Financial advisors are much like other professionals. They go through lengthy educational processes in order to achieve certifications that prove they have the knowledge they need to do the job they profess to do.
A Certified Financial Planner, for example, must complete a lengthy program of education and test-taking, and among the subjects covered in the testing are investments, estate planning and insurance. A CFP must have three years of experience in the field before they can receive the CFP certification from the Certified Financial Planner Board of Standards.
Then there are designations that indicate years of training of various degrees on various topics: Chartered Financial Analyst, Chartered Life Underwriter, etc. But do those titles matter to investors when they are considering a new financial advisor?
It is very unlikely that investors know the extent to which advisors go in order to be certified. They are unlikely to know what each certification means in terms of advisor knowledge and expertise. Investors may not even know what word each letter in the certification acronym stands for.
Do certifications matter to investors? Do they carry any particular weight with investors?
In 2017, Spectrem asked Millionaire investors with a net worth between $1 million and $5 million whether advisor certifications were important to them, and 76 percent of those investors said “yes”. That’s an overwhelming preference for advisors who carry certifications which prove their educational background related to investing and finance.
In September, Spectrem asked a different question of investors with a net worth between $100,000 and $25 million. Investors were asked which advisor certifications they were aware of, and 60 percent said they were aware of Certified Public Accountant and Certified Financial Planner. That’s 40 percent of investors who did not have familiarity with those two terms, and yet they are the most popular and most well-known of advisor certifications.
Considering that investors care whether their advisor has a certification, it is telling that many investors are unaware of what the certifications mean.
Only 33 percent were aware of Certified Financial Analyst, which may be the most difficult certification to achieve and the one that should carry the most weight. CFAs are required to take multiple exams in true testing situations (not online), have worked as an investment professional for four years before testing, and most maintain a code of professional conduct which is monitored by the CFA Institute.
Only 19 percent of investors were aware of the Chartered Life Underwriter designation, which is earned by life insurance agents with three years of business experience prior to certification. Only 13 percent had heard of a Chartered Financial Consultant, which is another certification for the insurance industry and also requires passing many exams before certification.
Awareness is one topic; value is another. Those same investors were asked which certification carries the greatest value in their view, and the CFP was selected by 44 percent of investors, with the CPA getting 33 percent of the nods. There were 11 percent of investors who value the CFA the most, and 9 percent which selected the Certified Wealth Management Specialist, a certification offered by the International Association of Financial Management, which requires 40 hours of in-class training and 15 hours of continuing education every two years. Only 12 percent of investors had even heard of a CWMS, but those that were aware of the certification must consider it significant.
Top Takeaways For Advisors
The Spectrem survey indicates that certifications are likely not the reason investors choose an advisor. While investors indicated they want their advisor to be certified, they have no idea what the certifications mean in terms of education and knowledge. They just want to see those letters behind your name.
But advisors should promote their educational background and the efforts they went to in order to be qualified to perform financial advisory duties. When meeting a prospective client, do not be shy about how many tests you have taken or hours you have put in to prepare yourself. Do not assume the investor is aware of your legitimacy.
©2018 Spectrem Group