The Designation Discussion

Have you ever been confused by a designation printed on a business card? Perhaps it said “John Doe, XYZ.” Well, that’s excellent for Mr. Doe, and I don’t doubt he worked hard for those letters, but what exactly does that mean? What good is a designation which isn’t recognized by a majority of people? More importantly, how is a consumer to distinguish between prestigious designations and those which don’t necessarily represent better qualification for an area of study? For example, WMS and CFP are both financial planning designations. However, becoming a Wealth Management Specialist can be done through self-study and without continuing education requirements. Becoming a Certified Financial Planner has both experience and continuing education requirements, along with a 10-hour examination. Which one would you rather work with? As I continue investigating my own credentials as a financial advisor, I’m regularly learning new and interesting facts about how the designation business really works. The reason I say business, rather than process, is to clear up the misconception that all designations exist purely for the benefit of the consumer. Some of the ways issuing organizations make money is through study guides, classroom courses, and various examination and continuing education fees. That’s not to suggest that earning money for issuing an organization is never justified, but as we always say in finance, “disclosure, disclosure, disclosure.” The issuing organization should always be responsible for explaining their designation and where a profit motive may be lurking. At the same time, I want to make clear that having an artillery of letters doesn’t mean that an advisor is better suited for your needs. There is a definite correlation between the two, but ultimately, the decision is quite personal. I find this concept analogous to the education system we have in the United States. One might think that obtaining a bachelors degree from an Ivy League university necessarily indicates a better education, more career opportunities, and higher earnings potential. Statistically, this is still is probably true, however, none of these items is a given anymore. With billionaires lacking college diplomas, and graduates of Ivy League universities searching for jobs, we have to rethink some of our assumptions. Similarly, having designations may indicate that somebody is better qualified to advise, but not necessarily to advise you.


