Do Investment Advisors’ Credentials Matter?

by Rick Kahler

Find out here what one study says about investment advisors’ credentials. and what research you need to do to increase the odds that anyone giving you financial advice and selling you an investment really knows the territory.

This is advice I’ve given readers forever. (This is advice which may seem self-serving, since I hold most of these designations.) But, is there any evidence that financial planning designations really matter? Professionals who hold them will say yes; those who don’t hold them will tell you they don’t make much difference.

A study by financial planner, Jeff Camarda, published as “Do professional designations matter?” in Financial Planning, finds that designations do matter when it comes to finding someone with a high probability of delivering competent financial planning advice to consumers.

It may seem intuitive that someone who has had to complete a series of educational courses, meet minimal experience requirements, and pass a rigorous exam would probably deliver more competent advice than someone who has not. Yet Camarda found very little research on whether designations give consumers higher quality financial planning. He decided to base the dissertation for his PhD in financial planning on answering this question.

The challenge was how to accurately measure whether consumers actually received higher quality advice from those holding the designations. Camarda used disclosed complaints of misconduct against FINRA Registered Representative advisors who sold financial products. His study was confined to 27,000 such advisors in the state of Florida who had passed the federal licensing requirements to sell financial products.

Amazingly, of this group, only 12% had at least one professional designation. Camarda compared these advisors to those that didn’t have a designation, using 18 statistical techniques and tests to verify his findings. He discovered that much lower misconduct was associated with having one of the designations and concluded advisors holding a designation offered a higher standard of advice. The Financial Planning article did not include specific numbers, but the academic version of the study is under review for publication by the journal Financial Services Review.

The study underscores what I’ve found to be true: that just because someone holds a license to engage in a specific service for consumers does not mean the person is competent. Licensing tests notoriously set the bar low for the entrance into almost any field.

It’s important to note that Camarda’s research only included advisors who sold products. It would be interesting to see a similar study of fee-only advisors to see if the same holds true; my hunch is that it would. The challenge would be to query a database of fee-only advisors that includes those who don’t have professional designations and then compare SEC complaints.

Since financial planning and investment designations give consumers higher quality advice than does simply taking the federal licensing exams, it would seem that federal regulators could give the public better service at lower cost by abandoning their licensing exams, instead requiring those selling financial products to obtain a designation.

Of course, such a move would produce an outcry from the many salespeople with licenses but not professional designations who work for Wall Street firms and insurance companies. Since they have the money to influence their members of Congress (those high fees and commissions go somewhere!), this won’t happen anytime soon.

As a consumer, you will continue to need to do your own research to increase the odds that anyone giving you financial advice and selling you an investment really knows the territory. The best place to start is to look at their designations.

Reviewed July 2021

About the Author

Rick Kahler, MSFP, ChFC, CFP, is a fee-only financial planner and author. Find more information at KahlerFinancial.com. Contact him at [email protected] or 343-1400, ext. 111.