Financial advisers are holding out bogus credentials in order to sell unsuitable, high-fee investments to older, wealthier clients, according to according to Jason Zweig and Mary Pilon in their Wall Street Journal column, “Is Your Adviser Pumping Up His Credentials?” Credentialed advisers make more money. A 2009 survey commissioned by the Million Dollar Round Table, a trade association of financial advisers, revealed that insurance agents and advisers who market themselves as “experts” made 40% more in annual revenues than advisers who did not.
“State securities regulators have been very worried about this,” Denise Voigt Crawford, securities commissioner for the state of Texas and past president of the North American Securities Administrators Association, was quoted as saying. “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.”
Financial credentials are proliferating. According to the Financial Industry Regulatory Authority (FINRA), which is charged with regulating broker-dealer sales practices, the number of different designations for financial advisers has nearly doubled to 95 since 2005. FINRA publishes a list of such designations, but the Wall Street Journal has discovered at least 115 other designations that FINRA seems to be unaware of, according to the article.
State securities regulators have warned that designations such as “senior specialist” may be used by con artists to lure their victims into a false sense of security in investors that they have a certain level of training on issues important tot seniors.
FINRA has also expressed concern about the proliferation of professional designations, particularly those that suggest an expertise in retirement planning or financial services for seniors, such as “certified senior adviser.”
According to the article, at least six designations contain the word “senior”: certified senior adviser, certified senior consultant, certified senior specialist, certified senior financial planner, chartered senior financial planner and chartered adviser for senior living.
The alphabet soup can be confusing to investors. The certified retirement financial adviser, or CRFA, for example, sounds similar to the CFA designation, but they are not. The CFA requires around 900 hours of study in accounting, economics, ethics, finance and mathematics, and only 42% of candidates pass its three required exams, a process that can take several years.
On the other hand, one can receive a CRFA designation merely by passing a single test consisting of 100 multiple-choice questions with a couple of weeks preparation, according to the article.
Similarly, chartered senior financial planner (CSFP) credential requires only a three-day review course and the passing of one two- to three-hour exam, while the certified financial planner (CFP) designation requires the equivalent of 15 credit hours of college-level courses plus passing 10 hours of exams.
The prerequisites to obtain the MFP, or master financial professional, can be waived for anyone with sufficient professional experience who makes “certification, registration and initiation payments,” and there is no exam to become an MFP, according to the article.
The article cited others such as one in which there is an open-book, online exam. Upon passing that and paying a $45 application fee and a $150 annual membership fee, the adviser receives “member benefits” including “marketing and image brochures,” “impressive professional certificates,” and “image jewelry.”
Bottom line: Investors should be wary of investment advisers who hold themselves out as retirement or senior experts.
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