Professional designations abound, and clients have come to expect to see them listed after a financial advisor's name. But are they meaningful?
According to a 2015 study commissioned by the Investment Management Consultants Association, "69 percent of investors with more than $1 million in investable assets say it's important or critical for their advisor to hold voluntary certifications in addition to required licenses and registrations."
The website of the Financial Industry Regulatory Authority features a database of more than 160 such designations, with a separate web page highlighting the few that are nationally accredited by either the American National Standards Institute or the National Commission for Certifying Agencies.
So what exactly does "certified" mean? And if a designation is not certified nationally, can it still be trustworthy?
"It's important to understand that a certification is different than a designation," said Sean Walters, executive director and CEO of IMCA, which offers the Certified Investment Management Analyst, or CIMA, certification. The mark, inaugurated in 1988, is held by about 8,000 certificants.
"A designation refers to any letter after your name, which in itself does not imply continued competency," he said. "Make sure a certification has ongoing requirements, which the vast majority do not."
"In the certification world, we use the term 'The 4 E's,'" Walters said. These requirements are:
Also of importance is to look at who's certifying the certifier, he said. IMCA chose ANSI in 2007 to enhance the quality of the certification's brand, to protect the integrity of the program and to formally conform to standards that are strongly recognized internationally.
"A certification should be an assurance to the public of some level of competency," said Kevin Keller, CEO of the CFP Board, which grants the Certified Financial Planner (CFP) designation. The mark, begun in 1972 and now with about 75,000 certificants, has been accredited by NCCA for 20 years.
"We feel the public is better served by this third-party review," he said. "When you think about the business of certification, there are a number of potential conflicts every step of the way."
Keller said a major red flag is when the same organization provides the certification education, the test prep and the continuing education and administers the exam — all for a fee.
"There needs to be a separation of duties," he said. "For example, our education department oversees the colleges and universities that teach our curriculum, while our examination dept oversees the examinations."
Other areas of concern relate to board makeup and certificant ethics, Keller said.
"We have public representation on our board to avoid conflicts of interest in decision-making," he said. "We also have public [transparent] enforcement of ethics issues."
What if a designation is not nationally accredited?
"We follow generally recognized practices for maintaining a designation." said Carol Lee Roberts, CFP and general manager of the Institute for Divorce Financial Analysts, providers of the Certified Divorce Financial Analyst (CDFA) designation, which Roberts also holds. Since inception in 1993, there have been more than 5,000 certificants.
"For example, we do a job study, we have experience and education [including exams and continuing education] requirements, and we have an enforcement mechanism relating to ethical behavior," she said.
The job task analysis, she explained, is a broad survey, analyzed by "psychometricians." The organization enforces its code of ethics in several ways, including information from the field from certificants, following media reports, and self-reporting at renewal time (for example, if a certificant declares bankruptcy).
The Chartered Financial Analyst designation, overseen by the CFA Institute, has been in existence since 1963 and has 134,000 certificants (called charterholders) globally.
"For us, [national accreditation] hasn't made sense," said Stephen Horan, a CFA and CIPM and the institute's managing director of credentialing. "We don't get asked about it.
"And since practitioners are seeking the credential, we think it's passing the market test," he said. "However, there needs to be some valid proof of rigor and relevance," he said.
In terms of relevance, Horan cited the curriculum development process. "The key is to have practitioners involved at every step," he said. "We hold in healthy tension the best of academia and industry."
Regarding rigor, Horan cited:
More than accreditation, Horan said, "what's most important to us is that we're serving and protecting investors."
— By Deborah Nason, special to CNBC.com