Anyone can become a “financial advisor.” Literally, anyone. All you need to do is pay about $300, pass a test called the Series 65, fill out some registration forms, and you’re off and running.
But surely the Series 65 test is comprehensive and ensures that prospective advisors have the appropriate knowledge and experience to know what they are doing before someone hands them responsibility for their life savings? Nope.
Most people can study for the Series 65 over the weekend and pass the test on Monday. It’s shockingly easy. Compared to other professional exams such as the CPA exam, bar exam, medical boards, or engineering certification exams, the Series 65 is a walk in the park.
The financial advice industry has a “barriers to entry” problem. Namely, the barriers are too low. I know that statement might make all the libertarians out there cringe. After all, many industries have barriers to entry that are too high and end up limiting market competition and harming consumers. The classic example… many states require certifications for hair stylists and interior designers.
But in the case of financial advice, there is good reason to ensure that the individuals providing financial and investment advice know what they are doing. In fact, a bad financial advisor can ruin someone’s life just as effectively as a bad doctor or lawyer.
Credential problems too!
In addition to low barriers to entry, the financial advice industry also suffers from a confusing credential scheme. In addition to the CFP and CFA, there are about a million other credentials, many of which are merely “pay-to-play” schemes that enable advisors to add letters after their names and hopefully dupe clients into working with them.
My advice? Work with someone who has a CFP. Keep in mind that the CFP is not a seal of approval. In fact, many CFPs do some shady stuff. So make sure to ask lots of questions and ensure that any prospective advisor can explain, in detail, how they can help you. If what they are saying is too complex, or doesn’t make sense, ask more questions until you’re satisfied or move on to someone else.
