Many investors rely heavily on the premise that their investment advisers
are highly financially literate, well-educated professionals who know
what they are doing. Unfortunately, the credentials some advisers use
to "prove" their qualifications may be nothing more than dubious
designations purchased for a few hundred dollars or "earned"
with minimal effort.
Regulators are worried that some investment advisers use meaningless credentials
in order to win the trust of wealthy clients who will be more inclined
to follow the financial professional's advice, even when it is not
in their best interests. Such advice, if followed, may be inappropriate
for the client, but will normally translate into a higher fee and/or commission
for the adviser.
Credible designations, such as C.P.A. (Certified Public Accountant), C.M.A.
(Certified Management Accountant), certified financial planner, and/or
chartered financial analyst, mean that the holder went through a long,
arduous credentialing process that required significant study. Such designations
also mean that the holder must stay up-to-date in the industry through
continuing education programs and must follow strict codes of ethical conduct.
In recent years, however, new credentials have arisen that unscrupulous
investment advisers and miscellaneous financial professionals can use
to trick investors. The Financial Industry Regulatory Authority (FINRA)
now has 95 different designations for financial professionals on file,
twice the number in 2005, and there are an additional 115 designations
discovered by the Wall Street Journal in a recent article that are not
tracked by the regulatory body.
While many designations (like the C.P.A. and others described above) are
serious credentials earned and used by competent, trustworthy advisers,
some are not what they seem. Dubious designations can sound frustratingly
similar to other more credible ones. Take, as an example, the CRFA (the
certified retirement financial adviser), which sounds a lot like the CFA
The difference is approximately 900 hours of intensive study in accounting,
economics, ethics, finance and mathematics, and a rigorous, three-part
exam that only 42% of CFA candidates pass. The CRFA, in contrast, can
be earned by easily passing a 100 multiple-choice test that requires,
at maximum, around 75 hours of prep-time.
In the WSJ article, Denise Voigt Crawford, securities commissioner for
the state of Texas and past president of the North American Securities
Administrators Association, comments on the problem: "State securities
regulators have been very worried about this. We are taking a growing
number of administrative actions against people using designations as
part and parcel of fraudulent securities activities, especially with older
The message? Investors shouldn't be conned by credentials of which
they have never heard. Before hiring an investment adviser or other financial
professional, make sure to conduct an investigation into his or her qualifications.