Many Americans lack the skills to effectively manage their money and would like some help. It is likely that they don’t seek it for two reasons: (1) They view the costs as prohibitive and (2) They are unsure about how to find an advisor they can trust. Both concerns are understandable. We focus here on the second one: How can you find an advisor you can trust?

To find a qualified accountant most people rely on credentials and look for a Certified Public Accountant (CPA). Finding a qualified financial advisor isn’t as easy. We’ve written about this before, yet we were surprised by a recent Wall Street Journal article (“The Credentials Racket” by Jason Zweig and Mary Pilon, Saturday/Sunday, October 16-17) that noted there were now 95 different “professional” credentials for financial advisors compared to 48, back in 2005.

The most commonly recommended certification, without question, is the Certified Financial Planner (CFP®) designation. Other well-known designations often cited along with the CFP designation are the CPA and CFA (Chartered Financial Analyst) designations. The latter two, however, do not require the multiple-discipline study required of the CFP program.

The Wall Street Journal article points out that the CFP, CPA and CFA credentials require a much more rigorous program in order to become certified. Certificants of the CFP program are required to take the equivalent of fifteen credit hours of undergraduate study followed by a 10 hour, two day exam. Ongoing CFPs must complete 30 credits of continuing education every two years, including a two credit course on ethics.

In contrast, the article discusses the less-rigorous requirements for certification as a Certified Retirement Financial Adviser (CRFA), which requires a 100 question exam requiring only forty to seventy-five hours of preparation.

Finding an advisor with the CFP certification is just the start. We recommend you find someone who has worked previously with the advisor and check with state regulatory authorities to make sure the advisor is properly registered and has not been disciplined for unauthorized activities. Ask for a copy of their SEC Form ADV Part II which all financial advisors are required to provide prospective clients.

Find out how they charge for their services. Those who charge fixed or hourly fees are usually preferred. Next, would be fee-based advisors, who charge a percentage of assets managed. With those who charge commissions, there is always the question of whether a recommendation is being made solely because of the commission that the advisor will receive. Be sure to ask also about the fees charged by the funds that the advisor recommends.

In summary, don’t be impressed by a long string of designations following an advisors name. And, don’t stop your due diligence just because a friend recommended someone with a CFP designation. Dig deeper into their background and how they charge for their services.

“CFP is a federally registered trademark of the Certified Financial Planner Board of Standards, Inc.”