Monday, January 5, 2015

Should A New, Higher Certification for Financial/Investment Advisers Exist?

The CFP Board's exam and the AICPA's PFS exam are generally viewed as a test of the foundational knowledge one should possess to practice as a financial planner. Similarly, the CFA Institute's (tough) three-part exam leads to the award of the CFA, a prestigious largely investments-focused designation, but not necessarily an indication of wisdom and experience.

Although these broad certifications/designations have their advantages, there exists a strong desire among many to achieve further differentiation by embracing higher standards.

  • First, differentiation would exist as to ethical standards. Many financial advisors and investment advisers desire to distinguish themselves as "bona fide fiduciaries," noting a stricter adherence to non-waivable core fiduciary standards at all times. The fiduciary principles would be better defined, and stricter, than the standards of conduct which most existing organizations currently embrace.
  • Second, differentiation would occur as to possessing true expertise - i.e., possessing experience and knowledge far surpassing the requirements of the CFP(r), PFS or even CFA certifications/designations.

Many solutions exist in the marketplace. At their core, designations and certifications are designed to simplify the shopping for consumers.

Hundreds of designations which exist today include many, many of which are altogether meaningless. While these designations often confuse consumers, the educated media know better.

Only a relatively few certifications and designations possess substance.

It should be noted that those memberships, designations and certifications that truly adopt the highest standards are likely to garner the interest of those in the media - especially the all-important consumer press who inform readers where to look for expert, trusted, and candid advice.

In contrast, existing organizations which do not raise their standards to the highest levels risk both mediocrity and, over time, irrelevance in the eyes of consumer media.

Interest has risen from some corners of the industry in a possible new certification or designation - providing for strict standards of conduct and a high degree of expertise.

It is my preference that current broad-based designations be elevated (and some have undertaken such, to a degree, recently, while others have fallen back), rather than to create a new designation/certification (and, perhaps, create an organization to award such).

However, should a current designation/certification not possess high enough standards, or not be promoted sufficiently in the marketplace, then room likely exists for a new certification/designation in the marketplace.

What would such a new certification or designation or membership entail? I would suggest the initial award of a "higher" certification or designation might include the following three major requirements:
  • First and foremost, adherence by the member/certificant/designee to a bona fide fiduciary professional standards of conduct, as I have written about previously in this blog (regardless of how the fiduciary standard might be applied by regulators or other organizations);
  • Second, an assessment be undertaken in which a very high degree of expertise is demonstrated; and
  • Third, that several (perhaps five or more) years of experience be required - actively working as a personal financial planner and/or as an investment adviser (working in related occupations, such as insurance sales or as a financial journalist, would not be credited toward the experience requirement).
This coming year I will be exploring whether such a (new or enhanced?) marketplace solution should be put into place. As I explore this subject, I'd like to hear your thoughts, including (but not limited to) your answers to the following questions:
  1. What memberships / certifications / designations currently exist which satisfy, or come close to satisfying, the three major criteria set forth above? To your knowledge, are any existing organizations exploring modifications to their standards so that they would rise to the requirements previously set forth?
  2. Should a new certification for highly experienced, bona fide fiduciaries, come into being?
  3. How would a person's attainment of a high degree of expertise - either with respect to investments, or with respect to personal financial planning, or both - best be assessed?
  4. How many years of (relevant) experience should be required?
  5. What additional education, or combination of current educational offerings, be required?
  6. In your view, is there sufficient support for a new organization and/or certification?
Please e-mail your thoughts to me at (All communications received may influence and be utilized my further writings on this subject; however, submitters' names will not be utilized in any future writing unless permission is granted by the submitter.)

Thank you.

Ron A. Rhoades, JD, CFP(r) serves as an assistant Professor of Business at Alfred State College, where he is the Program Director of its Financial Planning Program. He also serves as Chair of the Steering Committee for The Committee for the Fiduciary Standard. This blog post reflects the personal views of Ron and is not intended to represent the interests of any organization, group or institution with whom Ron is affiliated.

1 comment:

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