Home / Money / Personal Finance /  Financial advisers have an alphabet soup of credentials. What do they mean?

You’re looking for somebody to help you get your money matters in order. You could turn to a certified financial behavior specialist. Or maybe a certified divorce adviser. Or maybe a student loan repayment adviser. Or maybe…?

The list goes on and on. Today, the Financial Industry Regulatory Authority’s website lists a total of 235 credentials that you may find decorating the business card of a financial adviser. (Finra doesn’t endorse any of them.) A total of 25 new designations were added last year alone, according to advisers who have tracked these listings.

“The number of professional credentials that financial advisers can add to their business cards has just exploded in recent years," says Patrick Lach, an assistant professor of finance at Indiana University Southeast.

Most of these new specialties are designed to provide professionals training in specific niches of financial planning, and give them a way to advertise that specialty to clients. But it can be tough for investors to know if those titles hold much value. There are no industrywide standards for certifications, and the requirements for getting them vary widely. So, investors need to do legwork to figure out what their adviser’s title really represents.

Mr. Lach, for one, is a financial adviser who can add nine letters to his name: Ph.D., CFA (chartered financial analyst) and CFP (certified financial planner). Acquiring those qualifications took him thousands of hours, he calculates—so he was startled to encounter other advisers with credentials that could be acquired with a weekend-long program and multiple-choice test.

“It was a wake-up call," says Mr. Lach, who now is researching the potential for credentials to mislead individual investors. “Given the amount of damage that less competent or skilled advisers can do, the combination of a lack of universal educational requirements and these sometimes fly-by-night credentials is alarming."

“I suspect that a significant majority of them are just designed to enhance someone’s résumé," says Harold Evensky, a veteran financial adviser and founder of Evensky & Katz/Foldes Wealth Management. “Certainly, no governing agency exists to warn people what’s useful and what is more of a marketing gimmick."

Many needs

This proliferation of credentials mirrors the growth and diversification of the financial-planning business itself. As traditional pension plans gave way to defined-contribution plans like the 401(k), individual investors had to shoulder the burden of managing their own money, each with unique situations and questions. A 55-year-old high-school teacher with two adult children has vastly different needs than a 40-year-old entrepreneur with young children from two marriages, or a 35-year-old single parent whose child has special needs. It is logical that each will seek the kind of adviser best suited to help them address their unique challenges.

That’s why many advisers are adding more credentials to their list and more letters after their name. Cecil Pope Staton, a financial adviser in Athens, Ga., works primarily with millennials who acquired hefty student-debt loads along with their medical educations.

Young doctors or dentists who don’t plan student-loan repayment properly can jeopardize their other financial objectives, Mr. Staton says, so “I felt compelled to earn the CSLP [certified student loan professional] to serve my clients better."

Earning the designation required him to take the equivalent of four postgraduate courses and pass a comprehensive exam on the nuances of analyzing student loans.

Like many of his peers, Mr. Staton also is a CFP—certified financial planner—a credential that investors often view as the gold standard. To add CFP to their name, advisers must complete two years of part-time study, pass a 10-hour exam and have a few years of real-world experience working with clients, either independently or as an apprentice with someone who already has the CFP designation. Maintaining that CFP requires continuing education and compliance with ethical standards.

But Mr. Staton says the CFP curriculum didn’t cover the growing planning challenges surrounding student loans and student debt in enough depth. Other advisers agree, pointing out that each credential signals either additional expertise or commitment to a distinct area of planning. Just as someone with a heart condition needs a doctor—but more specifically a cardiologist rather than a dermatologist—many advisers note that there is a growing degree of specialization in financial planning.

But drawing an analogy between specialization among physicians and financial advisers is problematic. To become a doctor—and then a cardiologist—requires a college degree and years of additional education and training, and maintaining licenses. Hospitals and regulators all monitor compliance. The financial-advisory world offers nothing comparable.

“Caveat emptor, or buyer beware, is fine when what you’re doing is buying a new TV," says Mr. Lach. “It’s an altogether different matter when entrusting someone else with your life savings."

He would like to see an easy-to-read guide to each adviser’s credentials, describing the rigor (or lack thereof) of the education required to acquire the designation, what kind of exam (if any) was required, and what it takes to maintain that credential over time (just a few hundred dollars a year or a few dozen hours of continuing education).

The area that has attracted the most scrutiny over the past decade or so is designations that suggest or claim that an adviser has expertise in working with seniors, flagged by the Consumer Financial Protection Bureau as an area of special concern. A majority of states now prohibit advisers from marketing themselves as having completed special programs enabling them to advise on topics like retirement-income planning if the groups that offer those credentials don’t have “reasonable standards" to verify that those who acquire the credential are competent, including approval by a business-standards group.

Whose responsibility?

Just who should be responsible for overseeing claims of expertise and verifying that credentials reflect skills is a matter for debate. State regulators oversee many aspects of financial planning and advice but largely concern themselves with policing complaints and bad behavior; industry bodies try to set and maintain standards. Still, fewer than a dozen of the 235 or so credentials listed in Finra’s website are assessed and approved by either of the two relevant independent accreditation authorities, the American National Standards Institute or the National Commission for Certifying Agencies, Mr. Evensky notes.

The American College of Financial Services, which offers educational programming for a select array of credentials, tries to limit the number of programs it implicitly endorses by offering these courses.

To be useful, a credential “should reflect real understanding of a body of knowledge that is unique and in demand by investors," says Michael Finke, professor of wealth management at the institution. But that is the ideal—and he acknowledges that while individuals can try to assess how meaningful a credential is by figuring out whether it requires courses completed at accredited institutions like the college, that may not go far enough.

“There remains no single governing body determining what is and what isn’t legitimate," he says, adding he would like to see the industry’s leaders and regulators work together to fix that lack.

The CPA designation requires financial experts to survive a demanding curriculum and exams. An additional useful credential, the PFS, or personal financial specialist, can help identify an accountant who also has achieved a certain level of advisory expertise.

A third credential may offer more limited insight into someone’s expertise in the advisory field but testifies to their intellectual prowess and their determination. The CFA (chartered financial analyst) is a notoriously difficult title to earn (to get it, candidates take three exams over several years), but you’re more likely to find CFAs working as analysts or portfolio managers in the investment-management industry than advising individual investors.

Having a new, quirky or unusual credential isn’t automatically a warning sign, veteran advisers agree. If someone has a CFP, or other core credential, a smaller certification can be a useful signal about their specialty. Conversely, having a long list of credentials—none of which are in core, tougher-to-obtain programs—might serve as a signal to ask hard questions about an individual adviser’s experience and expertise, and seek out more references from other clients than you usually would.

“The flood of additional designations with lower standards has watered down the benefits of having some of the really good ones," says Matt Chancey, an adviser in Tampa, Fla. “Most clients don’t know what any of these letters represent."

Mr. Chancey himself at various points in his career has earned 17 individual credentials, each representing some area of expertise, such as planning for long-term care.

“But the only one I’ve maintained over all that time is the CFP," he notes. “The others helped make me a smarter and more useful adviser when working with clients, but that’s no reason to keep paying hundreds or thousands of dollars in fees to maintain it each year when clients struggle to understand what the credential means.".

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