Our last blog was titled “Who Can You Trust?” (Saturday, November 27, 2010). We discussed the myriad of designations for financial advisors and why you need to check their credentials carefully. We had written before about the problem with many financial advisor credentials but decided to raise the issue again after reading an article in the Wall Street Journal titled “The Credentials Racket” by Jason Zweig and Mary Pilon, (Saturday/Sunday, October 16-17). Recently, a follow-up article by the same authors points out more problems with advisors’ credentials (“Who’s Advising Your Advisers?”, The Wall Street Journal, Saturday/Sunday November 20-21, 2010).

The follow-up article discusses the problems with the training provided by the groups who grant the credentials. According to the article, some of the groups have lower standards and people with questionable backgrounds leading their training programs. An example given was the Society of Certified Retirement Financial Advisors, which appointed an education chairman who had lost his state securities and insurance licenses.

Another example given was the National Association of Financial and Estate Planning (NAFEP), whose seven-person “advisory board” included an individual who had been barred from the insurance and securities industries for two years in Tennessee.

The article also pointed out that some of the groups have also been accused of teaching their students questionable sales methods.

We noted in our last blog that it’s possible that many people who need financial help shy away from hiring an advisor because they are unsure of how to find one they can trust. With over 200 financial designations out their, some with shady characters doing the training, it’s no wonder consumers are hesitant to hire an advisor.

If you need help, we recommend you start your search with those who are Certified Financial Planner® licensees (i.e., those who use the CFP® designation). Follow that with a check with state security regulators: Go to www.nasaa.org and click on “Check Your Broker or Adviso”r. Next, interview the advisor in depth. Make sure you understand clearly how he or she will be compensated.

Be wary of asking for references. Unless you know someone personally, a reference is probably not worth much. Some state regulatory organizations frown on advisors giving references unless the advisor discloses his entire client list. And, they can’t disclose their client list without their clients’ approvals. So, if an advisor gives you a reference, be very skeptical.

With proper due diligence, you can find a good advisor you can trust. Just be sure you take the time to do it thoroughly.