Tackling 'rogue' designations: is the proliferation of financial services designations a potential legal minefield for the industry?

More than 54,000 people in the United States hold the Certified Financial Planner (CFP) designation. Certification followed years of formal study for most candidates. Each candidate had to pass multiple exams, including a 10-hour multiple-choice final, meet a three-year experience requirement, adhere to a code of ethics and professional responsibility, and pass a background check. New this year is a requirement that all CFPs have a bachelor's degree.

"Anyone can become a financial adviser and can call themselves a financial planner," said Jina Martingano, spokeswoman for the Certified Financial Planner Board of Standards, which grants the CFP designation. "The CFP certification stands out because of the required courses of study. Our standards and requirements make our certification the gold standard in the industry."

While the CFP is one of the top financial-services designations, there are scores more. Many are issued by reputable organizations and require a significant amount of work. But others require little more than attending a two- or three-day seminar at a hotel. And these may be a threat to the financial-services and insurance industries, according to Larry Barton, Ph.D., president of The American College in Bryn Mawr, Pa. The college educates professionals in the insurance and financial-services industry.

"Any CEO in this industry that is reimbursing those programs needs to sit with their compliance folks and fess up to their board of directors that they have a problem," said Barton. "I mean that from the bottom of my heart as an educator. This situation is out of control."

Barton said there are currently 107 designations in the industry. "That's probably about 90 too many," he said. "The American College does not have a monopoly on this. We don't claim to have a monopoly. There are many free designations. But when I see a CPA on someone's business card, I know what that means. When I see a CLU, or CFP, or ChFC, I have a very good sense that that stands for something of rigor and quality. But the alphabet soup is completely, wholly out of control."

Barton said designations have proliferated in the past couple years as people came to realize how easy it is to offer a new one. "It's viral," he said. "Now is the time for the industry to stop and reflect upon what programs are credible, which ones it could defend to its own customers and clients, let alone its own investors."

Inflating One's Credentials

What Barton objects to is not the training and education, but how people use the designations that are awarded. When average consumers see initials after a name on a business card or in an advertisement, they probably assume the adviser took at least a couple years to complete that course of study, that he or she took multiple examinations, and that the designation came from an accredited institution. "They certainly would be horrified if they knew that when you claim to be certified or chartered in senior affairs, you merely went to a Holiday Inn for two and a half days watching PowerPoint presentations and took a multiple-choice test that 95% to 100% of those who walked out the door passed," he said. "That is ammunition for the attorneys general, for insurance commissioners and for skeptics of the industry like Suze Orman. And they would be 100% right in saying that this is an area that merits more scrutiny."

Barton calls these "rogue designations," and he said he is convinced they will generate class-action lawsuits. And with 76 million baby boomers "on the cusp of making some significant investments in the next 10 years, the likelihood this issue will mushroom is pretty evident," he said. "We're at the very first page of a potential scandal."

Fortunately, the industry has time to address the issue. Barton said he wants chief executive officers to discuss with each other what credentials they should support and allow their advisers to use. The American Council of Life Insurers could serve as a good venue because it is comprised of the premier companies, those that have the most to gain and lose, he said.

Barton's message seems to resonate with Jeff Hughes, chief executive officer of GAMA International. "While there is room for certificate programs, the real issue here is what our companies are permitting their advisers and managers to put onto their business cards, and how they are representing their expertise at a given level," he said. "It is a penultimate alphabet soup out there of designations, and the public clearly needs to be well-informed about what each of these designations really means in terms of hours of study, tests completed, hours of practice--whatever the criteria are for these types of certificates." GAMA is a trade group that represents the interests of field leaders who train and coach financial advisers.

"I'm not suggesting we create another layer of bureaucracy, but our obligation is to make sure that the client not only understands what he or she is buying, but that they understand the credentials of the person from whom they are receiving advice," Hughes said.

GAMA itself has not gotten into the designation business, but many of its programs have been accredited by the college to help field leaders complete the college's Chartered Leadership Fellow (CLF) designation. "So in many ways, we're a provider of courseware to the college as opposed to a provider of designations to the industry," said Hughes. "We're very comfortable in that regard." GAMA's professional development focus is around skill enhancement, while the college focuses more on knowledge transfer and acquisition, he said.

The CEO of the National Association of Insurance and Financial Advisors, David Woods, said he is "totally sympathetic" to Barton's concern about there being so many designations. He said the proliferation of designations "demeans and diminishes the value of the really important ones." In response to a question, however, he said the issue is not a top NAIFA concern.

