Financial Advisor’s World of Acronyms (Alphabet Soup)

A few nights ago, my son Marcus asked me what I did at work. “Are you a CPA or something…?” As if he knew what that meant. He’s just a 14 year-old who’s trying to make sense of the world around him. While he knew his dad worked in “finance,”  he didn’t really understand what I do for a living, and even if I had tried to explain, his cognitive discipline would probably only hold up for a mere minute of my financial babble.

Strangely, when speaking to prospective clients, many seem to be just as stumped as my son on the issue.  Their advanced degrees and life experiences are no match for the confusing financial advisory industry. While I understand that my 14 year-old son would have no real interest in whether his dad is a CPA, CFA, CFP, wealth advisor, or financial advisor, I feel it’s important that many of us should have this knowledge and here’s why: the average person is unaware of the significance of all these acronyms, alphabets and titles that follow peoples’ names. You would have really done your research to know that CFP (Certified Financial Planner) is an industry accreditation earned after two years of schooling, passing numerous tests, and accumulating extensive work experience. By contrast, the requirements for some other designations merely require just a few months of training.

The bigger issue is that while some sets of letters tell vastly different stories about peoples’ qualifications, their business title may be exactly the same: financial advisor, wealth advisor, investment advisor, etc… So how is the public to discern who’s qualified to do what and with what level of expertise?

I know if my foot hurts, I go to a podiatrist. If I am running low on my Lisinopril, I visit my primary care physician. To whom do I go about my sluggish retirement portfolio? Or who do I discuss whether I’ve made the right decision on buying a home with a reverse mortgage? Your CPA may be a reasonable place to start, but the road will invariably lead to someone with many letters after his or her name with an elegant title that implies credibility.

Frankly, even I am befuddled and frustrated at times. After almost 30 years in the business, I am still explaining to people that just because someone may look and sound like a financial advisor, that may not necessarily be the case. Unlike the medical or legal profession where the barrier to entry is high, in the financial services industry, this simply is not so.  While it is difficult (and very illegal) to make a living pretending to be a doctor, it’s unfortunately not necessarily the case in the financial services industry. Even the regulatory bodies that govern the activities of securities dealers, brokers and investment advisors are struggling to find the right balance of public education, investor protection, and free-market autonomy.

So before you make a commitment to allow someone else to impact your financial life, do your research and learn the precise distinctions among financial advisors, what qualifies them to give you advice, discuss the types of clients they currently work with, and how they price their services. I am sure your cognitive discipline would be far superior to my 14 year-old son’s and would get a meaningful sense of the world around you after the requisite due diligence is discussed in detail.