More Than Just an Acronym

To gain plan sponsors’ and participants’ trust, retirement plan advisers choose not just to carry the minimum licensing requirements but to pursue professional credentials that showcase specific expertise.

Indeed, research from Financial Service Standards (FSS), a division of fi360 Inc., reveals that about nine out of 10 plan sponsors say they would be more inclined to work with an adviser who holds retirement-specific designations than one who does not. Even that subset of certifications is crowded, however, including some 30 to 35 designations as of 2012, according to FSS.

The same study—also used to develop FSS’ informative “The Retirement Plan Professional’s Designation and Certification Guide,” which is available online and breaks down the features of the 24 “most prevalent” retirement-specialist designations—additionally found that about 95% of plan sponsors deem it important for financial professionals who work with retirement plans to obtain credentials indicating specialized training in that area. Yet, strikingly, 91% of the plan sponsors surveyed admitted they do not know the key differences behind the various credentials—for instance their prerequisites, subject matters covered in training, length of training, tools provided, etc.

In more general studies, as well, investors indicate they like their advisers to demonstrate additional expertise. Sixty-two percent believe it is important or critical that their adviser earns voluntary certifications, and 65% value certifications issued by an objective third party, according to the “Economics of Loyalty Research,” a recent study by the Investment Management Consultants Association (IMCA) and Advisor Impact.

The investor loyalty analysis contains a few surprises. For example, younger and more inexperienced investors appear to be the most stringent in their credential expectations for advisers, with 84% citing the importance of voluntary certifications above minimum regulatory requirements—despite this group’s lower average account balances and the relatively little time they devote to planning for or thinking about retirement.

This could be a result of Millennials’ well-established dependence on smartphones and digital communication technologies for use in banking and other financial settings. If the investor rarely meets face-to-face with an adviser, trust can be hard to develop. Independently verified adviser credentials are a natural solution, the research suggests.

“This is the latest in a long line of consumer research to foretell rising client expectations, particularly among Millennials,” says Sean Walters, CEO of IMCA in Greenwood Village, Colorado. Walters says the IMCA research also provides valuable insights for advisers to consider in pursuing new credentials, including which knowledge competencies are most valuable for a practice.

Fifty-nine percent of investors, for instance, believe the most valuable adviser competencies relate to investment management skills, followed by competency in holistic financial planning, sought by 22% of investors. A solid majority of investors (81%) believe it is important or critical that an adviser maintain his credentials once earned, whether through continuing education or follow-up examinations at later points in his career.

While it is clear from such research that investors value adviser credentials, it is no easy matter for retirement plan advisers to go about choosing a designation to pursue.

As Carlos Panksep, managing director of the Centre for Fiduciary Excellence (CEFEX), observes, even the experienced and engaged investor will probably be unable to rank or compare the numerous adviser professional credentials in the market today. He estimates that there are well over 100—other sources say 300 or more—available across the wide-ranging investment services field, and it is highly unlikely that the average workplace retirement investor will have the time, let alone the interest, to learn what goes into earning each one.

Some credentials require just a few hours of study, Panksep says. Others demand years of study and rigorous classroom examinations. Panksep’s own organization offers the CEFEX designation. He says this designation stands out because it is not for individual financial professionals but is assigned on a firmwide basis following a stringent on-site audit, which then recurs annually to ensure ongoing compliance with a wide range of industry best practices.

“This is a very different approach to the traditional designations,” Panksep says. “The program is modeled after the ISO [International Organization for Standardization] 9000 quality and environmental management system certifications that exist in the sciences and manufacturing industries. It’s about ensuring that effective processes are in place and adhered to across the organization.”

Panksep says the CEFEX audit also looks at the individual advisers in a firm and how they treat clients. The audit can be relatively straightforward for well-organized advisory firms that have robust recordkeeping practices, he says, but it is more challenging for firms without strong standardization and internal consistencies to meet the CEFEX hurdle.

Panksep says this style of credentialing makes sense, considering the IMCA research and other recent reports on investors’ increasing demand for third-party testing of professional service providers; this is especially important to younger investors who leverage digital technology in their daily financial lives. Participants are happy to have the peace of mind that, when their adviser leaves a firm or there is a shift in the way advisory services are delivered, the CEFEX designation continues to apply firmwide. Panksep estimates that currently about 65 advisory firms carry the CEFEX designation, so it is still only a small part of the credential market. However, he says, CEFEX firms are growing at twice the rate, by assets under management (AUM), of the wider industry average.

Advisers polled for the FSS study said the top reasons they chose to earn a particular credential were credibility of the organization offering it (87%), the training curriculum (83%) and the importance/credibility of the designation among clients and peers (82%). Advisers who do hold credentials said the main reasons they were willing to take the time to earn a designation included increasing credibility (76% of advisers), education (74%) and staying competitive (52%).