Woods said the industry has a "social responsibility to the American people" to deliver good advice and quality products. "We are hilly supportive of designations that qualify people to do those things. But those are not simple things to do. They require a lot of study, a lot of knowledge. So the industry has a great responsibility to be sure that the people who are providing advice about financial security to the American people are truly qualified to do so, through programs and designations that mean something."

NAIFA has about 62,000 members; the most common designations they hold are LUTCF, CLU and ChFC, Woods said. The organization co-owns and co-confers LUTCF and FFS designations with The American College.

Clarion Call for Industry

Barton also would like to see some sort of industry round table convened by state insurance commissioners or by a combination of state education officials and commissioners.

In addition, Barton called upon industry organizations to prohibit presenters and some of their officers at their meetings and conferences to list these rogue designations. "Shame on any organizations that allow that, because they are buying into the diminution of education," he said. "This industry has had enough scandals on its hands, and enough questions about integrity, that of all organizations, the premier groups should be saying, 'We agree about quality, rigor and protecting the consumer.'"

GAMA, however, feels it cannot legislate what designations advisers and presenters can carry and how they use them, said Hughes. Those decisions, instead, are up to the individual companies. "We certainly verify that the designations are legitimate and that the individuals have received the designations," he said. "But we don't exclude people from speaking if they hold or don't hold a certain designation."

Woods said he'd support NAIFA's participation in an industry round table. "In order to really help consumers understand the qualifications of the person they're dealing with, we do need to get this under control," he said. He also suggested forming an organization to "certify the certifications" so consumers could better understand what they mean.

A spokeswoman for the Million Dollar Round Table, a trade group made up of the top life insurance producers, said it does not confer designations and does not have a position on how they should be used.

The Other Direction

The decision by the Certified Financial Planner Board of Standards to require a bachelor's degree for CFP certification "was a step in the right direction," said Barton. According to Martingano, fewer than 3% of CFPs in the United States lack a bachelor's degree.

The board decided in 2001 to require the degree effective Jan. 1, 2007, but recently moved back the implementation date to March 1. Candidates may take the CFP course of study and the exam without the degree, but cannot call themselves a CFP until they earn a degree. Candidates have up to five years after the exam result to earn their bachelor's degree, she said. The bachelor's degree is an initial certification requirement. Individuals who obtained certification prior to March 1, 2007, are not bound by this new requirement. The CFP is the only credential awarded by the organization.

The fact there are so many designations available in the financial-services industry "is challenging for us because it makes it more confusing for consumers," Martingano said, but she doubted it impairs the public perception of the CFP designation. "Over the years, the CFP credential has become more popular and recognized by consumers than any other designation or certification," she said. "So when you're a consumer researching how to find a financial planner, you'll pull up our certification over and over again. It's written about in publications from consumer to trade magazines, and even when they talk about the alphabet soup, ours always stands out." She added that an objective of her organization is to communicate with consumers about what kinds of questions to ask when choosing a financial planner.

The American College grants nine designations, or about one new one a decade in the college's 80-year history. The most prestigious include Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Life Underwriters Training Council Fellow (LUTCF), Chartered Advisor for Senior Living (CASL) and the Chartered Advisor in Philanthropy (CAP). Others include Registered Health Underwriter (RHU), Registered Employee Benefits Consultant (REBC) and Financial Services Specialist (FSS).

Not only do the premier designations require years of study, but the college requires continuing education through the college or its board and monitors designees for ethics breaches. "We pull and revoke certain designations every year," said Barton. "We have contemporaries, faculty and lawyers who sit on a certification committee, to adjudicate cases. The CFP board does the same thing. How many of the designations out there have that kind of rigor in place?"

To help its students earn a bachelor's degree, The American College in January entered into an agreement with Webster University that will allow courses completed at the college to be recognized for credit toward a bachelor's degree at the university. Based in Webster Groves, Mo., a suburb of St. Louis, the university enrolls about 22,000 students worldwide in a wide range of courses. These are also available at 15 campuses in the United States and Europe or online.

Hughes seemed to appreciate Barton's willingness to raise the issue of rogue designations. "Notwithstanding the fact the college has a huge business interest in its designation programs, the fact that Larry is speaking on this issue is clearly from a much higher level of concern for the end client, and ultimately for the protection of companies and managers from litigation because poor advice was rendered by an individual not fully educated and prepared to render that advice," he said. "In that regard, he's clearly watching out for the welfare of the industry, which certainly is to be expected of Larry and others who lead the educational and trade association groups of our industry."

Key Points

* Coursework requirements for earning industry designations differ greatly.

* The next market-conduct issue could become that of financial advisers using cheap designations to falsely impress clients.

* The financial-services industry may need to provide guidelines to its advisers on how designations may be used.