Understanding Designations – Choosing a Financial Advisor in Tucson, AZ – Part 2

It’s time to understand what those letters at the end of an advisors name really mean and if they matter…

Would you blindly trust just anyone to operate on you?

I sure wouldn’t.

If I was going under the knife I’d want to check out the team who had my life in their hands.

  • I’d want to know if they were qualified?
  • Did they have a history of success?
  • Is this even their area of expertise?

I might be fearful before going under, but the last thing I would want to worry about is whether or not I trusted their skills…

Can you imagine getting put under with that on your mind? No thanks!

The test I took that allows me to legally give financial advice took me about 3 hours of study to be able to pass. That’s it!

Just like that, a few weeks out of college, with no experience, I was able to call myself a financial advisor.

It takes more to become a barber!

So how do you know that a financial advisor even knows more than you?

This is where what I call “alphabet soup” comes in. There are many non-required courses and tests that professionals can take to earn designations and learn more about financial topics. These designations show that they are serious about their career. Not everyone takes them, but those that do, are at proving and enhancing their skills.

There is a popular Ad that came out recently. You can see it here.

It’s the one where the CFP® board has a DJ present financial plans to people to see if they would let him manage their financial life. And guess what? People do!

Yes, you heard me right, a DJ.

The tagline at the end goes “If they’re not a CFP® pro, you just don’t know…”

That’s why we made this video. To help you understand that it’s your responsibility to do research on the advisor’s you’re interviewing to see their history and qualifications.

We’ve all heard the horror stories from friends and coworkers about terrible financial decisions they or people they know have. What’s worse, many were led to those decisions by financial “professionals” whose advice they trusted and followed.

That’s why you need to do your research and make sure they’re qualified.

Though it isn’t always that easy.

It can be difficult to find good insight into someone’s qualifications without knowing where to go.

For instance, at The American College you can see just a few of the many different designations available.

No wonder it’s confusing.

To make things worse, not all designations are equally respected, and they certainly don’t mean the same thing.

Open Book Testing? Really?

I recall a designation I pursued over ten years ago that was focused on working with people in retirement.

If you read the study materials and prepared for the test like you were supposed to, there was good knowledge to be gained that would help you make better decisions for your clients. Unfortunately, it turned out that the testing procedure wasn’t as stringent as it should have been and many people were not studying at all and in fact were taking the test “open book.” They just looked up the answers as they took the test without actually learning anything.

While I thought that designation was in fact useful for the knowledge I gained, the people who took the test open book had as much right to use the designation as I did, but without having the underlying knowledge. That designation was eventually discredited, and I don’t believe it exists anymore.

Designations to Look For

Of the more common ones are the CFP® or Certified Financial Planner, the CFA® or Chartered Financial Analyst, and the CLU® or Chartered Life Underwriter.

But what does that mean? As I said before, not all designations are created equal!

For instance, the Certified Financial Planner mark requires a bachelor’s degree, college level financial planning specific coursework, and a 6-hour long exam. It also carries an experience requirement of either 4,000 hours of apprenticeship or 6,000 hours of professional experience related to the financial planning process. That’s a pretty hefty requirement no matter how you look at it.

The CFA® or Chartered Financial Analyst is a globally respected designation that requires a bachelor’s degree, 4 years of financial experience, and 3 tests that require over 300 hours of study each. In addition, the first test is only offered in June or December, and the second and third ones are only offered in June. It takes a commitment of several years after college to earn this designation.

But let’s also look at the course explanations.

The CLU® is all about:

“Protect clients, their families, and their business with the premier designation for insurance professionals”

Versus what it says on the CFP® Board’s site:

“The CFP® Board Center for Financial Planning seeks to create a more diverse and sustainable financial planning profession so that every American has access to competent and ethical financial planning advice.”

One’s about insurance, the other about financial planning.

Yet both will often call themselves financial advisors…

That’s why we create blog posts and videos like the following: “Should you hate annuities or love them.” We want people to understand the difference between insurance focused “advisors” and professionals focused on financial planning.

Does that mean they aren’t qualified? Not necessarily. But to us it’s synonymous with the “Law of the Instrument” by Abraham Maslow.

If all you have is a hammer, everything looks like a nail…

Insurance commissions are often much larger than those on other investments… what do you think they will push?

But I digress, in my opinion, I would argue that in most cases, any designation is better than none.

But it’s time to do your research, know your advisor’s history, and not just hire the first one you meet.

Look around, meet many, and choose the right one for you.

In the next installment in “Choosing the Right Financial Advisor for You,” we cover some top questions you can ask potential advisors that will help you understand their business model and philosophy in detail.