Investment Credentials: The Letter Shell Game
In most professional industries – whether you are talking about a doctor, lawyer, dentist, accountant, or other respected field – a comprehensive and rigorous multi-year schooling and examination process is required to gain entrance into the club. Unfortunately for those working with professionals (I use the term loosely) in the investment and insurance fields, all that most advisors need to do is have a pulse and spend a few hours or days studying for an exam. Our structurally flawed and loosely cobbled together financial regulatory system is like a shell game that is constantly moving and hiding different conflicts of interest.
Left in the wake of the financial crisis, the public has been left picking up the pieces from the rating agency conflicts, Madoff scandal, Lehman Brothers bankruptcy, AIG collapse, Goldman Sachs hearings, golden parachute bonuses, billions in fees, commissions, and investor losses. Rather than watch the backs of investors, the system has favored financial institutions and penalized investors with fees, commissions, transactions costs, fine print, and layers of conflicts of interests. Andy Warhol described the amassing of fees like the prices of art – under both circumstances you collect “anything you can get away with.” So unless investors do their own thorough homework, there’s a good chance they will end up with a failing grade.
One of the major deception components is the creation of many worthless, pathetic lettered credentials that in many cases are worth less than the paper or business cards they are written on. Now, I’m sure some of these multi-letter credentials are worth more than others, but as a practicing professional in the industry for more than 15 years, it feels like I come across some new three letter designation every week. I know I am not alone with my sentiments, because respected professionals and colleagues I work with chuckle at many of these lettered credentials, and like me, have no clue what they stand for. When receiving a new business card with some of these strange letters, I often don’t know if I should cover my mouth while I burst out laughing, or if I’m supposed to be genuinely impressed?
Perhaps for hardworking parents, like a Joe and Mary Smith, it may mean something, but unless a multi-year curriculum (for example, the CFA Chartered Financial Analyst or CFP® – Certified Financial Planning programs) is put behind the alphabet of letters on a business card, please do not be offended if I yawn. Investors deserve better and fairer representation from someone managing their life savings, much like they get from a MD performing a surgery, a JD protecting a proprietor’s business, a CPA shielding a tax return from the IRS, or a DDS performing a root canal.
While it may sound like I am demonizing the broker/salesmen/advisors that are swimming around in the investment waters looking for commission opportunities (see Financial Sharks article), I understand some of them have genuine intentions and do not purposely misrepresent their credentials. As a matter of fact, many of the brokerage firms that hire these individuals require them to add funny letters to their business card for marketing purposes.
Here is a list of finance-related credentials other than the aforementioned:
- AAMS (Accredited Asset Management Specialist)
- AFC (Accredited Financial Counselor)
- AWMA (Accredited Wealth Management Advisor)
- CAIA (Chartered Alternative Investment Analyst)
- CASL (Chartered Advisor for Senior Living)
- CCFC (Certified Cash Flow Consultant)
- CFS (Certified Fund Specialist)
- CIMA (Certified Investment Management Analyst)
- CIMC (Certified Investment Management Consultant)
- CMA (Certified Management Accountant)
- CMFC (Chartered Mutual Fund Counselor)
- CMT (Chartered Market Technician)
- ChFC (Chartered Financial Consultant)
- CCFC (Certified Cash Flow Consultant)
- CDFA (Certified Divorce Financial Analyst)
- CEBS (Certified Employee Benefit Specialist)
- CDP (Certified Divorce Planner)
- CLTC (Certified in Long Term Care)
- CLU (Chartered Life Underwriter)
- CPCU (Chartered Property Casualty Underwriter)
- CRPC (Chartered Retirement Planning Counselor)
- CTFA (Certified Trust and Financial Adviser)
- FRM (Financial Risk Manager)
- MSFS (Master of Science in Financial Services)
- PFS (Personal Financial Specialist – awarded by the American Institute of Certified Public Accountants (AICPA))
- QPFC (Qualified Plan Financial Consultant)
- REBC (Registered Employee Benefits Consultant)
- RFC (Registered Financial Consultant)
When it comes to these and other industry credentials I am open to being enlightened on the relative merits…I’m all ears. And even if you trust the CFP® and CFA designations as the gold standards in the investing field, holding those credentials alone are not sufficient to make someone a good adviser. However, until I gain a better understanding of the dozens of other confusing credentials, I will continue to scratch my head and wonder which ones are worth more than the others, and which ones are not worth squat.
Healing the Wounds
It will take a long time for the financial industry to gain back the trust of investors, but it will require a multi-prong effort from regulators, financial industry executives, and investors themselves (who need to do better homework). If we want to more specifically dissect the professional service industry, then why not form one certification for each segment –not dozens.
What’s more, rather than pulling the wool over the public’s eyes with meaningless titles and credentials, let’s establish a fiduciary duty and designation that is demanded of all investment professionals. Moreover, let’s make the filtering process more rigorous in weeding out the dead-weight before handing the precious keys over to a professional. Unless changes are made, the corrupt system will remain structurally flawed, ripe with conflicts of interest, and aggressive salesmen calling themselves professionals –even if meaningless credentials are flaunted around to garner fees and commissions from the unsuspecting public.
Not everyone in the industry is a crook, but make sure you follow the ball very closely, so you do not lose in the investment shell game.
Wade W. Slome, CFA, CFP® <— Don’t worry if you are not impressed by these letters…my wife and friends are not either!
Plan. Invest. Prosper.
*DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in Lehman/Barclays, GS, or AIG (but do own derivative position in subsidiary) or any security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.