Written by Ethan S. Braid, CFA
The author randomly selected 100 "vice president" financial advisors from five of the largest brokerage firms and then profiled those advisors for their education, titles and credentials. The results are disappointing. Over 60% of those studied are deficient with respect to a formal education in analytical business disciplines such as finance, economics or accounting. Yet many in the study call themselves, "portfolio managers."
One of the first things that I noticed when I started my career in the investment advisory field back in 1997 was that there seemed to be rather large discrepancies in terms of educational background between the financial advisors (FAs) in my office. As the years went by and I came in contact with ever larger numbers of FAs, I became increasingly convinced that anyone could become an FA, regardless of their education so long as they could influence people to open accounts and buy various investments. In other words, salesmanship was the number one criterion necessary for getting hired as an FA. To validate my theory, that any degree works, I researched the educational backgrounds of 100 "vice president" FAs in the Denver, CO market. The FAs were randomly selected from 5 of the largest brokerage firms. The only criteria an FA needed to meet to be selected for the study was that the FA had to have the marketing title of "vice president" at his or her firm. Vice president FAs were selected because many investors perceive, falsely, that vice president FAs are somehow more qualified to provide financial advice. One of the goals of this study is to show that virtually anyone can become a vice president at a brokerage firm regardless of his or her education and skill set.
Before I dive into the findings of my research, what is a "vice president" anyway?
Too many times I have encountered investors who were very confused about what is necessary to become a "vice president" at a brokerage firm. For example, I recently met with a prospective new client who is a cardiologist. This gentleman had been investing with a stockbroker (also called FA) employed by a large brokerage firm. When I asked the doctor to describe the educational background and qualifications of his current FA, he replied to me, "my FA is a vice president at his firm." Unfortunately, the doctor, like so many other investors, falsely presumed that because his FA used the marketing title "vice president" the FA was somehow extremely well qualified to give him advice. Sadly, I have seen this movie many times in my career. The doctor was shocked when I explained to him that there really is no educational hurdle or skill set needed for an FA to use the "vice president" marketing title when employed at a brokerage firm. I myself had been a vice president when I worked at a brokerage firm. The year that I produced over $500,000 in commissions and fees for the firm I got a congratulatory email from my manager at the time informing me I was a vice president! No education or skill set needed. The only hurdle was generating enough commission to meet the firm's vice president marketing title threshold. Over $500,000 in commission and you were a vice president. Sad but true.
Now, to get to the study, lots of undergraduate degrees...
Bios were researched by reviewing FAs' company websites, LinkedIn profiles and other social media. Of the 100 FA bios researched, 99 had at least an undergraduate degree. Only one individual did not have a four year degree. 33 of the FAs only indicated on their profiles that they had either a BS or BA degree and did not specify the field of study. For the 66 FAs who did list their field of study, a total of 17 different undergraduate degrees were represented.
The undergraduate degrees were as follows:
Business Administration 25
Chemical Engineering 1
Industrial Management 1
Political Science 1
Social Science 1
With this many fields of study represented, it becomes clear that what one studies in undergrad will not prevent one from becoming an FA. The majority of FAs appear to have a general business background as their field of undergraduate study. Of the 66 FAs where the degrees were known 38% had earned a degree in business administration.
Becoming an FA is not like other professions such as law or medicine...
Consumers would be well served to understand how the financial advisor profession differs from more established and better known professions like law & medicine. To get into law school or medical school, a very high educational barrier exists and outstanding scores on standardized tests must be achieved. While it is true that any undergraduate degree can be pursued by both physicians and attorneys, certain core competencies must be demonstrated before acceptance to law or medical school. In the case of physicians, the student needs to have studied in undergrad: biology, English, physics, and chemistry through organic chemistry. Additionally, the student must score exceptionally well on the MCAT (medical college admissions test). Attorneys have no required undergraduate coursework but need to demonstrate high academic achievement in undergrad and also score well on the LSAT (law school admissions test). Getting into law or medical school is also only the beginning. Many years of tough work lie ahead before the student ever gets to "practice" on the general public.
In stark contrast to the professions of law and medicine, there is no requirement to attend "financial advisor" school before practicing as an FA. The only requirement to becoming an FA is to pass the licensing exams. Once you pass, you can practice! The series 7 general securities representative exam is the licensing exam most aspiring FAs need to tackle after they get hired at a brokerage firm. This exam has nothing to do with actually giving advice. Instead, this very easy test is concerned with business functions such as solicitation rules, establishing suitability for a customer (so the FA can then sell products that are "suitable") and verifying customer transaction order instructions. Passing this exam is not an academic feat. I would equate the exam itself, including the time necessary to study and pass, to a 2 credit hour freshmen year undergraduate course in a non-technical field of study.
