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Sound Advice: February 1, 2023

 Alphabet Soup

When I began as an investment adviser, I was disappointed to learn how uninformed most folks were about financial matters and financial advisers.  One example was a gentleman who had difficulty understanding the difference between an investment manager and a stockbroker.  My response?  The investment manager is the architect of the portfolio; the stockbroker is the builder of the portfolio. 

That concept is easy enough to grasp, but given the multiplicity of letters that may follow one’s name, the situation appears to get much more complex.  A few of the designations require considerable effort and time to acquire.  And then there are those that can be obtained by a modest charge on one’s credit card and no time spent learning about anything.

One tipoff is when there are numerous cryptic designations following one’s name.  More often than not, a series of this sort will strongly suggest that the value is what our British brethren call rubbish.

For investment advisers, the two meaningful designations are CFA and CFP.  CFA stands for Chartered Financial Analyst.  It’s the gold standard, requiring a rigorous multiyear program, followed by exams for three different levels of study, including accounting, economics, ethics, money management, and security analysis.  These exams are quite difficult, with passing rates often below 50%.  Many CFAs work with major asset management firms.

CFP stands for Certified Financial Planner, a designation that focuses on helping individuals manage their financial concerns, including retirement, investing, education, insurance, and taxes.  This, too, is a multiyear program, followed by a lengthy exam with passing rates that are as low as those of the CFA exams.

Then there’s CPA, which is a Certified Public Accountant.  This designation gets far better recognition, but most CPAs are concerned with tax work, rather than advice on a broad range of financial matters.

Following these designations is a roster of letters that are not in the same league or area of expertise.  One of these is ChFC, which stands for Chartered Financial Consultant.  Although there is a study requirement involved, there is no exam to confirm competence.  It is not at all on a par with CFA or CFP.

Here are a few others that are meaningless:  CEPC, Certified Elder Planning Consultant.  CSP, Chartered Senior Planner.  Senior Specialist.

Let’s not forget CLU, which is a Chartered Life Underwriter.  That’s the person who would like you to believe that insurance is the answer to all financial issues.

And for what it’s worth, the weakest student who graduates from medical school is also called “doctor.”  Not a comforting prospect.

N. Russell Wayne, CFPÒ

www.soundasset.com

Any questions?  Please contact me at nrwayne@soundasset.com

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