Dave Ramsey and ELP kickbacks...ethical? | Bloggers Lair | Yakezie Forums

In the wake of the Suze Scandal, I was thinking more about Dave Ramsey. I really like his get out of debt advice. He doesn't mess around here.

His investment advice is lacking, though.

His ELPs pay Dave a kickback to be listed as "endorsed local providers." I don't know how much they are even vetted by the Dave staff.

Secondly, these ELPs push investments with high front-load fees.

I got in touch with my local ELP and he told me for investments under $50k, their fee was 5.33%. Are.You.Serious.

There is NO reason anyone should be paying fees of that sort (am I wrong?).

See his ELP FAQs

I think the discussion has two parts.

Part 1 – Should the ELPs be paying a fee to be listed as an ELP.  From a provider standpoint, it's a form of advertisement, and I think, many professional organizations have some sort of "membership" fee that pays for organizational costs such as vetting.  In this case, I don't see anything wrong with the fees for ELP listing.  My opinion might change on that, however, if the fees are commission based in some way. 

Part 2 – The fees charged by the ELP.  Less fees is better.  As a financial advisor of sorts, Dave, should be teaching the people how to avoid fees and what investments don't carry fees.  In a way, it is a bit of a misdirection by him. 

Depending on how you see the qualifications for being an ELP, Part 2 might just be a part of the territory.  However, if the ELP listing fees are commission based, and Dave (or LAMPO) profits directly from the fees in Part 2, it's no better than what Suze did. 

I'd be interested to see what the opinions of the financial advisers / investment advisers of Yakezie are.

Sorry everyone, I had to sign up just to shed some light on this issue you are talking about. I think everyone is a little confused here. The fee that you are most likely talking about is a front load sales charge on a mutual fund. This is a very normal thing. I'm sure Dave has paid the same amount for his mutual funds several times over. This is common practice among every, single mutual fund company. A little something about mutual funds: you can choose the share type when you buy them (A shares, B Shares, or C shares).

A shares: A shares carry a front-load sales charge. You pay 4-6% up front when you purchase the mutual fund. Mutual funds contain an internal expense that most financial advisers will not tell you about. The internal charge of an A share is typically (0.55%-1.5%) a year. Example: you have $100,000 invested. Each year they will take out $550-$1500 for their management fees (they take a little bit out daily, so you never see these fees, however if you read your thousand page prospectus, you'll see it). These are the most common types of shares, and typically the cheapest for long-term investors. I'm assuming this is the type of investment that was recommended, and is actually one of the cheapest long-term investments that you can buy.

B shares: B shares are slowly being phased out of the mutual fund industry because of fraudulent sales tactics. I won't talk about these. Many companies don't even offer them anymore.

C Shares: C Shares have no front-load sales charge (you pay nothing up front) , however there is a catch. The internal expense of a C share is 1.5%-2.5% a year. Example: you have $100,000 invested. Each year they will take out $1,500-$2,500 for their management fees. This is only a good option for you if you plan on taking your money back out within 5-6 years. After 5-6 years, the A share becomes the cheaper investment for the investor because of the internal expenses.

So in conclusion, that is not an overpriced mutual fund. You're paying a mutual fund manager who has experience managing billions of dollars to professionally manage your money. Also, ELPs do not pay Dave part of their commission. They pay a flat fee of $300-$500/mo for each territory that they control, and receive 10-15 referrals a month from it. Coming from an Investment Adviser, Dave has pretty solid financial advice, and I rarely disagree with him. I'd be happy to answer more questions if people have them.

An appropriate request. I am a licensed Investment Adviser Representative. I hold the following licenses if they mean anything to anyone:

State Life insurance license, Series 63 (State securities license), Series 6 (Federal securities license for mutual funds and variable annuities), Series 7 (Federal license for Stocks and Bonds), Series 65 (Investment adviser License. I can legally charge a fee for investment advice).

I have voluntarily facilitated several Dave Ramsey FPU classes, but have no monetary interest in promoting him (yet). I have applied to be an ELP. I actually found this forum while trying to figure out how much it costs to be an ELP.

If you really must know, I can private message you my CRD number so that you can look me up on the FINRA website to confirm all my licenses, but I'd rather not give out my name on a public forum.

I'm a Dave Ramsey "trained" counselor and he wanted to charge my firm for being a Coaching ELP last year. Our original agreement before that was that "coaches" didn't have to pay a fee and we did receive leads from Dave Ramsey for about 4 years under that agreement. Years ago we chose not to be the investing ELP because we didn't want to pay him a fee and we were on his site anyway (for free) for the coaching side of things.

That said, his stance on upfront commissions is pretty simple: he believes that if you stay in the SAME funds for 10-15 years then the upfront commission isn't a big deal. The other option is paying a fee-based advisor something like 1% a year for all of your assets, every year. Over the same period of time you'd pay the fee-based advisor 10% (over 10 years) OR if you went with the commission advisor and never changed funds you'd only be charged 5.33% as in your example.

That's his thoughts on the deal…

I just read Pret's post and he's right on with all of those class A, B, C shares. Frankly, we're a fee-based firm and I think some people get taken advantage of when they get charged up-front commissions. Typically, in those scenarios if you decide to sell and buy a new mutual fund, you'll get charged the commission all over again.

