If you can’t convince them, confuse them.
- Harry S. Truman, U.S. President 1945-1953
Chauffeur Knowledge.
At the 2007 Commencement to the USC Law School, Charlie Munger, business partner to Warren Buffett of Berkshire Hathaway, explained what he called chauffeur knowledge this way:
I frequently tell the apocryphal story about how Max Planck, after he won the Nobel Prize, went around Germany giving the same standard lecture on the new quantum mechanics.
Over time, his chauffeur memorized the lecture and said, “Would you mind, Professor Planck, because it’s so boring to stay in our routine. [What if] I gave the lecture in Munich and you just sat in front wearing my chauffeur’s hat?” Planck said, “Why not?”
And the chauffeur got up and gave this long lecture on quantum mechanics. After which a physics professor stood up and asked a perfectly ghastly question. The real chauffeur, unable to answer, said, “Well, I’m surprised that in an advanced city like Munich I get such an elementary question. I’m going to ask my chauffeur to reply.”
Munger continues:
In this world we have two kinds of knowledge. One is Planck knowledge, the people who really know. They’ve paid the dues; they have the aptitude. And then we’ve got chauffeur knowledge. They’ve learned the talk. They may have a big head of hair, they may have fine temper timbre in the voice, they’ll make a hell of an impression.
But in the end, all they have is chauffeur knowledge. I think I’ve just described practically every politician in the United States.
And you are going to have the problem in your life of getting the responsibility into the people with the Planck knowledge and away from the people with the chauffeur knowledge.
Before we go any further, it is imperative you understand who is providing the planning advice you are receiving and if said advice is what Mr. Munger calls, chauffeur knowledge. Have you ever been confused as to what your advisor’s credentials are, how they were achieved, or what type of criteria were used to get the “alphabet soup” you find in the financial industry?
Our industry does a terrible job of helping the public understand the difference amongst each firm or people’s primary function. Most families do not realize that most internally driven titles are awarded by how much commission that person generated in the year. For example, vice-president of investment or senior vice president are both based on commission.
In addition, titles like Retirement Planning Specialist are awarded by taking a computer-based test (given by that firm) which takes about an hour to complete, and voila you are an expert in the public’s eyes. There are only a handful of credentials that are overseen by a non-biased, independent board that require continuing education and each has a specific advice category for its designation.
According to the Certified Financial Planner Board of Standards website, the list of designations below includes some recognized by the industry which are achieved through independent sources requiring continuing education and ongoing ethical standards. In addition, to apply for the final examination, some level of either college or graduate coursework must have been completed. (For those professionals in our industry that are reading this, yes, I know there are a few more titles that are independent, but these are the dominant identifiers).
CERTIFIED FINANCIAL PLANNER™ (CFP®):
Certificants are individuals who have met CFP Board’s education, examination, and experience requirements; have agreed to abide by the CFP® Board’s Code of Ethics and Professional Responsibility; and who complete CFP Board’s biennial certification requirements, including continuing education, to use the certification marks. Certificants have passed a one day six-hour exam.
Chartered Financial Consultant (ChFC):
Generally used by financial professionals--including accountants, attorneys, bankers, insurance agents and brokers, and securities representatives--who have earned the ChFC designation by completing The American College’s eight-course education program, met experience requirements, and agreed to uphold a code of ethics.
Chartered Financial Analyst® (CFA®):
Holders of this designation are generally securities analysts, money managers, and investment advisers who have completed the CFA program, a graduate-level, self-study curriculum and examination program for investment professionals that covers a broad range of investment topics. CFA charter-holders are required to affirm their commitment to high ethical standards.
Certified Investment Management AnalystSM (CIMA®):
Offered through the Investment Management Consultants Association, the CIMA certification program is a credential designed specifically for financial professionals who want to attain a level of competency as an advanced investment consultant. The CIMA professional integrates a complex body of investment knowledge to provide objective investment advice and guidance to individuals and institutions. The CIMA certification program requires that candidates meet all eligibility requirements, including experience, education, examination, and ethics.
Now, if your current advisor does not hold any of the aforementioned independently offered titles, it does not mean that he or she is incompetent in the services they are providing you. However, as an investor you should ask the person who you have trusted your family’s long-term financial well-being, “What requirements were needed to achieve the current designation or title you are flashing on your card or media site?”
Unfortunately, the lack of understanding regarding who awards designations and titles, as well as the requirements for receiving them, is what has led to the public’s confusion as to what services and competence they are going to be provided when they initially meet with their financial person. You should question any title or designation to find out how it was received and what it really means.
To put an end to this confusion, my suggestion would be that the clarification needs to be more in line with other professional advice givers. For example, in the accounting industry you are either an accountant or have achieved your CPA designation. If you are an attorney, you have passed the bar examination and are now a J.D. With these other industries, which make up a person’s financial team, it is simple and clear cut. No Alphabet Soup.
This is excerpt from Lou Melone's book – Unpack your Financial Baggage
For more information about the Alphabet Soup of Advisor Credentials, click here
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Disclosures:
Advisory services are offered through Melone Private Wealth, LLC (“Melone Private Wealth”). Advisory services are only offered to clients or prospective clients where Melone Private Wealth and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at https://www.meloneprivatewealth.com/.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
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