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Should You Trust Your Financial Professional’s Credentials? Regulators Say: Maybe Not.

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 designation.

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 people."

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.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

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