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Many industries have designations to show some level of education and training, and that’s also true for financial advisors. What do they all mean, and should you care?
First, let’s consider why these designations even exist. In theory, they’re meant to be a signal that the person is qualified to do their job. But let’s be clear, the sponsoring organization behind these designations is also making a lot of money off these credentials. There is the cost of the education, and the test, and then on-going annual fees and mandatory continuing education requirements. It’s a lot of money.
So, does the designation mean something? That depends.
There are some that are very difficult to get. Andrew Comstock has been a guest on this show, and he is a Chartered Financial Analyst (CFA). That requires somewhere around 900 hours of prep, and requires three tests. This is a serious program.
Another big designation, probably the most recognized financial advisor designation, is the Certified Financial Planner (CFP). That’s not easy to get either. It requires quite a bit of studying and a broad knowledge. But the CFP by itself should not be the indication that this person is OK to do business with. John points out that there is a big difference between being able to take a test and being able to actually do the job.
To say that the CFP credentials are on par with the requirements to get a CPA is just not correct. For example, Social Security is 39% of the average income for a retired person. Devin regularly receives pretty basic questions from CFPs and other folks who have professional designation. That’s sort of ridiculous. If you’re providing financial guidance to older folks, you need to understand Social Security.
Can someone be good at their job without a certification? Absolutely! Devin has actually given up most of his certifications, and John does not have the Certified Elder Law Attorney (CELA) designation. Devin asks John whether he would learn anything from the coursework in preparing for that exam? John thinks no. John is also not board certified in estate planning, and yet all he has done for the last 15 years is estate planning. John doesn’t see the value in getting that certification. He has seen, from working with people who have that certification, that the qualification is basically meaningless.
So, if most certifications aren’t really that valuable, how do you find out if an advisor will be the right fit for you?
1. Look the advisor up on the internet. Check them out on the Investment Adviser Public Disclosure database. There’s a wealth of information on those websites, but you do need to know that it might not be completely accurate.
On the lawyer side, you can look them up at the State bar association.
2. Schedule the appointment. If the person you’re talking to asks you to bring in all your statements and facts, you might be concerned. Now, this might be a style difference, but Devin believes that the advisor needs to sit down with you and get to know you as a person first before even looking at the numbers. It needs to be about finding out what makes that person tick. In Devin’s opinion, the introductory interview should not include specific figures.
John says that a good way to see if a lawyer truly specializes in your need is to ask if they can also help with an unrelated issue. It’s OK if there is another lawyer within the same firm who has a different specialty, but you don’t want a lawyer who is willing to do your estate planning and also your speeding ticket.
3. Go to the meeting. See how you feel about the advisor? Devin encourages you to ask questions that might be a little difficult.
- What’s your investment philosophy?
- Who is your typical client?
- What is your area of expertise?
- Do you have an extended team that you turn to for advice?
- How do you pay them?
- How many clients do they have?
Use your own intuition, and asking tough questions, is a better filter than just a designation. While the designation may mean that the person has taken some advanced coursework or exams, all the advances designations in the world won’t help you if the advisor hasn’t seen hundreds of clients and learned from all those experiences.
- How many financial advisor designations exist
- The important trick to pick a good lawyer
- The biggest expense of the CFP board
Resources mentioned in this episode:
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