Choosing a Qualified Financial Adviser

In professions like medicine, law, and accounting, you commonly see professional credentials — MD, JD, CPA — after a practitioner’s name. It’s no different with financial advisers, who utilize certifications such as CFP, PFS, and more.

These certifications should signal that advisers are qualified to provide financial advice. However, rapid growth in the industry has led to an overwhelming number of designations, resulting in confusion for investors seeking guidance.

The Importance of Selecting the Right Financial Adviser

Choosing a financial adviser is a significant decision, comparable to selecting a physician. Just as your doctor assists during life’s pivotal moments, a financial adviser helps with crucial aspects such as starting a family, buying a home, and planning for retirement. Nonetheless, not all financial designations are created equal. Some require extensive education and experience, while others may need only a few hours of training. It is essential to ensure that the credentials associated with a potential adviser genuinely reflect their expertise.

Understanding Financial Designations

The Financial Industry Regulatory Authority (FINRA), which oversees broker-dealers in the United States, maintains a list of financial designations on its website. As of November 2023, the number of designations in FINRA’s database has surged to 245, indicating nearly a 45% increase in just seven years.

Weak Requirements Dilute Credibility

In theory, this should enhance the financial advice landscape, increasing the quality of credentialing programs available for financial advisers while consequently improving the overall quality of financial advice. However, the influx of credentials with lax ethical and competency requirements threatens to undermine credible designations.

Many designations listed on FINRA’s website include terms such as “certified” or “accredited” in their titles, yet only a small fraction of these mandates rigorous standards.

What to Consider When Selecting a Financial Adviser

The proliferation of designations complicates the process of identifying which are legitimate. To streamline your selection of a financial adviser, begin by ruling out designations associated with credentialing organizations exhibiting the following red flags:

• The designation lacks rigorous examination standards or requires no exams
• There is minimal professional or educational experience necessary to obtain the designation
• The organization does not mandate frequent renewal or continuing education
• The designation lacks a substantial professional code of conduct
• The organization does not transparently enforce professional conduct standards
• The credentialing process emphasizes how quickly one can earn the designation

If your prospective adviser’s qualifications reflect any of the aforementioned shortcomings, it may be prudent to consider a professional with more reputable credentials. Reputable designations, such as CFP® certification, PFS designation, and CPA license, often share common characteristics including:

• Completion of extensive coursework toward a college degree and the desired certification
• Demonstration of proficiency through a rigorous examination
• Possession of hundreds to thousands of hours of educational and professional experience
• Commitment to continuing education and renewal requirements that ensure ongoing competency
• Accreditation from recognized bodies like the ANSI National Accreditation Board or the National Commission for Certifying Agencies
• A strong dedication to upholding stringent professional conduct standards, including acting in clients’ best interests
• A clear enforcement program that investigates and addresses misconduct

Confirm Their Good Standing

Ultimately, aim to engage advisers who hold credible certifications and verified qualifications to provide sound financial advice. After identifying a credible adviser, confirm their good standing with the corresponding credentialing organization. For example, you can check the disciplinary history and certification status of any individual’s CFP certification through the CFP Board’s website. Additionally, regulatory information can often be found through resources like FINRA’s BrokerCheck and the SEC’s Investment Adviser Public Disclosure databases.

When choosing an adviser, it is vital to comprehend their training, experience, and commitment to acting in your best interests. Be cautious with designations from organizations that maintain significantly lower standards, such as minimal exams, experience requirements, or lax conduct standards.

Whether collaborating with a CPA, PFS, or CFP® professional, safeguard your financial future by ensuring that the credentials they possess hold genuine value.

Disclaimer

This article reflects the views of the contributing adviser and does not represent the official editorial stance of iBestTravel. You can verify adviser records with the SEC or with FINRA.