Investors looking for expert hands to handle their retirement assets sometimes rely on certifications as a signal of specialized knowledge.
Indeed, investor advocacy and advisor-client matchmaker Paladin recently found one advisor with 28 letters after his name. But the alphabet-heavy advisor rated only two stars out of five from Paladin, whose site provides consumers with free research tools to rate advisors.
“Most of the designations were weak, he lacked meaningful experience, and his main method of compensation was commission,” Paladin’s founder and chief executive Jack Waymire told ThinkAdvisor.
“The main role of the 28 letters was to convince naive investors he was an expert in his field,” Waymire adds.
The Consumer Financial Protection Bureau (CFPB) in April released a report listing more than 50 different designations targeted to seniors in the retirement investment marketplace — most with little or no coursework, accreditation, complaint process or disclosure standards.
Paladin’s researchers, with a more street-level view of the advisor marketplace, have found 260 designations. The firm has created 1-page report on each designation and established an algorithm to rate them, one of its site’s free research tools for consumers.
Waymire says the plethora of designations contributes to consumer confusion. Eighty percent of consumers recognize the CPA title, but the second-most recognized, the CFP mark, is familiar to only 5%.
“That’s why it’s called an alphabet soup,” Waymire says. “Investors don’t know what the advisor did to get the designation: Did he buy it or did he earn it?”
The Paladin founder compares the situation to diploma mills that can put someone into a PhD for a price. These phony certifications can work, he says, because “the investor wants an expert managing his money.”
Indeed, investor cluelessness is what drove Waymire to found Paladin 10 years ago, after the publication of his 2003 book, Who’s Watching Your Money?
The book listed 17 principles for selecting a financial advisor, and Waymire found that investors were asking for more than just principles but for referrals to actual advisors.
So he created an algorithm that rated advisors according to these 17 criteria and established a website where investors could use that tool.
Paladin’s own surveys find that some 3 million to 4 million investors fire their advisors every year and replace them with other advisors because they don’t meet client expectations. “That’s telling us there’s a big problem out there,” Waymire says.
But he laments that they usually end up repeating their original mistaken process and hire another bad advisor. That’s the problem Paladin is trying to solve — distinguishing between good and bad advisors.
Waymire profiles the situation of a retiring boomer:
“I’ve got a $1.5 million in 401(k) and I roll it over into an IRA. I’ve never dealt with this kind of money before. I need an advisor…One of us [the retiree or his spouse] is going to live well into their 90s. The money’s got to last through market crashes and wars. If my first advisor loads me up on crappy annuities, and I pick him because he belongs to my church or plays golf at my club, the odds that I run out of money before I get to my 90s is pretty good.”