Are more disclosure rules on the horizon for advisors? The Consumer Financial Protection Bureau recommended in a report released Thursday that advisors should be required to disclose information regarding the numerous designations that proliferated throughout the industry, resulting in a confusing alphabet-soup-like string of letters after their name.
The CFPB found that consumers—especially older Americans—have trouble differentiating between the designations. The CFPB made a few recommendations to make them easier to understand.
“With such a bewildering array of titles and acronyms, it is no wonder that seniors are often confused and misled by these titles,” said CFPB director Richard Cordray. “Our research found that the training and standards required to attain these credentials varies enormously.”
At least one of the more established industry associations agreed. “These recommendations mark an important step toward addressing the proliferation of designations, certifications and titles used to mislead, confuse and deceive America’s seniors,” said Kevin R. Keller, CFP Board’s Chief Executive Officer.
The CFPB called for the Securities and Exchange Commission or Congress to set up new rules requiring advisors to provide information on their designations, the meaning of those certifications and the qualifications they impart.
Taking it further, the agency also suggested regulators consider forcing advisors to disclose their fee and compensation structure—including any commissions or performance-based compensation.
“When it comes to senior financial advisers, these specialty titles are anything but transparent,” said Skip Humphrey, assistant director for the CFPB’s office of older Americans.
“In fact, we found that many consumers don’t always understand the differences between different types of financial professionals, like brokers and investment advisers, let alone the 50 plus senior designations that many of those financial advisers add to their titles,” he said.
The CFPB suggested the SEC create a database for consumers to quickly and easily verify the designations. The board pointed to FINRA’s already accessible BrokerCheck tool, saying it does provide users with advisors’ existing designations, but noted that the tool does not currently provide any options for consumers to compare one designation from another.
“A senior choosing between an Accredited Retirement Advisor and an Accredited Estate Planner will likely do so without knowing which one is required to have five years of experience and some graduate level education and which is not – and hence to know who is better equipped to advise them on financial matters,” Cordray says.
The CFPB also recommended that regulators may want to hold advisors with these certifications accountable and set up professional conduct standards, just one of the many suggestions the CFP Board said Thursday that it supported.