I also like WorkSaveLive above am a DR trained counselor/coach. I work some of his leads as a subcontractor from an ELP coach in my area. It is a referral system and even I had to sign off on several documents from DR and agree to certain standards to work with the potential leads + I had already spoken with 1-2 people at DR HQ, so a relationship was already there. 

I can imagine the other ELPS have similar circumstances, requirements, and interviews. There is no scandal, just a paid referral system. 

Sense to Save, I'm not sure about the 5.33% fees…is that just the fee taken out of your initial mutual fund investment? If you get over 50K does that % go down? 

If you have a problem with the fees. You can always DIY or go with Index Funds. 

His investment advice is pretty good actually to get you started if you plan on investing for the long term, but his main focus is on debt reduction. 

Post edited 10:23 am – June 1, 2012 by JT_McGee

I think they're borderline criminal. 

1. Advisers participating in the ELP cannot be RIAs. And the reason for this is one of disclosure. If Dave Ramsey were to accept RIAs into the program, Dave would have to make the financial relationship between him and advisers much more transparent. This is all kinds of shady. Keeping the program closed to people who operate a fee-based firm is not doing his followers any favors, but it does allow him to more easily hide his financial relationship with ELPs.

2. ELP "advisers" agree to sell only four different mutual funds from American Century, which are front-end loaded. Anecdotal reports all over the internet say the "advice" is really just a "sign here" kind of meeting where funds are thrown into 4 different funds with different styles with no attention paid to any kind of asset allocation relative to the saver's future retirement timeline.

3. Front-end sales loads do nothing to align the goals of the person seeking advice with the advisor.

4. Dave suggests that people pay a front-end load so they won't be tempted to move money around too frequently. This is the worst excuse for fee-grabbing that I've ever seen. It's like telling someone who is doing a FSBO to sell their home with a real estate agent so that they take a financial hit and are not tempted to move around too frequently. Ironically, up-front loads only encourage advisors to move funds around.

He positions himself as someone looking out for people, particularly when it comes to often misunderstood annuity products that the public sees as expensive. He foolishly makes blanket statements like "never buy a fixed annuity or equity-indexed annuities" even though fixed annuities are a cornerstone to a post-retirement plan, especially for people who got a late start to planning (arguably his core audience).

If I'm going to go full-circle and get it all out, the conspiracy theorist in me thinks he purposefully oversimplifies issues for his own benefit. If Dave Ramsey were truly interested in helping people out, he'd send people to fee-only advisers and just stop commenting on retirement planning alltogether. It''s a topic that''s way over his head. 

It's one thing to make blanket rules that reject mathematics when it comes to paying off small amounts of consumer debt. The loss is a rounding error. To make blanket rules about a million-dollar issue for most people (retirement) is just nonsense.

/rant

Post edited 10:47 am – June 1, 2012 by Jake@iHeartBudgets.net

Good info all around. I'm definiltely a Dave Ramsey fan, but not for his math skills. He is a motivational speaker that helps people who have no hope get on their feet again. I can appreciate that. As for investing, I have not done much of it, but I would rather go to a fee-based advisor to actively manages my account and doesn't just "set it and forget it." I am a tax professional and eventually want to get into the investment field, but I can't see myself earning commissions based on the fund I pick for a client. It's a moral dilemma for me, because on one hand I have to put food on the table, on the other hand I need to pick the best products for the client. If I went fee-based, I could to both.

That being said, I do want to one day be a Tax-ELP for Dave as it is great marketing. :)

WorkSaveLive said:

LOL @JT.

 

I agree completely with the annuity thing. We're "Dave Ramsey coaches" and I speak at FPU classes a lot and meet with a lot of Dave Ramsey fans. If we're working on a retirement plan for somebody and I know they're a Dave Ramsey plan I have to be VERY careful of what I say about annuities because they all have a per-conceived notion about them because 'Dave says they're bad.'

 

It's unfortunate people can't learn to think for themselves and instead form their opinion based on somebody else's thoughts.

It's personal for me. Finance already has an absolutely terrible stigma attached to it. So to see Dave Ramsey rip on variable annuities on the basis of expense (where the expense actually gives you some kind of value: insurance on the performance of the financial markets) and then refer people to high-fee funds (where the similarly-sized fees add absolutely nothing at all) is sickening.

WorkSaveLive said:

I'm a Dave Ramsey "trained" counselor and he wanted to charge my firm for being a Coaching ELP last year. Our original agreement before that was that "coaches" didn't have to pay a fee and we did receive leads from Dave Ramsey for about 4 years under that agreement. Years ago we chose not to be the investing ELP because we didn't want to pay him a fee and we were on his site anyway (for free) for the coaching side of things.

 

That said, his stance on upfront commissions is pretty simple: he believes that if you stay in the SAME funds for 10-15 years then the upfront commission isn't a big deal. The other option is paying a fee-based advisor something like 1% a year for all of your assets, every year. Over the same period of time you'd pay the fee-based advisor 10% (over 10 years) OR if you went with the commission advisor and never changed funds you'd only be charged 5.33% as in your example.

 

That's his thoughts on the deal…

 

I just read Pret's post and he's right on with all of those class A, B, C shares. Frankly, we're a fee-based firm and I think some people get taken advantage of when they get charged up-front commissions. Typically, in those scenarios if you decide to sell and buy a new mutual fund, you'll get charged the commission all over again.

Interesting and makes sense re: the classes.  I read the initial post very quickly and didn't tie the fee together with the load – thinking it was simply the adviser's fee for some reason… My brain is a bit slow today I think…