{"id":1769,"date":"2022-02-15T19:32:32","date_gmt":"2022-02-15T19:32:32","guid":{"rendered":"http:\/\/gpswp.com\/legacyfinancialnetwork\/?p=1769"},"modified":"2022-02-15T19:45:31","modified_gmt":"2022-02-15T19:45:31","slug":"two-great-dave-ramsey-myths-debunked","status":"publish","type":"post","link":"https:\/\/gpswp.com\/legacyfinancialnetwork\/2022\/02\/15\/two-great-dave-ramsey-myths-debunked\/","title":{"rendered":"Two great Dave Ramsey myths, debunked"},"content":{"rendered":"\n

Last month, I wrote about the seven steps Dave Ramsey followers really need to thrive financially.<\/a><\/strong> I was astonished with the amount of interest and debate the piece sparked. To the many who support our voyage, thank you and I\u2019m excited to walk with you down this path, holding America\u2019s Favorite Finance Coach <\/em>accountable for his investment advice. To the critics who believe anyone disagreeing with the guru means they haven\u2019t read his books, listened to his show, or attended his FPU \u2026 you\u2019re wrong, wrong, and right. I have not attended FPU nor do I intend to. I don\u2019t need to smoke a cigarette to know they stink, cost lots of money, and are negative for my long-term health. Financial Peace University is taught by those who\u2019ve mistakenly taken a myth for a truth.<\/p>\n\n\n\n

This sort of mix-up is one that Dave is familiar with.<\/p>\n\n\n\n

\u201cI have heard it said that if you tell a lie often enough, loudly enough, and long enough, the myth will become a fact. Repetition, volume, and longevity will twist and turn a myth, or a lie, into a commonly accepted way of doing things.\u201d<\/em><\/p>\n\n\n\n

-David L. Ramsey III \u201cThe Total Money Makeover\u201d (TTMM)<\/em><\/p>\n\n\n\n

Hmm \u2026 12 percent annualized <\/em>rates of return, 8 percent safe withdrawal rates, no debt EVER, 7 percent mortgage rates used to debunk the tax benefits of mortgage interest, 100 percent stock-based mutual fund portfolios, asset allocation is a dupe, term insurance is better than permanent \u2026 I could keep going but I think you get the point.  Many of Dave\u2019s truths are actually myths, but they\u2019re said often enough and passionately enough that their validity is accepted without challenge. <\/p>\n\n\n\n

Myth No. 1: The Ramsey brand of endorsement benefits clients and<\/em> advisors.<\/strong><\/p>\n\n\n\n

Let\u2019s turn our attention toward a classic Ramsey-backed idea: the endorsed local provider, or ELP. To be or not to be an ELP, that is the question.<\/p>\n\n\n\n

Working with an ELP or an investing advisor (Dave\u2019s fictitious title, not mine) is recommended in Step 4<\/a> <\/strong>of Dave\u2019s seven-step plan. Please note that an investing advisor<\/em> is not the same thing as an investment advisor representative (IAR). <\/em>They get paid to sell <\/em>you something not give<\/em> you advice. But that\u2019s not the real issue here. The real issue is I don\u2019t think Dave actually believes in some of the core teachings he spouts with, as he puts it, \u201cextreme confidence.\u201d<\/p>\n\n\n\n

It\u2019s important to note up-front that Dave\u2019s entire marketing plan points to the fact that his recommended advisors must be commission-based, rather than fee-based. Instead of going into his reasons, let\u2019s take a look at the facts. <\/p>\n\n\n\n

Fact: Investment advisors are prohibited from using endorsement.<\/strong> SEC Rule 206(4)-1(a)(1) of the Investment Advisers Act of 1940 determined testimonials or endorsements are a form of misleading advertising since they only share positive experiences.<\/p>\n\n\n\n

Fact: The statement found on Dave\u2019s site, \u201c98 percent of users highly recommend using an ELP\u201d would most likely be in violation of SEC Rule 206(4)-1(a)1.<\/strong><\/p>\n\n\n\n

Fact: The very term Endorsed Local Providers would also most likely violate the above rule.<\/strong>  I suppose you could argue he could rename them Dave\u2019s Elite Squadron of Advisors. (Dave, if you\u2019re reading this, feel free to use this term. No royalties needed.) <\/p>\n\n\n\n

Fact: If ELPs were IARs they would have to disclose they pay a fee for the clients referred to them by the Ramsey system. <\/strong><\/p>\n\n\n\n

Fact: Working in a fee-based relationship would make it nearly impossible for ELPs to take on the types of clients Dave sends their way. <\/strong><\/p>\n\n\n\n

Fact: Dave states he at some point held the appropriate investment, insurance, or real-estate licensing to give advice in the applicable areas.<\/strong> I could not find a currently registered or previously registered IAR or FA whose full name matched or was from the Tennessee area.<\/p>\n\n\n\n

OK, so, if the name is no longer ELP and we remove Dave\u2019s endorsement (he could still use his name in the agency titling, or advertise the firm on his site and his workshops with much success, I\u2019m sure) and we omitted that 98 percent of users highly recommend an ELP, then his team could work as fee-based advisors, right? Not quite. Even if the necessary changes were made to Dave\u2019s marketing approach, a fee-based advisor would very likely starve by working as an ELP.<\/p>\n\n\n\n

Let\u2019s look at the math behind all of this. While it was impossible to find the exact referral fee paid to Ramsey for the endorsement, multiple Google searches revealed fees ranging from a few hundred dollars well into the thousands. For the purpose of this column, let\u2019s settle on a referral fee of $100 dollars, which seems reasonable compared to other lead sources.<\/p>\n\n\n\n

Now, here\u2019s the math for an American household with an annual income of $48,000 (the average annual wage for U.S. households, as provided by Dave) that is looking to invest 15% of said annual income, per Dave\u2019s Step 4.<\/p>\n\n\n\n