Financial Designations & Basketball Shoes:

Let’s talk about credibility.

I play a lot of pick up basketball. I have most of my life. If you want to get on the court, you have to find out who has “next” and see if they already have their five people for their team. When you ask someone, “Hey, do you have next?” the first thing you see a lot of people do is look down at your shoes. It’s a quick screen to determine perceived skill and how much somebody plays. If I’m wearing sandals, or boots, or even running shoes, it says something about me and what I can bring to the team. Does this screen produce unanimous results? Nope. I’ve been rolled by a dude wearing Crocs giving out windmill dunks. But it does work a lot of the time. 

So, similar to checking someone’s shoes in basketball, what is the quick screen to check if your financial advisor has the right expertise to advise you on your hard earned wealth? 

To give investment advice for compensation there is an absurdly low bar. Essentially, all one must do is be registered in the correct way, then pass an exam called the Series 65, or Series 66 (a combo exam). 

I studied for about 3 weeks to pass my Series 66 exam. From my perspective, passing a Series exam is like getting past the weed out class in your college major. It says less about your credibility and more about your ability to jump through a hoop. 

The term financial advisor (FA) has no legal meaning. Anyone can label themselves an advisor. I can, you can, and your uncle Jeff can, too. There is no entity that requires anyone to meet a minimum set of requirements to use the term financial advisor. 

Given the low bar to become an advisor — those who are doing good work wanted a way to stand out from their peers.

Enter the financial designation. Or better known as that string letters after someone’s name. 

Before I go further, let me put this out there. I know two advisors that have no designations that I would readily entrust with my money. Through time, experience, and hard work they have gained the expertise this job requires. No designation is better than the real thing—the expertise and the know-how.

FINRA (Financial Industry Regulatory Authority) has a database of 246 financial designations found here. 246! That number is absurd. FINRA and the SEC are clear that they do not approve or endorse any professional designation. Meaning your government regulators are not in the business of helping you determine credibility.

Credibility is a mixture of expertise, experience, education, and ethics. A designation is only as good as the credibility behind it.

We feel these designations meet a high bar of credibility for someone advising your wealth. 

● Certified Public Accountant: CPA 

● Certified Financial Planner: CFP 

● Chartered Financial Analyst: CFA 

Each of these designations have a high barrier to entry, fiduciary mandates, strict education and work experience requirements, rigorous exam(s), and they all enforce a strict code of ethics and standard of conduct (Ex: CFP Code of Ethics) In other words, the letters mean something. 

Both Adam and myself are CFP® professionals. The CFP designation’s values and standards of practice most align with how we want to serve our clients.

Which letters are the ones you want your advisor to have when managing your wealth? Well, like a lot of things, that depends. It depends on the work you want your advisor to do.

If you want adaptive financial planning that can help you make decisions, find opportunities, and inform your portfolio construction, a CFP is a good fit. 

If you have unique and complex tax situations: for example, multiple business entities, trusts, partnerships, real estate portfolios, or foreign earned income, you may prefer to work with a CPA.

If you want to design a portfolio that is highly custom, if you believe there is alpha in investment analysis, or you want to use derivatives for hedging or trading, a CFA might be your answer.

Each of these designations focus on specific areas of expertise, with plenty of overlap. Here is a gross oversimplification. 

● CPA = tax 

● CFP = planning 

● CFA = investments 

But the reality is, I have met plenty of CFA’s who are excellent planners, and plenty of CFP’s who are great portfolio managers. At Harding Wealth, we maintain close relationships with CPAs and CFAs for their expertise in tax and portfolio management, while keeping our planning expertise in-house with Adam and I.

What I find most important about these letters is that it can give you an understanding of an advisor’s background and education. It’s a baseline of credibility that doesn’t absolve you of doing more due diligence. To understand if an advisor is the right fit for you, I’d encourage you to ask these questions. 

There are a handful of other solid designations. Most of these fall into a smaller and more specific category of expertise. A few that come to mind: 

● Certified Divorce Financial Analyst: CDFA 

● Retirement Income Certified Professional: RICP 

So what about the other 200+ some odd designations? 

There is an entire cottage industry that exists to help advisors feign credibility.

The reality is, many financial designations are simply marketing tools masquerading as fancy diplomas. These designations can be bought for a couple hundred bucks, and little study.

Advisors will buy one or more designations like this to put letters after their name.

There are great advisors with no designations, and great advisors who use the whole alphabet behind their name. The same goes for bad advisors. Be skeptical. Ask questions (if you want our advisor interview guide, let me know).

Here is a red flag to look out for — When an advisor is more concerned with looking competent, than actually being competent. 

A final note: pay-for-clout marketing has a similar model but uses awards as the feign of credibility. It works like this. I get approached about being named a “Five Star Advisor” from a random organization, they give us the “award” without any merit or research. Then they say they are going to run ads in Barron’s, AARP, or some other publication and offer us some ad space for a fee. 

The reality is it is a fake award, but the end consumer doesn’t know that. 

It’s like showing up to the court wearing Jordans, but then you find out they can’t make a layup. 

That’s all for today, be well.

David Young
Advisor | CFP® | Amateur Hooper

Have a question about money or how we work with people? Email david@hardingwealth.com.