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Why you should pay attention to proliferating advisor credentials

Les Abromovitz heads to Nebraska to figure out which letters are worthwhile -- and which take little more than a check and a pulse to earn

Tuesday, November 2, 2010 – 6:03 AM by Les Abromovitz, Columnist
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Les Abromovitz: Aside from the issue of whether a designation or certification is misleading, all financial services firms should be concerned about investment advisers who claim to have credentials they did not earn.

The SEC and state securities regulators are worried about questionable certifications and designations that mislead investors – and make an investment adviser seem like the Grand Poobah. That term, Grand Poobah, comes from the Gilbert and Sullivan comic opera, The Mikado. One of the characters in the opera is Pooh-Bah, a pompous official who holds a number of impressive titles yet actually does very little.

(My knowledge of the term, Grand Poobah, comes from The Flintstones and Happy Days. The Grand Poobah was a high-ranking position at Fred and Barney’s men’s club. Howard Cunningham was a Grand Poobah at the Leopard Lodge in Milwaukee.)

Regulators are particularly concerned about certifications and designations that may mislead senior investors. In March 2008, the North American Securities Administrators Association (“NASAA”) adopted the NASAA Model Rule on the use of Senior-Specific Certifications and Professional Designations. The model law was formulated to discourage the use of designations implying expertise related to senior investors. A number of states relied on the NASAA Model Rule in developing their own regulations.

It takes a great deal of hard work to earn most designations and certifications. Many have continuing education requirements that must be satisfied each year. Furthermore, the organizations that sponsor these designations and certifications make certain they are not used improperly. For example, organizations typically do not permit inactive designees to continue using their designation.

On Oct. 16, The Wall Street Journal ran a story headlined, “Those Fancy Initials After Your Financial Adviser’s Name Might Not Be As Impressive as They Seem.” The article gave examples of professional credentials that are more – or less— difficult to earn than others.

The Wall Street Journal mentioned that the process for becoming a Chartered Financial Analyst (CFA), Certified Public Accountant (CPA), and Certified Financial Planner (CFP) is highly rigorous. The article described other credentials, such as the Certified Retirement Financial Adviser (CRFA), Certified Senior Adviser (CSA), and the Chartered Senior Financial Planner (CSFP), as having a less rigorous process for earning them.

Whether a designation will be viewed as misleading depends upon the context in which it is used. Securities regulators will be extremely concerned if they see an advertisement for a seminar aimed at senior investors, and the investment adviser touts credentials that require little work to earn. It will not help an investment adviser’s position if the advertisements for the seminar, as well as the presentation itself, are filled with marketing hype and promises that are too good to be true.

How we get to Nebraska

When I review an advertisement for compliance purposes and am unfamiliar with a designation or certification, I head to Nebraska first. The Nebraska Department of Banking and Finance, Bureau of Securities has issued an interpretive opinion regarding the use of designations in advertising by IARs. The list, which was updated on October 12, 2010, can be found at: https://www.ndbf.ne.gov/forms/IO-No-26_10-12-10.pdf.

If Nebraska has found a designation to be worthwhile, it is almost always OK in my book. My usual approach is to research the qualifications required to earn and retain a designation. If it takes less than a few hours of study to qualify and there is an open book exam, I will typically recommend that IARs not refer to the designation in marketing materials and advertisements.

Aside from the issue of whether a designation or certification is misleading, all financial services firms should be concerned about investment advisers who claim to have credentials they did not earn.

Firms with relationships with these investment advisers frequently conduct due diligence to ensure that IARs do in fact possess the qualifications they claim to have. For example, National Compliance Services (“NCS”), the firm I work for, has contracts with several large broker-dealers to verify the credentials and degrees of IARs who use the brokerage firm’s institutional investment platform.

One thing is clear. Securities regulators will be cracking down on investment advisers who advertise designations that take little more than a check and a pulse to earn. And please avoid referring to yourself as the Grand Poobah of RIAs.

Les Abromovitz is a senior consultant with National Compliance Services Inc. Les, an attorney, is the author of Growing Within the Lines: The Investment Adviser’s Advertising and Marketing Compliance Guide (Available on Amazon.com or through NationalUnderwriterStore.com). He can be reached at 561-330-7645, Ext. 213, or at LAbromovitz@ncsonline.com.


Mentioned in this article:

NCS Regulatory Compliance
Consulting Firm
Top Executive: Mark Alcaide, COO/Partner




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