Robert Stammers, the New York City-based director of investor education for the CFA Institute—which issues the Chartered Financial Analyst^®, or CFA^®, designation—says another important point to keep in mind when assessing the credential question is that, for the most part, retirement plan advisers are directly accountable to plan sponsors and other named fiduciaries.

Stammers, who carries the CFA designation himself, suggests that a big part of the value of a credential may extend beyond the adviser’s relationship with and responsibility to the retirement plan. He points to the CFA as a good example—earning the charter takes between three and four years of study and multiple rounds of rigorous, six-hour exams. At the end of the process, the financial professional has learned a significant amount about investment services of all types, he says, from retirement savings to derivatives trading.

“Just from the business-to-business standpoint, a designation can make a huge difference,” he says. “Charter holders, in my experience, have been eager to work with and help other charter holders. It’s like we share war stories. And you can see how important this is when noting that 7% of all CFA holders are the chief executive officer of their firm.”

Stammers shares an anecdote from his previous career to demonstrate the point. “When I was still a [real estate] fund manager, we were trying to get a real estate investment trust [REIT] off the ground,” he says. “The leadership at our firm was having a hard time getting through the door at the banks and some of the other parties that would have to be involved. Our senior leadership just couldn’t get the meetings to get everything moving.”

It looked like the project might even fall apart, Stammers says, “but then I noticed that a lot of the folks we needed to work with were charter holders. I raised this fact with my superiors, and they had me pick up the phone. Sure enough, I was able to line up the meetings we needed.

“It’s a respect thing,” he adds. “From a career standpoint, the charter has opened up doors like that a lot.”

There may be some implicit support for Stammers’ position, contained in the FSS analysis. FSS researchers polled plan sponsors about 11 retirement industry credentials and found that only one on the list—Certified Employee Benefit Specialist (CEBS^®), supplied by the International Foundation of Employee Benefit Plans—showed anything like unanimous name recognition. The second-ranked designation—Retirement Plans Associate (RPA™), from the same accrediting body—had just 53% name recognition among plan sponsors. Ranked third, the Certified Pension Consultant (CPC) designation, from the American Society of Pension Professionals & Actuaries (ASPPA), had 48% name recognition.

Common Creds

The following is a quick listing of common financial adviser ­credentials, as compiled by ­Financial ­Service Standards (FSS) and The American College of Financial ­Services, which catalogs them on its Designation Check website.

401(k) Registered Fiduciary (RF). This adviser designation, from DALBAR Inc., identifies specialists in the practice of fiduciary investment management and advice in the 401(k) context. Certification involves submission of practice documents and an exam.

Accredited Retirement Plan Consultant^® (ARPC^®). The ARPC designation is earned by sales and marketing professionals who help sponsors enable employees to effectively save and plan for retirement. It is granted by the Society of Professional Asset-Managers and Record Keepers (SPARK).

Certified Employee Benefits Specialist (CEBS^®). The CEBS program provides education for advisers working in the employee benefits and compensation industry, by way of an eight-course curriculum. Applicants for the CEBS designation may not have engaged in any conduct that “would bring discredit to the CEBS program during the 15-year period prior to completion of the application and on or after the candidate’s 18th birthday,” according to The American College. The CEBS designation is issued by the International Foundation of Employee Benefit Plans and The Wharton School of the University of Pennsylvania.

Certified Financial Planner™ (CFP^®). The CFP certification is one of the top generalist recognitions financial planners can earn. The program covers a broad base of financial planning subject areas and trains applicants in the discipline of holistic financial planning. It is issued by the CFP Board.

Certified Investment Management Analyst^® (CIMA^®). The CIMA designation is designed specifically for financial professionals who want to attain a level of competency as an advanced investment consultant. The educational component is offered through The Wharton School of the University of Pennsylvania. The Investment Management Consultants Association grants the CIMA designation.

Chartered Financial Analyst^® (CFA^®). Completing the CFA program, which is conducted by the CFA Institute, takes an average of four years. Successful candidates spend about 300 hours preparing for each of a series of exams.

Chartered Financial Consultant^® (ChFC^®). The ChFC requires more courses than any other financial planning credential, says The American College, which issues the designation. The curriculum covers extensive education and application training in all aspects of financial planning.

Registered Employee Benefits Consultant^® (REBC^®). Also issued by The American College, the REBC designation is designed for specialists in the field of employee benefits. The program covers pensions, retirement plan funding, group medical plans, long-term care, executive compensation, personnel management and other benefit programs.

Retirement Income Certified Professional^® (RICP^®). An RICP designee is trained to understand how to structure effective retirement income plans, how to mitigate risks to the plan and how to create a sustainable stream of income to last throughout a client’s retirement years.