When I was 10 years old, my mom would pick me up from piano practice and on the way home, we’d listen to Dave Ramsey on the radio. His enthusiastic voice was a nice change from the bombastic talk radio I usually heard.
But it was the way he explained how to solve his listeners’ debt problems that really drew me in. I’d hear people say that they owed thousands in credit card debt, medical bills and car loans. No matter how much they owed or how little they made, Dave would always find a way to show them how to solve their problems.
I thought he was a magician, even though I was too old to believe in magic.
The Latest Scandal
The Department of Labor announced recently that it would soon require advisors and brokers to disclose any possible conflicts of interest to their clients including how they are paid.
Too often people get confused and assume that anyone offering them financial advice is acting in their best interest. Only those advisors who have stated that they follow the fiduciary protocol are guaranteed to be acting in a client’s best interest. It’s not to say that non-fiduciaries don’t always act in their client’s best interest, but sometimes when money or commissions are involved, lines become blurred and it can be hard (as a consumer) to know if they are truly acting in the client’s best interest.
Ramsey immediately tweeted that this new rule will limit access to advisors, raise the cost of their services, and leave thousands of people without a reputable source of financial advice.
CFP Daniel Wrenne of Wrenne Financial says that Ramsey is against this new rule because it will hurt the advisors that he recommends his listeners use. Ramsey likely gets paid to send leads to these advisors, who operate on commissions instead of fees and do not follow the current fiduciary rules.
Wrenne almost became a Dave Ramsey advisor, but stopped the process when he realized they didn’t want him to act as a fiduciary.
“It’s no surprise he is against the rule,” he said. “It would potentially kill his Endorsed Local Provider business with advisors, which I suspect is a million dollar business.”
Consumers will automatically benefit if everyone is forced to disclose how they’re being paid and when they might have a conflict of interest. The people who lose are those brokers who will have to reveal that they’re not acting in someone’s best interest.
CFP Jason Reiman of GetFinFit said he has worked with “countless individuals and families – mostly military – who have been taken advantage of by so-called advisers” who operate under the same rules that Ramsey’s ones do.
“What’s worse is that the same demographic he’s saying will be crushed by the rule are the very same I’ve seen over and over again in situations NOT in their best interests – clearly,” he said.
CFP Mark Struthers said that the problem nowadays with financial planning is that people who primarily sell products and receive a commission can call themselves advisors, the same way that a licensed CFP who follows the fiduciary rule can say he’s a financial advisor.
“If I cannot call myself a lawyer or doctor without training and following rules that are in the client’s best interest, the same should be true in this wonderful profession,” Struthers said.
Losing a Legend
Hearing this has lifted the blinds from my eyes. I feel like a little kid who’s met her hero only to find out he’s a charlatan. Even other CFPs I’ve interviewed have said that Ramsey was their first introduction to this industry.
That’s why his latest scandal has hit so close to home for so many of us. My parents had a copy of “Financial Peace” on the bookshelves. I read “The Total Money Makeover” while other kids were reading “The Chronicles of Narnia.” When people ask me how I got into financial planning, I tell them about listening to Dave on the radio.
Don’t get me wrong, I still quote Dave Ramsey to my blog readers. I believe that he’s helped and continues to help millions of people conquer debt. But I wonder if he, like so many of our heroes, has succumb to the temptations of his business.
How do you feel about Dave’s recent comments?
Zina Kumok is a freelance writer specializing in personal finance. She has been featured in Lifehacker, DailyWorth and Time, and she paid off $28,000 worth of student loans in three years. She also works with people one-on-one as a money coach at ConsciousCoins.com.