As the financial advisory landscape gets more competitive, advisors are increasingly looking for ways to differentiate themselves and their expertise, and getting an "expert" designation has been a popular means of doing so for many years. Unfortunately, though, there are no uniform standards to determine what is and isn't a legitimate "expert" designation, and as a result the number of programs has proliferated over the past decade, including a number of highly questionable designations that imply expertise but require little actual knowledge or training whatsoever.
To address this challenge, regulators - especially at the state level - has been trying to crack down, with tighter rules and greater enforcement. Yet thus far, the beneficial effect of such an approach appears to be limited, as many specious designations continue to exist, grow, and be attached to the business cards of questionable "advisors." In large part, this is because the underlying value of specious designations has not been addressed - as long as it's still valuable to have designations to imply expertise to consumers and there are no minimum standards, even a crackdown on the most questionable designation weeds will just result in new ones sprouting forth to replace them.
Instead, the real way to eliminate specious designations it to put forth a uniform minimum requirement rigorous enough to eliminate the value of such questionable programs. For instance, if CFP certification was a uniform minimum standard for all advisors who held themselves out as experts with advanced credentials, the marketplace for specious designations would vanish, as there's no benefit to adding an illegitimate designation after an advisor already has a rigorous and legitimate one! In the meantime, quality designations - that genuinely provide knowledge and expertise beyond the minimum - would have the opportunity to thrive, as they would be the only ones that have economic value as "post-CFP" education. While the reality is that implementing such a rule would require a reasonable transition process for existing advisors with bona fide advanced designations who shouldn't necessarily need to go back and get CFP certification now, the fundamental point is that by establishing one clear and credible minimum standard to connote an advisory professional, it may finally be possible to break free of the proliferation of questionable (marketing) designations!
The inspiration for today's blog post was the recent release of the Consumer Financial Protection Bureau's brief regarding "Senior Designations for Financial Advisers" which lamented the rise of questionable designations, and advocated better training and standards for the wide range of designations for advisors targeting seniors as a means of resolving the confusing proliferation.
Senior Designations In The Marketplace
In its analysis, the CFPB found more than 50 designation programs that connote some kind of expertise for seniors, with labels that often appear quite similar - for instance, the Certified Estate Planner (CEP), Chartered Estate Planning Practitioner (CEPP), and Certified Estate and Trust Specialist (CES) - even though the organizations that grant them, the requirements, and the quality and rigor, are remarkably inconsistent from one to the next. And unfortunately, for consumers there's little way to tell which is which from the organizations and titles of the designations alone.
The CFPB notes that in part, this is because of the lack of any accreditation for designations, which is a process to ensure designation programs meet defined standards by incorporating a third-party evaluation process. While accreditation is common in other fields, and amongst educational institutions themselves, regulators currently have no required accreditation process for designations themselves, or to restrict which designations advisors use when holding out their (implied) expertise to the public.
Even worse, the reality is that many designations actually use the term "accredited" in their name, despite the fact there is no actual third-party accreditation process! Instead, the term is apparently used simply to show that the designation itself is accredited by the organization that grants it (a strange sort of circular logic), not that it has actually been accredited by any recognized third-party standards-setting accreditation organization! As a result, the CFPB notes the following list of designations, which all use the words implying certification or accreditation but with remarkably varying degrees of actual accreditation (and a similarly wide range of underlying coursework requirements):
|Senior Designation||Required Coursework||Accreditation|
|Accredited Retirement Advisor (ARA)||None||Not Accredited|
|Accredited Retirement Plan Consultant (ARPC)||None||Not Accredited|
|Certified Senior Advisor (CSA)||Three-day training course||Nationally Accredited (NCCA)|
|Certified Retirement Financial Advisor (CRFA)||None (optional three-day course)||Nationally Accredited (NCCA)|
|Certified Specialist in Retirement Planning (CSRP)||Self-study seven courses||Not Accredited|
|Chartered Advisor for Senior Living (CASL)||15 Semester Hours (18 months average completion time)||Regionally Accredited|
|Personal Retirement Planning Specialist (PRPS)||6 weeks of self-study w/ 24 hours webcast lectures||Not Accredited|
|Retired Income Specialist (RIS)||60-hour online self-study program||Not Accredited|
Notably, there is little in the names of the designations above alone to indicate anything about their rigor. In addition, many of the conferring organizations have no means to discipline or revoke designees, or even resources for consumers to determine if the designee is in good standing. In some cases, the designations actually are accredited, but the bar for accreditation appears to have been quite low; on the other hand, some of the programs with the heftiest real educational requirements have limited or no accreditation at all.
