Over the past two years, holistic advice has become a priority and firms have responded by expanding the scale and scope of their services. One of the biggest ways we’ve seen firms address this shift is through the requirement of certifications—and financial advisors have caught on. The number of CFP professionals reached an all-time high of 92,055 in 2021.
Three main factors drive the increased interest in certification and designations. First, consumers are demanding outcomes-based advice, which is less about managing portfolios in the short-term and more about ensuring that one will be able to retire or pay for their child’s education, for instance. This requires a comprehensive and ongoing strategy led by a financial professional who is equipped to guide consumers through what can be an intimidating and emotionally charged process. To consumers, the letters behind an advisor’s name represent a universal reference point for values that are not easily quantified, such as skills, experience and education. As such, firms are the second factor driving increased interest in designations. Because digital innovation has decreased the cost of investment advice, a financial planner’s holistic personal interface plays a larger role in justifying a firm’s fees and differentiating its services. Although licensing prepares advisors to buy and sell assets, robust certifications can train and differentiate a firm’s workforce during a time of increased demand and economic volatility.
As advisors seek to optimize their credibility with their clients, prospective clients and their peers many choose to differentiate themselves by obtaining credentials. However, simply requiring a designation may not be enough to differentiate a firm and ensure that its advisors can provide the best quality of service to clients. As we explored in a recent whitepaper, this is why many firms are transitioning from designation policy to designation strategy.
Designation Strategy And The Alphabet Soup Problem
A designation strategy helps firms become more intentional about which designations they value and promote, aligning the organization’s goals with the training they expect their advisors to complete. According to FINRA, there are over 200 designations and certifications that a financial representative can hold, which makes it difficult for advisors (and consumers) to know which ones hold value and equally hard for consumers to distinguish between them. How can financial planning departments mitigate confusion and optimize advisor accreditation when approving designations for use?
We often find that firms will approve or require designations (i.e., a designation policy) without giving proper thought to which ones are most valuable. Some advisors will also just choose the credentials that are easiest to obtain. However, the best firms and their clients recognize that simply obtaining a random designation from the alphabet soup of letters doesn’t train an advisor to work with clients. To assure clients that they’re in safe hands, we recommend choosing a designation with recognition, rigor, and standards that undergoes enforcement by an independent certifying body.
A good designation strategy involves evaluating and ensuring the specific certifications or designations align with firm values. Because we’re seeing firms set goals around the delivery of holistic advice, a designation strategy should help advisors feel very competent, confident and able to execute the financial planning services their client needs. Moving from a designation policy to a designation strategy requires firms to prioritize certifications and designations based on their rigor, brand recognition and sustainability. This practice, which has become more common in the past five years, may mean that firms’ talent acquisition teams need a shorter list of preferred certifications and designations that match their employment criteria.
Why All Financial Credentials Aren't Created Equal
There is a distinct difference between a certification and a designation. Certification is accredited, which means that it requires impartial, third-party validation from a credentialing program. Because this certifying body cannot be affiliated with the education provider, accreditation enhances the program’s credibility and conveys a higher standard of excellence. Furthermore, certification is generally more sustainable than designation because accredited programs must continuously update their requirements to maintain relevance. While accreditation is difficult to achieve, it can ultimately ensure the consumer trust and legal defensibility of a certification. For example, CFP Board is nearly 40 years old and the CFP certification is widely recognized by the public, the media and the financial planning profession as the standard for excellence. Of the hundreds of FINRA-recognized designations, the CFP certification is one of only nine that are NCCA-accredited.
A comprehensive program like the CFP certification is the best place for financial professionals to begin their financial planning journey. Even as pressure mounts for advisors to specialize, it is important to focus on gaining a broad, foundational understanding through the CFP certification first. Over time, advisors can eventually specialize and receive a retirement income or divorce designations, for example. However, an advisor with a designation tailored specifically to retirement income can't effectively plan their client’s retirement unless they know how it affects other areas of the client’s financial plan. To offer an analogy: If someone wants to become an anesthesiologist, they don't go to anesthesiology school, they go to medical school to learn how each part of the body interacts with the others. They later become board certified in anesthesiology. In that same vein, if an advisor aims to become an estate planning specialist, they can first become a certified financial planner and learn how each part of a client’s financial situation intersects and then they can pursue a designation that concentrates on estate planning.
Standing Out: How Firms Can Differentiate Themselves Through Designation Strategy
At the heart of the designation strategy lies a belief that firms should align their organizational values with the skills and experience of their financial planners. Therefore, firms must equip their advisors with the competencies needed to succeed at financial planning and make clear through their website, social media platforms and other presences that their purpose is to help clients prepare for the future.
Success in the current marketplace relies on differentiation. We’re seeing increased demand from advisors for meaningful credentials like CFP certification because it helps them become better financial planners, and thus more attractive to potential clients and firms. Additionally, financial planning leaders are looking to give their new, fresh-faced advisors credibility in the profession, while educating and training them to embody the value of the certification. We see firms thoroughly investigating the qualifications and rigor that the certification entails.
Establishing a designation strategy has become more important than ever before. This will lead to a highly skilled and informed workforce, help secure client trust in a competitive marketplace and ensure advisors always act in the client’s best interest.
In our ever-changing economic landscape, there is no better way to show clients, prospective clients, and strategic partners that they are qualified to provide holistic advice.
Kim Hayes, CFP, is director of corporate relations for the CFP Board. Joe Maugeri, CFP, is managing director of corporate relations for the CFP Board.