There are many options and factors in choosing a competent financial advisor who meets your needs.
There are a multitude of advisor groups offering their services. Many with different professional qualifications, areas of expertise, experience levels, and methods of compensation for their services.
We will look at these items over the next few posts.
Today we will review technical qualifications.
Certifications alone do not guarantee that a financial advisor is competent. Not by any stretch. Experience and expertise in your areas of need are imperative. However, possessing appropriate professional credentials should be the bare minimum for consideration. Start with professional designation, then work your way through the other competence factors.
Also, as we shall see below, professional credentials may provide you with comfort in other aspects.
Just for disclosure purposes, please note that I hold Chartered Financial Analyst, Chartered Professional Accountant (Chartered Accountant), and Certified Financial Planner (CFP®) designations. I try to be objective, but bear in mind there may be some hidden bias.
Alphabet Soup of Designations
In most jurisdictions, anyone can call themselves a “financial planner” or “financial advisor”. No formal credentials are normally required to make this claim.
I shall not enumerate all the certificates out there. The Globe and Mail nicely summarizes various Canadian relevant professional designations in, “Decoding the alphabet soup of financial qualifications”. Investopedia also outlines many offered designations in, “The Alphabet Soup of Financial Certifications”.
In Canada, you will also see advisors with Chartered Professional Accountant (CPA) designations. In many instances, CPAs may have advanced competence in one or more of: personal and corporate taxation, business valuations, financial statement analysis, or trustee matters. Areas normally outside, or more in-depth, than the scope of other advisor training.
That said, in Canada there was a recent merger of Chartered Accountants, Certified Management Accountants, and Certified General Accountants. Individuals now operating under the CPA designation may have significantly different training and experience. Ensure you find a fit between a specific CPA’s competence levels and your own requirements.
I will not get into the “which is best” discussion as each financial advisor designation has its pros and cons. Often what is a positive for one client’s needs may not be for another.
I will say though:
Make Sure Your Planner Has One of Them
With so many offered designations, your planner should have taken the time to get at least one.
If not, I question his commitment to his chosen profession. If someone cannot take the time to get certified in a relevant field, I wonder whether he has the time to stay current in his technical knowledge.
Also, a formal designation normally indicates membership in a professional organization. These organizations provide oversight of members which may enhance your comfort with an advisor.
When interviewing potential advisors, ensure you determine what degrees and designations they possess. After the meeting, go home and check out the certifications and associated professional organizations to better understand what the designation means to you.
A legitimate organization should have a website with ample information about their membership, professional program, offered services, ethics and standards for members, etc.
For example, Canadian advisors with CFP designations are members of the Financial Planning Standards Council. For illustrative purposes below, I will use this website to show you where to find exact information. And yes, I am a member in good standing of this organization.
You can also search the internet for reviews or discussion on a specific accreditation and analysis of a designation vis-à-vis alternatives.
Make Sure Your Planner has a Relevant Designation
Match your planner’s skill sets and experience with your wealth management needs.
Many readers require general financial planning and core investment advice. A Certified Financial Planner (CFP®), Personal Financial Planner (PFP), or Registered Financial Planner (RFP) designation might be somewhat interchangeable in their general advisory skills.
As an aside, the CFP designation is the most prevalent planner designation in Canada. PFP tends to be less common and used more by bank employees. RFP is the least common of the three. I am not equating technical expertise with prevalence. Simply that you will more likely meet a CFP professional when seeking financial planning than a PFP or RFP. Like Canadian accountants, I would not be surprised to see these three planning groups amalgamate over time.
Those advisors may be fine for overall planning requirements. But what if you desire complex life insurance strategies in your wealth planning? You may want to find someone with a Chartered Life Underwriter (CLU) designation to add value. Or if you are more concerned with complex investment strategies, perhaps a Chartered Financial Analyst (CFA) is preferable.
If possible, factor in both current and expected future needs.
Say you are in your 20s and simply wish to create a portfolio of mutual funds. There are many firms licensed to sell funds. Perfect. But perhaps you expect to get married and start a family in the next 5 years. That may mean you will want expertise in income splitting, education planning, insurance, and so on.
You want to be able to grow with your advisor (or his firm) over time as your needs evolve. Otherwise, you will be changing advisors, and possibly investments, every time your life focus shifts.
Continuity is usually a good thing. Of course, do not continue to throw good money after bad just to keep with one mediocre firm. Most people do not think about their potential long term needs when starting out. Be sure you do. It may prevent issues later when your wealth management requirements expand.