The Persistence of Specious Designations
As the CFPB report notes, questionable senior designations have remained and persisted - and even grown - despite recent regulatory efforts. For instance, several years ago Massachusetts established some new high-profile rules limiting the use of senior designations, and based on that rule NASAA and the NAIC subsequently established model regulations in 2008 for states to adopt to protect seniors from questionable designations (as of mid-2012, upwards of 30 states had adopted the NASAA or NAIC model rules). Nonetheless, the CFPB notes that these rules, and other regulatory heat, has not resolved the problem.
The reason, not surprisingly, is that advisors find it continues to pay to have designations; or more accurately, that designations do imply and create the perception of an enhanced level of expertise and credibility, such that consumers are more willing to pay advisors who have designations and do business with them... regardless of the actual quality of the designation and the knowledge actually conveyed during its educational process! That's not to say that designations don't also have value for the education they provide, but to say the least if the education alone was the value, then only the truly educational designations would survive. Instead, the specious designations continue to flourish, and similar to weeds, just rooting out a few does nothing to prevent more from sprouting up to replace them.
In turn, this means that if the ultimate goal is to truly eliminate specious designations, the real key is not just to make a master list of "legitimate" designations, a proposal that has been suggested by organizations like The American College, but seems hopelessly unrealistic to ever actually get control of the problem, as it requires a not-likely-to-be-fast government regulator to continuously render judgment on new programs with an ever-changing list (and still lacking clear standards about what constitutes an appropriate designation in the first place). After all, regulators like FINRA already publish information guides on designations, which hasn't done much of anything to remedy the problem yet (except to emphasize how overwhelming the list is!).
Eliminating The Root Cause Of Specious Designations
So what's the alternative solution to eliminate specious designations? It is to establish a reasonably rigorous, single, uniform minimum designation that all advisors must obtain as a starting point if they want to hold themselves out as an expert to the public. For instance, although it's not perfect (but arguably the best option available), requiring all advisors who want to convey designation expertise to have the CFP designation first.
Notably, the point here is not to eliminate all other designations; programs that provide a genuine, deeper level of expertise would be strongly encouraged as "post-CFP" education, given the reality that the CFP alone cannot possibly establish in-depth expertise in everything at once. For instance, an advisor focused on retirement income strategies might be a CFP, RICP or a CFP, RMA (to pick two of the higher profile and more rigorous retirement income designations), where the post-CFP designation (in essence, the one after the comma) demonstrates the additional expertise in a particular specialty. The same might apply for a CFP, CFA who is an investment specialist, or a CFP, CLU who is a life insurance specialist, etc.
The reason why it matters to have a program like the CFP certification as a starting point is two-fold. The first key is simply that once someone already has a recognized and reasonably rigorous designation, there simply isn't much economic incentive for an advisor to add a second one that's specious; the credibility conveyed by the first obviates much of any benefit to just adding more letters after the name. Additional designations that actually provide additional education, allowing the advisor to genuinely specialize and differentiate, remain useful, but the no-education-just-letters ones do not. Simply put, being a CFP, CFA would still have value because the certainly CFA adds something beyond the CFP, while being a CFP, BSD (B***S*** Designation) would probably not be worth much more than just being a CFP alone.
The second reason why having a program like the CFP certification as a central starting point is that it ensures a uniform level of minimum competency, especially if regulators ultimately require that advisors can't hold themselves out as such unless they meet minimum knowledge standards (having a fiduciary standard matters too, but as I've previously noted fiduciary intent alone is not enough; competency matters too!). In other words, it resolves the issue that will otherwise plague any "master regulatory list" of designations, which is determining how minimal education can be to still be considered a "legitimate" designation. Having a uniform, central entry point allows that consistent standard to be set for the public, while still allowing ample room for bona fide quality advanced designations to succeed; in fact, arguably the "good" designations would be even more valuable and successful if the long list of specious designations vanished and their demand dried up!
This is not to say that the CFPB's other proposals are bad. They are not, and include a more consistent standard for designations and granting organizations (or an outright prohibition on senior designations conferred by non-accredited organizations), better minimum standards of conduct for advisors who hold designations (as right now advisor conduct depends on which regulator the advisor happens to answer to), better enforcement against those who mis-use senior designations (or higher enforcement standards against those who have designations and "should" know better), and better uniform disclosures regarding designations. And of course, establishing a uniform minimum standard for advisors would require some kind of transition plan for existing advisors with certain advanced designations who shouldn't necessarily be required to go back to get their CFP certification now.
But the bottom line is that just trying to stamp out specious designations one program, organization, and advisor at a time, may be far less efficient than simply establishing a one clear and credible minimum standard to connote an advisory professional, that eliminates specious designations by simply removing any value for advisors to pursue all those other questionable programs in the first place, while still allowing quality advanced educational content to survive and thrive!