Advisor Certifications: Which Do Investors Prefer

7/1/2020

Certifications matter, especially when those certifications certify the skills and knowledge of financial advisors. 

Investors almost always want to work with someone who can prove they know what they are doing. And one of the ways for an investor to know that an advisor knows their business well is to see that the advisor is certified, indicating the level of their background and education on matters related to financial planning and investments. 

Advisors often seek out various professional designations in an effort to increase knowledge, gain expertise, and demonstrate that they have an obligation to behave in an ethical manner with regards to client’s assets. It is up to investors to understand the meaning of the certifications and use them as a way to ensure they receive the type of advice they are looking for. 

Certifications indicate a level of formal education, but also indicate a dedication not only to the craft of providing financial services but also to the relationship between an advisor and a client. Different certifications indicate different education and training backgrounds, but they prove to a potential client that the advisor has put in the time and the effort to provide the best possible service. 

According to the Spectrem study Preferred Sales Approach: Capturing the Wealthy Investor*, investors placed upon a 100-pont scale the degree to which a professional designation matters in choosing a financial advisor. The average response was 66.48, indicating that certifications matter but are perhaps not the No. 1 qualification investors take into consideration when looking for a new or first financial advisor. 

However, among those investors who look at professional designations when considering an advisor, nearly three-quarters (73 percent) feel the most important designation that an advisor could obtain would be a Certified Financial Planner. The next most important designation is Chartered Financial Analyst, with less than 20 percent of investors identifying this designation as important.

When you considered the advisor you are currently working with, did you consider these certification types? Does your advisor have these certifications? And, most importantly, do you wish they did?

The Preferred Sales report indicated that approximately one-third of investors with a net worth above $100,000 (not including the value of their primary residence) do not utilize an advisor. But 42 percent of those without an advisor said they were likely to utilize a financial advisor in the future.

That research was completed before the approach of the coronavirus, when almost all investors were impacted by a loss of net worth or a changing of the framework of their portfolios. In the midst of unknown future circumstances related to the virus and its impact on the stock market, it is likely many of investors have searched for a new advisor in hopes of salvaging some of what they lost and being prepared for the predicted improvement of investment conditions once the coronavirus pandemic is successfully solved. 

At times like these, investors are likely to be looking for advisors who have the qualifications certifications demand. They are likely to appreciate the fact that a Certified Financial Planner (CFP) has studied for more than a year and passed a six-hour exam administered by the CFP Board. Certified Financial Planners are also obligated to act in the client’s best interests. Investors also appreciate working with a Chartered Financial Analyst (CFA) who has put in perhaps 1,000 hours or more of study and a prescribed number of years of experience in order to acquire that certification. 

Some investors understand the hard work that goes into becoming a CFP or CFA and appreciate that level of dedication. These are perilous times for investors. They require informed advice, and are likely to want to work with an advisor who has a proven background and education that can provide proper guidance through difficult times.