How to Detect Fake Financial Advisor Degrees, Credentials, and Ratings

Fake Credentials Can Get You Bad Financial Advice

Fraudulent ID
Check for fraudulent credentials before investing your funds. Fanatic Studio Collection Mix/Getty Images

What do financial advisors know about you that creates a major, hidden risk? They know you want a financial expert who has specialized knowledge and services that produce competitive rates of return for a reasonable amount of risk and expense.

That’s fine, as those are rational expectations. But what happens when the advisor is not a real expert? That is where the hidden risk comes in. It is an even greater risk for retirees, who cannot afford to put their retirement money into the wrong hands.

A financial advisor who is not a real expert has a major marketing problem. He or she is not competitive against real financial experts. Telling you the truth about this lack of knowledge will kill the sale. This makes it tough for him or her to make money from your assets.

Advisors who aren’t real experts will often use two marketing tactics to minimize the impact of this “problem” on their sales results.

  1. One is to tell you that they are a financial expert even though it is not true. This is called misrepresentation.
  2. The other is to withhold this information from you and hope you do not ask the right questions. This is called omission.

Advisors are not supposed to misrepresent or omit information, but it happens every day. These tactics help advisors make more money and their risk of getting caught is extremely low. No regulatory agency (FINRA, SEC) can enforce what is and is not said to you.

What happens if you ask for documentation that proves the advisor is a real expert? This creates another marketing challenge for advisors who do not have the proof you are seeking. They need another creative solution.

Unfortunately, there is a fast, easy, cheap way to create the proof. They buy fake credentials.

Here’s how you can detect fake degrees, fake certifications, and fake five-star ratings.

Fake Degrees

You have heard of diploma mills. Advisors can buy fake BA, MBA, and PhD degrees for small amounts of money. The advisor uses the degrees to prove he or she is a financial expert. It works when you assume the degrees are real.

Of course, you don’t want to believe that this friendly, seemingly smart, savvy financial advisor would make something like this up. It happens, though. It’s best to check no matter how much you like the person.

Tip: Check the accreditation of all schools that you have not heard of through the database offered by the U.S. Department of Education. Go to the school’s website to determine if they award degrees with little or no work. Contact the school to determine if the advisor actually earned a degree from that institution.

Fake Certifications

Paladin Research (an organization that rates and vets financial advisors) has identified more than 250 certifications and designations that are used by financial advisors. Paladin estimates at least 35% of the certifications are defunct or bogus.

More letters after an advisor’s name do not mean he is a real financial expert. The media calls the letters alphabet soup because very few investors know their actual value.

As far as retirement goes, in recent years there has been a rash of new “senior” related designations and retirees need to be particularly careful. Like degrees, it is dangerous to assume the letters mean the advisor is an ethical expert, and “senior” related designations do not necessarily mean they are a retirement income expert.

Tip: More letters do not mean more expertise. More letters could mean the person is less ethical. Check the quality of credentials you are not familiar with. Paladin produces a research report and quality rating for more than 250 certifications and designations.

Fake 5-Star Ratings

Less ethical advisors can buy 5-Star quality ratings the same way they buy fake degrees and certifications. They hope you do not dig too deep to determine the requirements for their quality ratings.

Tip: The only vetting and rating process that has been reviewed by the Securities and Exchange Commission belongs to Paladin Research & Registry. Advisors must score in the 90th percentile or higher when Paladin rates the quality of their credentials, ethics, and business practices. Paladin’s vetting process includes reviews of FINRA, SEC, and state records.

Best in Class

Some advisors are listed in magazines and other publications that represent them as the best in their community, state, or in all of America. Do not assume the magazine has conducted any meaningful due diligence. In fact, some publications develop lists based on assets under the advisors’ control. Assets have nothing to do with competence or ethics. Most of the time it is a reflection of the advisors’ marketing efforts.

Tip: If you are going to give credence to a list in a magazine do your homework and make sure listings are based on credentials, ethics, business practices, and services. Credentials impact your results. Ethics impact the advisor’s trustworthiness. These are the categories of information that impact the achievement of your goals.

This article comes to us courtesy of Jack Waymire, author of Who's Watching Your Money? (John Wiley, 2003) and founder of Paladin Registry. Since 2003, Paladin Registry has been a FREE resource for individual investors who are seeking 5-Star rated planners and advisors who provide competent, ethical financial advice.