Seniors have long been at risk from unscrupulous financial professionals claiming to have knowledge they don't really have. Now, however, state securities regulators are doing something about it.

Recently, the North American Securities Administrators Association announced a model rule focusing on the various designations and credentials that financial advisors use to suggest that they have specialized knowledge of issues that are important to seniors. A recent Dateline NBC special described some of the questionable tactics that seniors have to deal with in choosing an advisor, including puffed-up titles that take little more than a few hours of classes and a fee.

What the rule does
The NASAA model rule covers a broad array of practices. The rule prohibits advisors from using any nonexistent or self-conferred certification. Also banned would be any designation that "indicates or implies a level of occupational qualification obtained through education, training, or experience" that the advisor doesn't actually have.

Furthermore, the proposed rule would disallow designations obtained from organizations that are "primarily engaged in the business of instruction in sales and/or marketing." In addition, reasonable standards for competency would be required, along with monitoring designees and minimum continuing-education standards.

The rule comes in response to confusion among a mass of different designations and credentials. For instance, according to one state regulator, becoming a "certified elder planning specialist" was as easy as paying a $2,500 fee and attending a weekend seminar. Regulators also cited the ability to have books ghost-written for advisors to suggest additional expertise.

Similarly, Massachusetts regulators have argued that some advisors are misusing the "certified senior advisor" designation. A spokesman for the Society of Senior Advisors argues that the credential wasn't meant to suggest financial expertise, but the Massachusetts investigation concluded that it is used primary as a marketing tool to imply expertise with senior issues.

Hard to know
Unfortunately, it can be tough for seniors to figure out which designations are meaningful and which aren't. For instance, becoming a "chartered senior financial planner" requires a three-day course and a test based on an official textbook. Yet the website for the group that confers the designation gives somewhat inconsistent information about what the designation means. On one hand, the website says that advisors "will be able to properly guide [clients] with their Asset Protection, insurance, and Advanced Retirement Planning strategies." Yet it also says that the presence of the word "senior" is meant to imply "that our members have been educated in more advanced retirement planning, insurance, and asset protection strategies, not the age of a target client base."

One major question is the extent to which annuity companies have a duty to oversee the practices of advisors who sell their products. Although the Dateline special singled out agents selling Allianz (NYSE: AZ) annuities, other large insurers, including ING (NYSE: ING), Allstate (NYSE: ALL), Principal Financial (NYSE: PFG), and Hartford Financial (NYSE: HIG), also get significant income from annuity sales. And though many insurers have no direct control over independent salespeople who sell their products, state regulators are concerned that insurers have financial incentives to encourage marketing campaigns that increase sales volume -- even if they sometimes mislead seniors.

In the end, it's up to seniors to protect themselves from advisors who claim knowledge they don't have. But the NASAA rules are a step in the right direction to protect seniors at risk.

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Fool contributor Buz Livingston, CFP, appreciates your feedback. As a fee-only financial planner, he sees too many instances of inappropriate investments among seniors. The Fool's disclosure policy helps protect you.