What about graduate degrees?
Twenty-six of the 100 advisors reviewed had a graduate degree.
The graduate degrees were as follows:
Masters (field of study not given) 3
MA psychology 1
MA Finance 1
MA Geology 1
MS Financial Planning 1
MS Management 1
Overwhelmingly the MBA is the preferred vice president FA graduate degree of choice. However, it should also be clear that a graduate degree is not needed to become a vice president FA. A full 74% of the FAs in the study had no graduate degree. Additionally, it appears that geologists, managers and psychologists can excel in the vice president FA role too.
Were there any doctorates?
Yes. One person had a PhD in finance. One out of 100 is known as the outlier for those interested in statistics.
There are numerous financial designations, but are they all the same?
Fifty-eight FAs in the study had at least one professional designation. Forty-two FAs had no designation. There were a total of 8 different designations represented in the study.
The professional designations were as follows:
With 42% of the FAs studied not having any designation it is clear that lacking a professional designation will not impede one from becoming a vice president FA. On the other hand, does having a professional designation help FAs to gain more clients and/or sell more products for his/her firm? Possibly. That question however is beyond the scope of this research project.
Consumers should be aware that not all FA professional designations are equal! Some, such as the CPA or the CFA designation are extremely rigorous. The CFA program is a globally recognized, graduate level program that takes a minimum of two years to complete and an average of 900+ cumulative hours of study time. Other designations can be far less challenging. Some can even be completed in as little as 2 or 3 months with relative ease.
What about all the fancy marketing titles?
There are many fancy titles for FAs these days. A sample from the advisors studied includes: "Wealth management advisor," "private wealth advisor," "investment officer," "managing director – wealth management," "family wealth director" and "senior financial advisor." But what do they all mean? Of the 100 advisors studied, 26 referred to themselves as "portfolio managers." Yet only one of the FAs calling himself a "portfolio manager" had the CFA designation, which is considered the gold standard for persons seeking a career in traditional portfolio management. Furthermore, 58% of the portfolio manager FAs did not have a graduate degree and one FA did not even have an undergraduate degree. Two portfolio manager vice president FAs had no education relative to portfolio management and also no professional designation. They merely had undergraduate degrees in marketing and business administration, respectively.
What I had long suspected is true, any degree works to get into the FA profession. Greater than 60% of vice president financial advisors lack a strong formal education in analytical business disciplines such as finance, accounting or economics - especially at the graduate level. Degree programs such as finance, accounting and economics help build a solid analytical business foundation from which a person can then develop the necessary skills to give investment and planning advice. If more than 60% of FAs are lacking this critical educational foundation, then the consumer must do his or her homework when interviewing potential financial advisors. The ease of entry to the profession further complicates matters when trying to select an FA. Do you really want someone who studied communications or geology managing your wealth? To protect themselves, the consumer must be ready to ask tough questions regarding how and why the FA being interviewed is even qualified to provide financial advice. Being licensed and using marketing titles does not equal a skill set or qualifications! As the saying goes, "buyer beware."
Ethan S. Braid, CFA
HighPass Asset Management
800 – 672 - 7916
About the author of this article.
Ethan S. Braid, CFA is the founder of HighPass Asset Management – an independent, fee-only, registered investment advisory firm with a fiduciary duty to the clients it serves. Mr. Braid has been passionate about managing client investment portfolios and providing customized financial planning advice since he started working in the investment industry over 15 years ago. Mr. Braid earned a BS in finance from Robert Morris University, an MBA from Cleveland State University and he is also a CFA charterholder. The CFA program is a graduate level, globally recognized, multi-year program with a focus on investment knowledge. Candidates for the program commit an average of 900+ hours of cumulative study time to complete all three levels.
Mr. Braid is devoted to being an expert in the field of wealth management for high net worth individuals and families and for many years, has read one book per month on subject areas such as: estate planning, retirement planning, investment analysis, mergers & acquisitions and behavioural finance. Mr. Braid also has a passion for business history with a focus on the late 19th & early 20th centuries. To date, Mr. Braid has read 61 books on the subject areas above.
When Mr. Braid is not helping clients, he enjoys: cooking, wine, exercise, his yellow Labrador retriever, fly fishing, hiking, travel, playing guitar, snowboarding and duck hunting. Mr. Braid is a committee member of the Denver Chapter of Ducks Unlimited.
This article is provided by HighPass Asset Management for informational purposes only. No portion of this commentary is to be construed as a solicitation to buy or sell a security or the provision of personalized investment or legal advice.