The alphabet soup of designations: Does it matter?

As a financial professional who has been practicing for over 20 years, I have become very popular lately at networking events and parties due to the current economic climate. One of the questions that I hear almost every day is: Who should I turn to for help with my financial decisions?

While the answer may seem simple, it is anything but. Some turn to friends and family, however, this advice (while good intentioned) often lacks context. Over the years, I’ve gained an appreciation for how complex and unique each individual’s finances are, so what may have worked for a friend or family member may not be appropriate for everyone. Furthermore, not everyone has a trusted family member or friend to turn to. This is why many folks turn to financial professionals, but unfortunately, the term “financial planner” or “financial advisor” doesn’t have a single meaning across the industry. Consumers are left largely uninformed and confused.

At last count, there are somewhere around 200 financial designations that can be obtained and marketed to financial professionals. Many of these designations are inadequate representations of a person’s actual skills and experience.  Let’s take a look at a few key things employers and investors consider before looking for someone to deliver financial consulting services.

Licenses and certifications

Those seeking a financial professional should be aware of the licenses and/or certifications they possess to better understand their qualifications.

Licenses for financial professionals are typically issued either by state securities boards or by the federal government through the Securities and Exchange Commission (SEC).  The licensing requirements vary, but they at least require a review of the professional’s background, employment history, and the completion of an appropriate exam to demonstrate proficiency in financial services.

Certifications are typically issued by private entities and have requirements that must be met both before and after certifications.  One highly sought certification in financial services is the Certified Financial Planner™ Professional or CFP® certification.  CFPs are accredited by the Certified Financial Planner Board of Standards and have met the requirements in areas such as examination, experience, education, and ethics.  Other highly coveted certifications include CPA (Certified Public Accountant) and CFA (Chartered Financial Analyst).

Financial professionals should have one or both of the items mentioned above in order for a client to be assured that there is accountability for the recommendations that they make. You can look up a prospective financial planner on FINRA’s BrokerCheck to see if they hold any state-issued securities licenses, as well as a history of where they have registered their licenses and been employed in the past. You’ll also see any past disclosures of complaints registered against the planner. 

Fiduciary versus suitability

The term “fiduciary” has become a buzzword for many financial professionals and firms, and has only recently started to gain traction among consumers.  It refers to the standard of care that a financial professional is required to exercise when making recommendations to investors or clients.  The fiduciary standard of care indicates that the financial professional must put a client’s interests first above all else.  So why isn’t every financial professional a fiduciary?  The simple answer is that they are not required to be.  Instead, they can legally operate under a standard of suitability that requires a recommendation simply be suitable for the investor but not necessarily the best for the investor. You will commonly see this standard being utilized by insurance professionals or investment brokers that are recommending financial products and earning a commission on the sale of those products.

Financial professionals can use the word fiduciary in their marketing when in fact they may be anything but that.  To determine whether someone is a true fiduciary, they should be appropriately licensed and credentialed with institutions that support the fiduciary standard.

Advice versus guidance

One of the more commonly misunderstood distinctions between various financial professionals is “advice” versus “guidance”.  These are two forms of communicating how an individual can improve their financial decision-making.

Guidance is high-level information or education about broad financial topics.  This often comes in the form of financial education or financial counseling or coaching.  Unfortunately, concepts of financial guidance can be delivered with little accountability or regulation.  Any person or firm can present themselves to the public as a purveyor of financial guidance; however, the guidance is general in nature and may not apply to an individual’s unique circumstances.  To put it more plainly, Google searches could be considered financial guidance.  For many individuals, this level of information is not enough to help them make financial decisions and, in some cases, can even be harmful if the guidance is implemented incorrectly.

On the other hand, financial advice is very specific and considers an individual’s needs, goals, and financial condition.  Advice not only includes education, but also specific actions and activities that should be implemented by the individual to achieve certain financial outcomes.  The other benefit is that it is heavily regulated and financial professionals who provide advice are held accountable for their recommendations. Financial professionals that deliver incorrect advice can be subject to fines and public censure by regulatory agencies. Regulated professionals must also document their advice, as well as how it meets the fiduciary or suitability standards if audited.

For example, while financial guidance can explain what a 401(k) is, financial advice is required to understand whether a client should contribute, how much, and what investment options would be best for them.

Understanding the differences between advice and guidance will help investors determine what type of financial professional they need.

Whether someone is seeking financial help as an individual or selecting a financial wellness solution for employees, we recommend considering each of these three points as part of the selection process: look for a financial professional that is licensed, credentialed, and who operates as a fiduciary.

Money decisions are important and should be guided by professionals that can help people reach their financial goals in an efficient and ethical way. Considering an employee benefits budget is one of, if not the largest, expenditure for an employer, it’s key to follow a thoughtful process and ensure corporate responsibility for your employees. They deserve it!

David Blaylock is the Head of Advice and Compliance at Origin.