I recently read an article that made me stop and think some about a certain financial industry leader that is supposed to be for the average person. Well, after reading this article it made me stop and think some on the subject. The financial guru in question is Dave Ramsey. Now I have read most of Dave’s books and agree with them for the most part on how to live debt free and save. Now this is where the article goes off course and shows that maybe Dave does not have your best interest at heart.
Recently the Obama administration proposed action that would require financial advisors to act in the best interest of their clients who are saving for their retirement. This is known as the fiduciary rule and was proposed last year to assist in the management 401(k) and IRA accounts. Dave, who is a best-selling author and has a syndicated radio show with over 8 million active listeners, came out against this rule. He stated that it would keep the middle class and below away from being able to afford financial advisor’s advice.
Currently, some financial advisors are paid commissions when they advise people on their retirement accounts. They are also can be paid commissions on mutual funds that they sell to investors that are paid for by the mutual fund company. So, in essence, you may be paying your advisor fees to advise you, and the mutual fund you bought may be paying them a percentage as well. Not really in the best interest of the saver. Such conflicts of what is best for the saver can cost the average saver a total of $17 billion in fees, commissions and bad investment advice according to the White House.
The finance industry argues that the fiduciary rule would restrict access to information from advisors and raise costs for customers. But the important thing to remember here that the only thing the rule would affect is advice that conflicts in nature. And some advisors make money when clients buy and sell in the form of fees. This rule will limit the advisors from advising buy and sell orders that are geared just towards making the advisor fees.
So this rule does not seem to be so bad in theory as it aids the average investor and will help keep advisors from acting in a negative or in a manner that is not in the client’s best interest. So why is Dave against something that will help protect the average saver? It is simple, his business plan.
Dave makes his money not only from his widely popular books and radio show but by using a network of advisors, planners, and agents who work on commissions. These people are Dave’s chosen advisors who pay to be in his local network of providers and thereby make money when Dave recommends them to his followers. They pay him for these referrals.
Now I am not saying that Dave does not give good financial advice to people because he does, and he does a great service to people who are in over their heads with debts. He has some excellent ideas and talks about some excellent ways for people to get out and stay out of debt while saving. The issue here is Dave appears to be against a rule that would assist the very people he aims to assist. I understand this better than some because I am finishing masters in financial planning, so I have a unique understanding of the structures that planners use. As a future planner, I advise you find one who works on a fee-based structure and not one that is commission based. That way the new fiduciary rule will not impact you and your planner.
Dave is not a bad guy, but this new rule will protect the average saver more than it will hurt them in my opinion. I still like Dave’s advice from his books and use it myself to a large degree. But with regards to this rule, I am in disagreement with what Dave says. The rule is a good rule and one that will protect savers not hurt them. And if you are looking for an advisor seek out a fee-only one and you will be better off.
If you have any questions or need any additional information, feel free to contact me.