It is a well-known fact that some financial advisors use fake credentials to deceive investors into believing they are more knowledgeable than they really are. The CFPB (Consumer Financial Protection Bureau) believes there are 50 fake credentials that unethical advisors use to deceive seniors.
Three types of investors have the greatest exposure to this type of deception. First, are investors with relatively small amounts of assets (less than $250,000). Many of the best advisors, with legitimate credentials, have minimum asset requirements that are greater than $250,000. Second, are investors who have not previously used financial advisor services – for example, they hire advisors when they retire and roll 401k assets into IRAs. Third, are investors who refuse to commit a small amount of time to research the credentials of advisors before they make their selection decision.
High quality advisors have years of experience and legitimate credentials (CFA®, CIMA®, CPA®, CFP®). Many of them have advanced degrees from accredited colleges and universities. Low quality advisors have to compete with professionals who are real investment experts. Fake credentials help them compete when you do not know how to determine the quality of credentials.
Winner Take All
In this case the prize is your assets. Financial advisors compete to determine who will influence or control the investment of your assets. The winner makes a lot of money. The losers make nothing. It should not be a big surprise, in this winner take all environment, that more aggressive advisors use unethical sales tactics to create competitive advantage.
It’s Your Money!
There are no regulations that protect you from advisors who use deceptive sales tactics. You are responsible for protecting your own financial interests by conducting due diligence that uncovers unethical business practices. There is one small problem. Less than 5% of investors have an effective process for gathering advisor data and determining the quality of their responses.
Paladin Advisor Research
There is a new service that is free, easy-to-use, and online. You can go to Paladin Research’s website (www.PaladinRegistry.com) and click on Check a Credential. Input the initials of the certification or designation to view a peer group quality rating and a one page report that documents the credential’s prerequisites, curriculum, testing, and continuing education requirements.
You may be shocked to find the nice, friendly advisor who wants to invest your assets is using deception as one of his sales tactics.