I’ve written a number of books on investing, yet I have no idea what many of the credentials appearing after the names of some advisors mean.
Some credentials (more on that later) signify considerable technical expertise. However, I’ve known many registered investment advisors who don’t have any credentials (other than being appropriately registered with the U.S. Securities and Exchange Commission) who are wonderful advisors. I would use them myself, without hesitation.
Regardless of the credentials held by an advisor, it tells you nothing about their “demeanor, ability to communicate complex information and the investment approaches they espouse.” Of course, technical expertise is important, but it doesn’t trump these personal qualities.
According to this article, there are over 100 credentials “ranging from the ordinary to the ridiculous.” If you’re looking for an investment advisor with a credential genuinely reflecting serious study and meaningful expertise, here are my top choices:
Ph.D. in Finance. If your investment advisor has a Ph.D. in finance from an accredited educational institution, you can be very confident he or she has an extensive background in the structure of financial markets, the formation and behavior of asset prices, banking and monetary systems, capital structure, international financial markets and other areas of finance. You can find further details here.
You’re unlikely to find an advisor with this credential. Very few advisors have gone through the rigorous academic study required to achieve it.
C.P.A. Certified Public Accountants are required to be college graduates, pass a difficult examination and be current on tax law. Many C.P.A. firms have expanded into wealth management.
C.F.A. There are over 150,000 Chartered Financial Analysts. They are required to pass a rigorous three-part examination covering ethics and professional standards, investment tools, asset classes and portfolio management and wealth planning. They have to commit to a 4-year program (or more), and 300+ hours of study for each of the three examinations.
M.B.A. A masters degree in business administration from an accredited educational institution is an impressive credential. Holders of an M.B.A. typically went to graduate school for two years of full-time study. They have a background in accounting, finance, and marketing, among other subjects. You can find a list of the top-ranked business schools by U.S. News here.
I don’t mean to trivialize other credentials by omitting them from my list. A very popular one is the CFP designation. The process to obtain this designation is not as rigorous as the one to become a Chartered Financial Analyst, but it’s still meaningful. Applicants must meet requirements relating to ethics, pass an examination, have considerable experience providing financial planning advice and meet certain educational requirements.
Another meaningful designation is the Personal Financial Specialist, which requires holders to be Certified Public Accountants, with advanced educational training in financial and wealth management.
If your advisor is touting other credentials, ask these questions:
Then go to the webpage of the issuer and verify what you’ve been told.
You would be well advised to only use registered investment advisors for your investment needs. These advisors are required by law to disclose all conflicts and to always put your interests above theirs.
You can verify whether your advisor is a registered investment advisor by going to this website, run by the SEC.
If the advisory firm you’re interviewing is certified by The Center for Fiduciary Excellence (known as “CEFEX”) or the Institute for the Fiduciary Standard, you can be assured it’s adhering to the highest ethical standards.
Ask your advisor if it adheres to the best practices set forth in this white paper, authored by the Institute for the Fiduciary Standard. Full disclosure: I am an unpaid board member of the Institute and endorsed its accreditation program for advisors.