by Rick Kahler

Find out here what one study says about investment advisors’ credentials. and what research you need to do to increase the odds that anyone giving you financial advice and selling you an investment really knows the territory.

This is advice I’ve given readers forever. (This is advice which may seem self-serving, since I hold most of these designations.) But, is there any evidence that financial planning designations really matter? Professionals who hold them will say yes; those who don’t hold them will tell you they don’t make much difference.

It may seem intuitive that someone who has had to complete a series of educational courses, meet minimal experience requirements, and pass a rigorous exam would probably deliver more competent advice than someone who has not. Yet Camarda found very little research on whether designations give consumers higher quality financial planning. He decided to base the dissertation for his PhD in financial planning on answering this question.

Amazingly, of this group, only 12% had at least one professional designation. Camarda compared these advisors to those that didn’t have a designation, using 18 statistical techniques and tests to verify his findings. He discovered that much lower misconduct was associated with having one of the designations and concluded advisors holding a designation offered a higher standard of advice. The Financial Planning article did not include specific numbers, but the academic version of the study is under review for publication by the journal Financial Services Review.

The study underscores what I’ve found to be true: that just because someone holds a license to engage in a specific service for consumers does not mean the person is competent. Licensing tests notoriously set the bar low for the entrance into almost any field.

Since financial planning and investment designations give consumers higher quality advice than does simply taking the federal licensing exams, it would seem that federal regulators could give the public better service at lower cost by abandoning their licensing exams, instead requiring those selling financial products to obtain a designation.

Of course, such a move would produce an outcry from the many salespeople with licenses but not professional designations who work for Wall Street firms and insurance companies. Since they have the money to influence their members of Congress (those high fees and commissions go somewhere!), this won’t happen anytime soon.

• Finding an Honest Investment Advisor
• Do You Need a Financial Advisor In Retirement?
• Where Does Your Investment Advisor Put Their Money?

Reviewed July 2021

About the Author

Rick Kahler, MSFP, ChFC, CFP, is a fee-only financial planner and author. Find more information at KahlerFinancial.com. Contact him at Rick@KahlerFinancial.com.