Dave Ramsey’s advice is a mix of sound financial planning principles and cringe-worthy statements with everything in between.

We continue to recommend Dave Ramsey’s Financial Peace University as an excellent introduction to the importance of getting out of debt and learning to start to save and invest. He is correct on many of his recommendations. On the topic of taking you out of debt to a net worth of $0, he offers fairly good advice.

But on wealth-building financial planning issues, his advice is simply wrong. Alas, you often already have to have financial planning expertise to know when he is wrong.

When Dave Ramsey first started endorsing people offering local financial services, I was surprised that his network quickly filled with commission-based salespeople willing to pay a fee to be part of the network and receive his implied endorsement. Financially the plan must be working, at least for Dave Ramsey and his team. The network now consists of over 700 people and Ramsey’s net worth is estimated at about $55 million dollars. The problem with building such a large network is that you have every incentive to recommend anyone and then let the complaints weed the bad ones out after the fact. Rumors suggest that the network’s vetting is a five minute process where you are told the fees are about $1,000 a month.

Dave Ramsey’s network has since tried to separate financial advisors from all of the other salespeople. The Insurance salespeople, real estate agents, and tax preparers are part of the Endorsed Local Providers (ELP) Program. His website suggests that “ELPs earn Dave’s endorsement through their track record of success and commitment to fantastic customer service.”

But Dave Ramsey separated investment advisers from the ELP into a separate program called SmartVestor. This may be because stating that you endorse an investment advisor on account of their track record of success would be against federal law. Such statements would be a violation of the Securities and Exchange Commission’s (SEC’s) ban on adviser endorsements.

Regardless, Dave Ramsey still slips sometimes and talks about “the financial advisers that we endorse” when he is on the air. Because endorsing financial planners is against the law, his website is more cautious in its disclaimers and describes the SmartVestor program as simply an advertising network for financial advisors.

Dave Ramsey must have had quality issues with those posing as financial advisors on their network. They have even had to specify what advice would not be given stipulating, “that considering potential market returns, premiums, and costs to the client, whole life or cash value life insurance is not a prudent use of most clients’ funds.” The network also asks that so-called financial advisors do “not exclusively offer proprietary products” nor “promote proprietary products over other offerings (1) solely because of a firm policy or fee or commission arrangement in such proprietary products, or (2) when in Pro’s reasonable professional judgment, the proprietary products would not achieve the client’s goals.”

That is a pretty low bar.

I don’t know a single commission-based advisor who would believe, let alone admit, that they recommended proprietary products solely because of the commission they receive. We have written elsewhere how a commission-based environment warps investment advice even without the adviser’s conscious knowledge.

Dave Ramsey maintains that commission-based financial advisers are just fine.

He recommends that you hire a “pro” because, “statistics show that ‘do-it-yourselfers’ are quick to jump out of funds when they begin to underperform. A good professional advisor will remind you why you chose the fund in the first place and prevent you from losing money by buying high and selling low.”

His bar for “pro” is simply anyone who gets paid. In his “How To Find A Reliable Financial Advisor” video, he recommends going to someone who has the “heart of a teacher” rather than a slick salesperson. He does not mention any credentials to look for. He doesn’t even have criteria to analyze them with. Instead, he relies on them being and assumes they are “good people.” It is only after he gets complaints that he boots them out of the network.

His ELP network, unsurprisingly, is filled with salespeople.

We do not recommend either his ELP network or his SmartVestor adviser advertising service.

Instead, we recommend finding a member of the National Associations of Personal Financial Advisors in your area. NAPFA-Registered Financial Advisors must have received a CERTIFIED FINANCIAL PLANNER™ (CFP®) certification or a similar designation, take no commissions, and offer comprehensive financial planning not just investment advice. There may be hundreds of thousands of financial professionals in Dave Ramsey’s network and some of them may be excellent, but there are only about 3,000 NAPFA members in the entire country. Limiting your search to NAPFA-Registered advisors is a quick way to narrow the field of people posing as a financial advisor to a few firms who are committed to structuring their firms to act as a comprehensive fee-only fiduciary.

At least some of Dave Ramsey’s prickliness regarding planners with a CFP® professional is because they are so frequently called on to correct his mistakes.

Recently Carl Richards, New York Times Columnist and author of “The Behavior Gap,” criticized Dave Ramsey for suggesting that investors should expect a 12% return on investments and for promoting commission-based brokers. Other CFPs have criticized other perspectives of his on-air advice.

Dave Ramsey’s reply? “I help more people in 10 min. than all of you combined in your ENTIRE lives #stophating.”

Dave Ramsey is critical of CFP® recipients commenting that: although the CFP® is a rigorous academic credential, some CFP®s can have “paralysis of the analysis.” I view that criticism as a compliment. We believe that in our field there is nothing more important than accuracy. Our first goal is to be accurate. We want to get the right answer. We want to do the task the right way.

This means that when we design a new service, we do careful research, analysis, and peer reviews to ensure that we are approaching the problem the right way. We often write articles with our conclusions to further get the feedback from our colleagues in the financial planning field. If you start taking short cuts on accuracy, it is too easy to get caught up in a snowball of bad decision making.

Many techniques and decisions in our firm have taken years to analyze and implement such as our safe spending rates, freedom investing, asset allocation models, curated buy lists, dynamic tilt, and Roth conversion strategies. We believe that this time was well spent and helped to advance financial planning as an academic discipline.

It is normal that Dave Ramsey gets things wrong in a live Radio broadcast. It is arrogance and stubbornness to attack the correction of a peer while refusing to defend your position rationally. It is a lack of understanding of incentives and human nature to build a referral network of commission-based advisors, charge high fees to be part of such a network, and then think people are going to receive objective advice.

Early in my career, I contacted a local CPA in our area to let them know the services we offered and how we might be able to help some of his clients. “What’s in it for me?” he bluntly asked. “Do you pay a referral fee for my recommendation of your firm? Because I have other financial planners in town that are willing to pay me when I send them clients. That’s how it’s done.”

Wow.

I am glad to know that there are also many firms where that’s not how it’s done.

We refer clients to the absolute best financial professionals we can find. That’s part of the service we provide to clients, not part of our revenue stream. We don’t expect to get paid for such referrals. We don’t even expect to get thanked. The best thanks is when those financial professionals provide the best possible financial service and advice to our clients.

I’ve looked at dozens of financial adviser referral networks like Dave Ramsey’s Endorsed Local Providers (ELP) or SmartVestor Adviser Referral Service. And in most every case the network wanted a pile of money in order to promote a firm in their listing. It has always made me wonder why consumers, if they understood how such a select list of advisers was actually compiled, would use such a list to narrow their advisor selection to those firms willing to pay a referral service to endorse them.

For this reason, we do not recommend using either of Dave Ramsey’s referral networks or even any other referral service.

Meanwhile, we believe the objective screening criteria of NAPFA provides a much safer bet. In our local area, NAPFA firms represent less than 3% of the Registered Investment Advisors.

Photo by Eva Blue on Unsplash