The stock market’s boom over the last few years is no secret, with many indexes continually making new all-time highs. But there is another boom occurring within the finance industry-the growth of professional designations and certifications. You can become ‘certified’, ‘chartered’ or ‘accredited’ in everything from life insurance and annuities to estate planning and fraud prevention.
To help keep track of them all, the Financial Industry Regulatory Authority (FINRA) has included some basic information on 170 different financial designations on their website.1 Contrary to our prior article on which financial designations should see increased demand, here are a few that we believe face challenges going forward.
CMFC-Chartered Mutual Fund Counselor
Chances are you have never heard of this designation, but it is surprisingly popular. The Chartered Mutual Fund Counselor, CMFC, is issued by the College for Financial Planning with approximately 6500 program graduates. The program offers financial professionals a better understanding of mutual funds and the knowledge to skillfully compare and recommend mutual funds to clients.
The problem is, the appeal of mutual funds has probably peaked. While the mutual fund industry is still enormous, with over $15 trillion in assets under management, financial advisors and 401 (k) plan sponsors are looking at ways to add cheaper, better performing investment options.2 Consequently, actively managed mutual funds have seen a net outflow of investment dollars over the last decade while passive investments, including many exchange traded funds, have seen large inflows.
There are two things working against mutual funds-performance and cost.
Given the persistent climb in equity markets, fewer and fewer actively managed mutual funds actually “beat the market” (only 35% of actively managed funds beat the S&P 500 Index according to a Kiplinger article).3
Despite the underperformance, actively managed funds are also more expensive for investors than most passively managed ETFs. The average actively managed mutual fund charges investors just over 3% in fees, according to Wealthfront research (citing a Lipper Study).4
Indexed, passive investments often have expense ratios of less than one-half of one percent and can be traded commission-free at many discount brokerages. Long term, this fee discrepancy adds up to large sums of profits lost for the actively managed investor, all else equal.
Passively managed fund companies are benefiting, as witnessed by early passive investment advocate, The Vanguard Group. Led by their bellwether product, the S&P 500 Depository Receipt, ‘SPY’ which tracks the S&P 500 index. The company, founded by Jack Bogle, has seen assets under management swell to over $4 trillion.5 And for good reason-the SPY charges investors an expense ratio of just 10 basis points.6
The main headwind facing the CMFC program is that the underlying product is considered to be questionable by many. Further, the program’s cost is not cheap with an enrollment fee of $1,260. And if you don’t pass the final examination, a $100 exam fee is charged for all subsequent attempts.
Still, the program does have some positive features. For one, the curriculum can be viewed entirely online (although you still have to physically take the final exam at one of their approved test centers). Second, there is some history behind the designation, which began in 1996.7 And since the College of Financial Planning is also the governing body for the CFP (Certified Financial Planner) program, earning this designation allows you to opt out of up to one-third of the CFP’s continuing education requirements.
This could be a valuable designation if you were to work directly with mutual fund industry, for example as a mutual fund wholesaler, but otherwise the knowledge learned in the Series 7 exam or certainly the CFP or CFA exams would cover the information in this program.
CAP- Chartered Advisor in Philanthropy
The business of philanthropy has grown immensely over the years, especially as the equity markets have recovered. Not surprisingly, there are certifications dealing with the financial issues of philanthropy. One example is the Chartered Advisor in Philanthropy (CAP) designation. It is awarded by The American College and is comprised of three graduate level courses.8 They are ‘Gift Planning in a Nonprofit Context’, ‘Planning for Impact in Context of Family Wealth’ and ‘Charitable Giving Strategies’.
But the program’s cost is anything but nonprofit-the bundled cost for purchasing all three courses is $3,600. Granted, this does include all study material and exam fees, assuming you pass on the first try. The prerequisite qualifications state that you must be engaged in working for three to five years prior in areas such as charitable planning, investment management or fundraising.9
Of course, charitable contributions aren’t entirely altruistic. The IRS allows substantial tax deductions allowed for qualifying contributions, which appeal to the wealthy. But there is uncertainty going forward with the age-old tax deduction for charitable donations.
While Donald Trump’s tax policy is still in limbo, there is no denying he has campaigned on a strategy of major reform. There are a number of different possibilities, starting with increasing the standard deduction.
The Tax Foundation’s Kyle Pomerleau told Business Insider-“by increasing the standard deduction, it reduces the number of itemizers.”10
Another possibility is that Trump’s policy would ‘cap’ itemized deductions. The amount of the charitable deduction could also be limited to $200,000 for a wealthy, married couple.11 This could make them think twice about major gifts. And if Trump lowers the tax rate for the wealthy, it also portends trouble for charities because these lower tax rates mean the donation’s deductible impact is lower.12
Any of these scenarios could lead to lower overall donations and the necessity for financial guidance on such matters. This is worrisome for the business of philanthropy going forward. While an outlier possibility, the plan could eliminate the deductibility of charitable deductions altogether and/or mortgage interest for housing.13
With all of the red flags and uncertainty surrounding philanthropy at this stage, the necessity of the CAP designation is in question. And given the cost of the program, undertaking it may not make sense unless you work for a charity or are the CIO of a family office.
CAS – Certified Annuity Specialist
The annuity space can be complicated for the average investor, even financial and insurance professionals. There are indexed annuities, variable annuities, fixed annuities and each life insurance company (the issuer of most annuities) has their own specific spin on each.
One program is designed to assist in the basic understanding of annuities-the Certified Annuity Specialist, administered by the Institute of Business and Finance, located at icfs.com.14
The CAS designation is presumably targeted to financial advisors, considering one of the listed program benefits is the ability to be listed in their broker referral service.
Their website has limited information regarding the number of professionals that have completed the course. Usually, this is a marketing opportunity for the more popular designations. Further, the program takes just 15 weeks to finish and the exams are completed online, according to their website. Although the material is focused on one financial area, annuities, this is a pretty quick time frame, especially when the cost is $1,365. And a search on LinkedIn found just few insurance and financial professionals with the CAS designation, so there does not appear to be major adoption.
The course began in 2006 but the bloom has come off the rose for many annuities as concerns about high fees and suitability in IRAs (redundant tax deferred benefit) come to light. We believe that everything you’ll need to know about annuities will be covered in the Certified Financial Planner program or through the required Series 6 or 65 licenses.
There are some positive aspects of the designation. The CAS has been around for over a decade and, according to the IBF website, and qualifies as continuing education credits for the CFP. And if you are looking to work specifically with annuities it might be valuable.
There is concern from some in the financial industry about all these designations. Investor advocate Jack Waymire wrote an article for Next Avenue funds on the subject. He is leery of most financial designations and considers 88% of them as either ‘mediocre’ or ‘low quality’.15
Waymire mentions a few things to watch out for when assessing credentialed programs. First, the program should have an ‘.edu or .org’ address.16 He also warns warn of a program centered on just one specific investment class (he mentions annuities, specifically).17
The three financial designations in this article may work for some financial professionals but it likely won’t be a determinant in advancing a career in finance, in our opinion. The main reason is that each faces headwinds in the growth of the main underlying product. Our favorite designations, in terms of value, are listed in a prior article entitled “Three Financial Designations to Watch”.