The media calls them “alphabet soup”. Investor Watchdog’s record is reviewing the credentials of an advisor who had 28 letters after his name. The soup I am referring to is the letters that represent certifications, designations, and accreditations that appear after advisors’ names.
We are all familiar with the well-known CPA® (Certified Public Accountant™) designation. Less well known is CFP® (Certified Financial Planner™) designation. And, even lesser known is CFA® (Chartered Financial Analyst™), a very highly regarded designation that can take three years to obtain. Continue reading →
The media refers to all of the initials after an advisor’s name as “alphabet soup”. Sometimes the initials are referred to as designations. Other times they are called certifications. I am going to use certification when I refer to them. Financial advisors acquire certifications when they accumulate specialized knowledge that increases their competence. Most advisors use the initials to prove they are experts in their fields. For example, a CPA knows more than an accountant who is not a CPA.
However, what if an advisor purchased several certifications so he appears more knowledgeable than he really is? This is a major problem because the advisor is using a deceptive sales practice to get you to select him. Let’s call the tactic what it is – misrepresentation that violates industry regulations. Do you want this type of person controlling or influencing the investment of your assets? Absolutely not! Continue reading →
My answer is “Yes” if the following five conditions are met:
All of their advice is based on the needs of investors
Advisor ethics always put investor interests first
Advisor competence enables them to deliver competitive rates of return
Advisors provide a disciplined investment process
Performance includes reasonable risk and expense
Unfortunately, less than 25% of advisors are capable of meeting all of these criteria. The other 75% are sales representatives who make their living selling investment products. Unfortunately, investors don’t know the critical differences between advisors and reps because they don’t have an effective process for selecting high quality advisors. See Do Financial Advisors Have Two Faces? for more on the topic of sales representatives vs. financial professionals providing services for fees. Continue reading →
According to Al Lewis (Al’s Emporium; Wall Street Journal) psychos run Wall Street. How else do you explain the continuing string of Wall Street scandals and fraudulent activities that rip-off investors. For example, why would a prestigious firm like Goldman Sachs package and sell a $1 billion CDO and then bet against the performance of the product. Investors lost more than $700 million and GS was fined $250 million.
Sherree DeCovny in CFA Magazine that said 10% of Wall Street professionals have psychopathic tendencies based Lewis’ article on an article. That would explain a lot if this analysis were correct.
Psychopaths have anti-social tendencies: Lack of empathy, no regard for consequences, and unlimited risk-taking. Lack of empathy explains how Wall Street executives could damage millions of people and still get a good night’s sleep in their mansions. Lewis also said many of these psychos were charming, narcissistic, glib, had great senses of humor, and could spin the truth like a roulette wheel.
Unless the 10% dominate the Wall Street’s executive suites, I believe the number is much higher. I also think the psychopathic behavior is driven by a massive sales culture that puts huge importance on company profit and very little value on ethical standards that protect investors.
I also believe politicians are paid millions of dollars to allow this culture to flourish. You may have noticed Goldman Sachs paid a fine, but did not have to admit guilt, when its executives made decisions to rip-off investors. This means the psycho executives have huge upside (multi-million dollar bonuses) and no downside (prison). Based on the events of the past few years, fines have become a cost of doing business for companies. Psychopaths in Washington D.C. and Wall Street flourish in a mutually beneficial environment.
Some audits by State Securities Commissioners have found advisors who use RIA (Registered Investment Advisor) after their name. This deceptive sales practice confuses investors who believe RIA is a designation like CPA(r) or CFP(r).
This is the tip of the proverbial iceberg. Thousands of advisors have strings of initials after their names. The initials denote specialized expertise that increases the competence and quality of advisors. What many investors don’t know is less ethical advisors purchase the initials to impress them.
High quality designations have prerequisites, substantial study time, examinations, and continuing education requirements. Low quality designations have none of the above. In fact, they are purchased by less ethical advisors to trick investors into giving them control of their assets – “you can trust me, I am an expert. Look at all of my designations”.
Unfortunately most investors do not know good designations from bad ones.
The best designations are CFA(r), CFP(r), CIMA(r), and CPA/PFS(r).
Having suffered devastating losses, witnessed the Bernie Madoff scandal, and been forced to revise retirement plans for the worse, the greatest question for weary investors today is: Whom can you trust? Consider one of the most trusted groups of professionals, doctors; they must go through rigorous schooling and training and take the Hippocratic Oath in order to practice medicine. There are no parallel standards or code of ethics for financial advisers.
One of the most serious concerns for investors is the large number of ordinary people holding themselves out as financial advisers without having met any rigorous competency standards or embraced a code of ethics; in other words, providing no proof that they are qualified practitioners devoted to a standard of professional conduct. High quality investment advisers hold certifications that prove they are experts in their profession.
Selecting an adviser lacking legitimate credentials based on salesmanship or personality alone can be a major financial risk. This is tantamount to letting a used-car salesman perform your open-heart surgery because you like his personality. It is incumbent upon the consumer to ensure the person handling their money is properly accredited and has the necessary experience to deliver and perform high-quality services.
Remember, not all investment certifications are close to being equal. Beware of phony certifications that claim to represent specialized knowledge. Questionable certifications can be attained through the redemption of a few cereal box-tops and a small fee. Brokers who buy these fictitious designations are ethically challenged and disreputable. The CFA, CPA, and CFP are highly respected credentials for investment professionals held in high esteem. Perhaps the most rigorous to attain is the CFA designation. The CFA is respected by regulators and demanded by private investors.