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.