What Financial Advisor Credentials Mean for You

As a general rule, credentials underscore two things for a client:
  1. The advisor has done some beyond-the-basics study in an area where you need expertise.
  2. The advisor can charge you more money.

That's why it's important to make sure that an advisor's designations are meaningful to you and your needs, because you will almost certainly be paying up for the expertise and credibility these marks bestow on an advisor.

It's impressive when you find a financial planner who has done the work to earn the "Chartered Financial Analyst" designation; the CFA is one of the most demanding and respected marks in the business, and it is held primarily by stock analysts and institutional money managers.
A financial planner who gets one will tell you that it makes him better at selecting stocks and mutual funds.

Smart Investor Tip

Make sure that an advisor's designations are meaningful to you and your needs, because you will almost certainly be paying up for the expertise and credibility these marks bestow on an advisor.

That may all be true, but if you just want a basic mutual fund portfolio, the CFA means that the planner is way overqualified for the job. There's nothing wrong for that, unless you are paying the freight for all of this expertise that you aren't using and don't expect to need. In that case, someone with less invested in getting credentials (perhaps with the much easier to attain Chartered Mutual Fund Counselor mark) can provide qualified assistance at a lower cost.

You also need to decide if an advisor has "too many" credentials. While someone with the many marks described in the situation at the start of this chapter could handle the various situations of the client described at the top, your situation may be much simpler. You may just be looking for solid financial planning advice for someone who has your career track, say a nurse, teacher, or factory worker.

All of those professional marks are nice, but there is no substitute for the experience of someone who has a client base just like you, where instead of trying to be all things to all clients, she specializes in the needs of a small group of like-minded, financially homogenous people.

When I need experts to help me work on my columns, I have generalists and specialists. If I am writing about saving for college, certain advisors will get the call, and it will be a different group of advisors if I am looking at estate-planning concerns, and so on. And then there are some generalists whom I can call on almost any question, although they sometimes have to acknowledge that being certified as a jack of all trades is not the same as being the master of all of those skills.

A Credential Gives You Someone to Complain to ... Maybe

The best credentials are given by groups that keep a close watch over their marks. They don't want to support a rogue advisor any more than you would want to hire one, which is why they have an investor complaint process that you can go if you have trouble with someone using their designation.

This is another way that the quality of credentials can be differentiated. If the credential gives you another avenue to pursue if you are wronged -- another bit of leverage to persuade an advisor to do the right thing and set things straight -- it is more valuable to you. When you check out the advisor's credentials, take notice of whether the group has a way for you to lodge complaints should you need to in the future.

By Chuck Jaffe
Chuck Jaffe is a senior columnist and host of two weekly podcasts at MarkWatch. He has also been a guest speaker on several television and radio shows.

Copyrighted 2016. Content published with author's permission.

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