Below is a list of what I refer to as the “big three.” These are, in my opinion, the most significant financial credentials. Farther down I’ll go into a discussion of some of the other notable designations. If you come across some letter which aren’t mentioned here and you’re unfamiliar with, look into them. As I’ve mentioned, some letters indicate a high level of specialization and prestige, while others may exist primarily for the issuing organization to generate a profit.
•Chartered Financial Analyst (CFA): This is among the more difficult designations which a financial services professional can obtain. The process requires a lot of course work and generally a couple of years to complete. The candidate must demonstrate knowledge in securities analysis, accounting, economics, and investments. A CFA should have a decent advantage when it comes to getting a job in the securities, portfolio management, and financial advising industries. In fact, only 36% of applicants who sat for the CFA exam in 2005 passed the first round of testing .
•Certified Public Accountant (CPA): This is a state-issued designation which automatically gives it a certain degree of credibility. Like the CFA, sitting for the CPA exam requires a bachelor’s degree from an accredited university. In addition, CPA candidates are required to have experience in the industry and pass a series of exams (which I understand are quite difficult) administered by the state board of accountancy. There are ethical standards to adhere to and continuing education requirements which ensure that you stay up to date with news and changes in the industry that could affect you and/or your clients.
•Certified Financial Planner (CFP): This designation was created specifically for the financial planning profession. It is issued by the Certified Financial Planner Board of Standards and the qualifying examination (which currently takes two days and is ten hours long) is only offered upon completing a series of modules which cover over a hundred financial planning topics. A major part of holding this designation is adhering to the CFP Board’s Code of Ethics and Professional Responsibility. Naturally, a financial professional is held to the highest standard of ethics because of the importance of the responsibility they undertake. I don’t think it’s a secret that people are very protective over their money.
So, we have the above designations which are, with the possible exception of CFP, household names. Then, we have a variety of other designations which may be more highly specialized but may overlap with designations offered by different issuing organization. For example, Chartered Financial Consultant (ChFC) has considerable overlap with CFP, but ChFC is issued by the American College, and CFP is issued by the Financial Planner Board of Standards. The overlap is not so terrible in that it demands a certain level of competition to remain the “authority” designation. In the world of financial planning, here are some other letters which you may see floating around:
•Chartered Financial Consultant (ChFC): As stated above, ChFC has considerable overlap with the Certified Financial Planner designation. It’s my impression that somebody with a CFP would probably not consider getting the ChFC an immediate priority. In fact, those with a CHFC automatically qualify to sit for the CFP exam. My impression is that insurance professionals lean towards the ChFC for a broader knowledge on financial planning whereas new financial planners tend to sit directly for the CFP.
•Chartered Life Underwriter (CLU): This is an insurance designation. Its purpose is to ensure a high level of knowledge when dealing with life insurance. A financial planner who tends to do a lot of insurance business may consider obtaining this designation as a stand-out credential. Hopefully, they sit through the process with the intention of better serving their clients’ needs rather than strictly for the letters. The CLU, like the ChFC, is issued by the American College.
•Chartered Advisor for Senior Living (CASL): This is certainly less common than the above two, which are less common than the CFP, CFA, and CFP. The chartered advisor for senior living is primarily for those whose business centers around seniors. The heavy topics include long-term care, insurance, disability insurance, and estate planning. In terms of a specialty designation, I think this one is fairly useful.
The senior market is one that doesn’t get all the attention it deserves. Considering the rapidly aging population and increasing life expectancies, I’d certainly advocate more focus on elder care and a better understanding of the essential insurance policies to own. On a separate note, the AARP is a leading advocacy group dedicated to people over age 50. They offer resources such as product discounts for members, “non-partisan” discussions on politics, and one of the nation’s most popular newsletters, mulling over issues such as Social Security and Medicare.
Earlier in 2006, a new designation made its debut which I consider noteworthy. It’s the Qualified Plan Financial Consultant (QPFC) sponsored by the American Society of Pension Professionals & Actuaries. This new designation was launched at the 2006 401(k) summit in Orlando, Florida. The purpose is to further educate investment professionals who specialize in qualified plan sales and consulting. Qualified plans, for those who aren’t familiar with the lingo, refer to those plans (401k, 403b) that receive favorable tax treatment as defined by the IRS tax code. I think this might be a successful designation because of the number of people invested in these sorts of plans who have questions about them. Giving out inaccurate advice about retirement plans can be a particularly costly and aggravating experience. If the QPFC mark takes off as planned, it could put some focus on this area of financial planning ahead of the first round of baby boomer retirements. Not only do the boomers stand to benefit from this mark, but corporate America, which is rapidly transitioning to defined-contribution plans such as the 401k, and 403b, will stand to benefit from this improved knowledge as well.
In terms of the legitimacy of some newer and lesser known designations, opinions tend to vary. Personally, I try to give the benefit of the doubt to anybody who meets the requirement for a new designation, even if it’s not the most rigorous choice. At the very least, the candidate is making an effort to further their knowledge and stay focused on industry issues. Fortunately, there are some fairly easy ways to form conclusions about designations and the professionals who use them. For example, one who seeks out a credential with little or no continuing education requirement is more likely in search of quick letters than one who sits for the CFP or ChFC. Similarly, a designation which can be earned with self-study only will probably garner less respect from industry professionals than one which requires classroom interaction. The more important issue is that the public doesn’t have a strong understanding of financial designations. Therefore, it could be construed as misleading to hold out easy-to-obtain letters as decisive credentials. Furthermore, I’m sure the CFP who learned over a hundred topics and sat for a 10-hour exam would find that highly unfair. Another interesting question here is whether the investigative burden should lie with the issuing organization, the financial professional, or the consumer. I think it’s fair to say the consumer should not be expected to navigate through an industry in which they are unfamiliar. The issuing organizations tend to free themselves of wrongdoing by arguing why even the easy-to-obtain designations are worthwhile. I would say that, in most cases, the financial professional is held responsible for how they present themselves to the public. Remember, we live in a world of increasing corporate governance where we are constantly on the lookout for the little investor. Any inequality which could give an advantage to a financial professional or be considered misleading will probably be short-lived.
There are a few things you should take away from this discussion. The first is that designations really do matter. Most of the time, an advisor with more professional designations will be better qualified to serve you. Working with a series 7 stockbroker is not the same as working with a financial advisor armed with a CFA and CFP. As a consumer, you should take home that business card and verify the legitimacy of all those letters. This NASD web address is among the web’s best resources for understanding most of those letters. It discloses information about the issuing organization, the examination requirements, how the professional studies for the exam, and what the continuing education requirements are. I’ve also included the websites of some of the more reputable accrediting organizations for reference. Unfortunately, not many bloggers have taken an interest to this subject yet, although there are some articles on the topic spread throughout the Web.

2 thoughts on “The Designation Discussion”

  1. Hey Russell
    Do you have any of these special letters? Does one need to have a degree in finance to achieve them? What kind of work experience is required for the CFP?
    Dustin

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