: Did the designation take three months or three years to complete? How rigorous is the curriculum? 
  2. Emphasis on ethics: Does the designation prioritize ethics? One thing we really like about the CFA designation is that the curriculum places great emphasis on this.
  3. Continuing education: Will the advisor be required to receive continuing education required to maintain the designation? If the designation doesn’t require continuing education, it’s probably not something to put a lot of weight into.
  4. Recourse for investors: What happens if an investor files a complaint due to poor behavior by an investment professional? If a professional can’t be kicked out for bad behavior, both the organization and advisor’s designations probably aren’t legitimate.

As an investor, it is important to remember that designations may not be a good indication of the financial advisor’s ability to manage your investment portfolio or provide you with unbiased advice.  In fact, there are plenty of fine professionals that do not have any designations at all.  Investors, therefore, should not be seduced by an acronym.