Make Sure Your Planner is a Member in Good Standing
Ensure your advisor is a member in good standing in the associated professional organizations. The advisor should be able to provide proof of current good standing.
Many professional organizations allow the public to search their databases for individual members. For example, via the FPSC website, one can easily find a specific advisor with a Canadian CFP designation.
Or, if you are just trying to find advisors in your city, you can search the database by location, client type, areas of speciality, and even languages spoken. A useful tool to better match clients with suitable advisors.
A person who is no longer a current member of an organization should not – normally, cannot – use the designation in his work.
Individuals not in good standing may indicate problems. Perhaps they are suspended or terminated for past acts. Perhaps they did not maintain continuing education requirements. Maybe they simply let their membership lapse. There are a few possibilities. The bottom line is if someone claims to hold a professional certification it had better be current. If not, they are deceiving you and I suggest they be avoided.
Also, check as to where the advisor is a member in good standing. A CFP® recognized in India or Australia is not the same as one issued in Canada. Advisors must be competent with the legislation and planning issues relevant to the jurisdiction in which they operate.
For example, as a Canadian CFP professional, I understand how Canadian Registered Retirement Savings Plans function and how various forms of income are taxed. This aids in effectively structuring client portfolios on a tax-effective basis. But would an advisor with a CFP® from India or Japan have the same understanding? That is like dropping me into Switzerland with my Canadian specific knowledge and be expected to opine immediately on the Swiss Three Pillar pension system. Make certain that the person’s designation is eligible for use in your jurisdiction and that the experience matches your needs.
Of course, some designations are better suited for transferability than others. Writing options strategies and evaluating public company shares is more or less consistent around the world. As a CFA, my learning curve is fairly short to non-existent whether I am working in New York, Toronto, or Singapore. It makes sense that the CFA designation is globally recognized, rather than country by country specific.
Organizations Provide Oversight
In theory, professional organizations have significant oversight on their members. Many organizations require their members to follow professional standards and codes of ethics unique to the organization. This provides some comfort that your advisor will deal with you in a fair and honest manner.
Continuing with our Canadian CFP® professional example from above, the Standards of Professional Responsibility are clearly laid out for people to review. Quite comprehensive. I recommend you understand the important standards when dealing with a specific financial designation.
Additionally, most organizations require their members to maintain a minimum level of continuing education each year. Canadian CFP professionals are required to complete a minimum of 25 hours of approved continuing education each year. This helps ensure that members’ skills stay strong and current.
When considering potential advisors, review their organizations’ websites. You should easily find information as to what standards are applied to members. It is well worth knowing how your advisor should act, especially in respect of fiduciary duties, ethics, and standards of care.
The concept of whether the advisor has fiduciary duties is important. We will cover this issue separately.
In reality, each professional organization will have its share of bad apples and it is difficult to police. Look at Bernie Madoff (or numerous others). The actual regulators audited his business and he was able to fool them for a good while. So do not expect perfection from any professional institute. But it is better than dealing with someone who has no defined standard of care nor professional oversight.
Also, professional organizations are useful should you have a conflict with your advisor. You can file a complaint and it will be investigated. No member wants to be sanctioned, so reputable advisors do try and adhere to their professional standards. Outside the legal system, you may have little recourse against an advisor who is not a member in good standing of a professional institute.
If you have a complaint against a Canadian CFP professional, the process is clearly spelled out for members as well as the public. Again, this process should exist in most professional organizations.
Summary
With all the available financial certifications out there, your potential advisor should hold one or more. If not, find out why. It could be laziness, being expelled from an organization, or another red flag. Be safe, stick with an advisor who is certified and a member in good standing of a recognized professional institute within your domicile.
A potential advisor should be able to explain the relevance of his designations. He should be able to compare and contrast his credentials against other common certificates. He should also be able to highlight key ethical and standards of conduct under which he operates. Finally, he should point out any limitations. If he is not a CLU, for example, perhaps he does not feel comfortable incorporating complex insurance strategies in your wealth management plan.
After the interview, conduct an internet search to understand what the designation means. Compare it to other offered designations and what you were informed in the meeting. If you know people in the financial services sector, seek their input. Do the certified skill sets meet your needs? Is it a reputable designation in your jurisdiction? Are other designations available that better meet your future requirements?
Review the professional organization. What are the standards imposed on its members? Ethics and maintenance of technical proficiency are important. Is there a systematic process for filing a complaint against an advisor? There should be. Is your potential advisor listed as a member? Not all organizations do list active members, but many do provide information on advisors located in your region.
That is step one. Some work, yes. But finding the right financial advisor should be worth the effort.
