How to Evaluate a Financial Professional’s Credentials
I have a finely tuned bullshit detector, thanks to my years on Wall Street.
As a professional investor, listening to company management was like being a Kremlinologist decoding Soviet Cold War propaganda. I paid as much attention to what wasn’t being said, picked apart answers like a biologist sifting through owl droppings, asked weasel-proof questions, and read the energy behind the words.
In my experience, straight shooters made the best management teams.
On Main Street, however, straight talking is in short supply, at least when it comes to personal finance.
Whether you’re building your nest egg or on the brink of retirement, knowing how to assess the credentials of those giving you advice is critical. If you’re young, bad advice will cost you dearly over time. And if you’re in your wisdom years, you’re especially vulnerable to fear-mongering over having enough to last you until your last breath. In either case, your money is desirable.
Cue the financial sharks smelling blood in the water.
But if you didn’t work on Planet Finance, how would you know the difference between the sharks that won’t harm you and those that would take a big bite out of your nest egg and peace of mind?
You’re in luck. Keep reading.
I heard a presenter at a sales pitch — masquerading as an educational session — say that she was a Certified Financial Fiduciary (CFF), and that was as good as having the equivalent of “alphabet soup” behind her name (e.g. CFA, Chartered Financial Analyst™️ or CFP, Certified Financial Planner™️). She even said that despite Madoff being the smartest man on Wall Street, it didn’t mean he was ethical. 🙄🤦🏻♀️
Encrypted message: all credentials are the same and, in any case, don’t guarantee good ethics.
I had never heard of a CFF, so I was skeptical.
“The lady doth protest too much, methinks.”
– Hamlet
I looked it up on the spot, and it’s a real thing. My next questions were: What does it take to earn that credential? and Who does the certifying?
Not every CFF will be as dodgy as my presenter — I found absolutely zero biographical information even after scanning the QR code that promised more About Me info. No educational or work experience was listed on her website or LinkedIn profile, which is a GINORMOUS red flag.
You can get a sneak peek through the smoke and mirrors in just a few minutes.
And it doesn’t take much more time, or financial credentials of your own, to get the full picture. All you need are some cynicism, self-trust, and these 3 simple rules…
RULE #1: Require Transparency About Basic Professional Information
Why all the fuss about being a fiduciary?
A fiduciary is someone who is legally obliged to put their client’s best interest first. Not everyone selling you financial services is a fiduciary. Some, like stockbrokers or annuity salesmen, are merely held to a “suitability” standard rather than a “best interest” standard.
A few years ago, the Department of Labor (DOL) sought to tighten up the definition of a fiduciary, which would have made common selling practices for high-commission products off-limits.
“Suitability” would no longer be good enough.
The National Association of Certified Financial Fiduciaries™ (NACFF) was created ostensibly to:
Educate non-fiduciaries on how to behave like fiduciaries,
Pledge to uphold the DOL rules, and
Be able to claim to be fiduciaries despite not having other credentials, licenses, or working for fiduciary institutions.
The NACFF self-proclaims that “All Fiduciaries are not the same, and the CFF is the Standard of Excellence.”
The CFF certification was a way to quickly become perceived as a fiduciary.
In the end, the DOL rule got quashed (long story), so there’s no rush for non-fiduciaries to prove that they will adhere to “best interest” rather than merely “suitable” standards. Shady selling techniques continue to flourish.
Rule #2: Validate What a Credential Actually Means
To earn the CFF designation, a candidate:
Attends a one-day live class or completes an online course
Takes one 100-question exam (75% pass rate)
Has some work experience (accepted at the NACFF’s discretion), and
Endures a background check
No adherence to an ethics code or policy required
Total Cost: $1,895
Let’s see how that compares to “alphabet soup.”
To become a Chartered Financial Analyst requires:
A 3-year process
3 grueling day-long exams (40-45% pass rate)
4,000 hours of relevant work experience, and
Adherence to a code of ethics, including acting in the best interest of the client
Total Cost: $2,550 to $4,800, depending on how early you register
The CFA designation doesn’t guarantee that someone is a good investor, but it does require the acquisition of a certain breadth and depth of knowledge about investing across many different asset classes.
Becoming a Certified Financial Planner requires:
18 to 21 months of coursework
One 6-hour 170-question exam (67% pass rate)
6,000 or 4,000 hours of either work or apprenticeship experience, and
Acting in the client’s best interest according to the CFP ethics policy
Total Cost: $825 to $1,025 for the exam + tuition for the required CFP course, which is offered at different prices by a wide range of educational institutions.
The CFP designation implies less depth of investing knowledge but much more breadth in areas relevant to personal finance, like retirement planning.
Both CFA and CFP designations imply a level of competence and professionalism earned through experience and content knowledge, and the certifying organizations themselves have credentials, robust procedures and governance to support the credibility of their designations.
The CFA (est. 1947) and CFP (est. 1985) are non-profits with governance structures, policies, boards of directors, and other trappings of legitimate professional organizations.
By contrast, the NACFF is one person’s for-profit brainchild created in 2018 that has a janky website with little detail on its curriculum or its exam.
Compare websites and you’ll see the difference instantly.
It just looks like I’m wallowing in self-righteous indignation.🤣
But actually, I’m showing you how easy it is to be a good steward of your wealth. When people are pitching you their services, all you have to do is pay attention to what’s being emphasized, and what’s being omitted.
RULE #3: Remember To Follow The Money
Who’s making money? How are they making it? How credible are they?
The more specificity and transparency offered, the more trustworthy the source.
Madoff was not the smartest man on Wall Street by any means; he may not even have been the crookedest. But he got away with his Ponzi scheme for so long by being opaque — saying his methods were “proprietary” — while preying on people’s greed and FOMO.
You don’t need credentials to see through the smoke and mirrors.
You just need the willingness to embrace your inner cynic and trust that you can see things for what they are, not what you’re being told they are.
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