Dave Ramsey’s Endorsed Local Provider (ELP) program for investing closed its doors and was replaced with something called SmartVestor™. If you’re considering working with a SmartVestor, you should know your options before deciding.
What is a SmartVestor?
SmartVestor is an advertising service where investment professionals who agree to a Code of Conduct can pay to be listed on Dave Ramsey’s website.
SmartVestors are there to help you invest. But before we get into what they are, first a little background.
Why did the ELP program close?
Keep in mind I don’t work for Ramsey Solutions, so I can only speculate as to what’s going on behind the scenes. But here is what I do know:
With the upcoming Department of Labor (DoL) rules that were passed, there is a ripple effect taking place in the entire investment services community. A shake-up is happening. A lot of investing services have to change the way they do business because of something called the fiduciary standard.
What is the fiduciary standard?
At it’s simplest, it’s a requirement the imperial federal government has passed requiring investing companies and the people who sell investments to do what is in the client’s best interest.
Imagine that! They had to pass a law (more regulations) so that you could keep more of your money.
The Labor Department’s fiduciary rule is aimed at stopping the $17 billion a year the government claims investors waste in exorbitant fees. The idea is that the regulation will stop advisers from putting their interests in earning high commissions and fees over clients’ interests in obtaining the best investments at the lowest prices. – Liz Skinner, Investment News.
That’s great news for you. Of course, the financial services industry was (and still is) in a great uproar about these regulations because they are going to lose money. There are lots of lawsuits going on right now to block this rule from being implemented.
In fact, many of the Dave Ramsey’s Endorsed Local Providers are set to lose huge amounts of money because of the massive up-front commissions they charge in their investments when many better low-cost choices exist.
In response to Dave Ramsey being against the new DOL rules: “If everyone was required to be a fiduciary, all the advisers on his platform would be hurt. Of course he’s going to be against it.” said Carolyn McClanahan, founder of Life Planning Partners.
With the writing on the wall and the future of the ELP program in doubt because of the upcoming DOL rules, SmartVestor was introduced.
Note it wasn’t just ELPs that are getting hit with this new rule. Schwab stopped selling investments with the same huge upfront commissions that ELPs were pushing.
I’ll comment on each of the marketing points of SmartVestor:
- Client-First Mentality: I would hope anyone providing any service would have a client-first mentality
- Build wealth by investing for the long-term: This is the definition of investing, so that’s a good thing.
- Fast, friendly service – You’ll get a response to your questions in 24 hours. Another sign of good customer service which every business should provide.
More investment choices
“SmartVestor Pros don’t just offer a single company’s investment choices. They have access to hundreds of investments to help you reach your goals.”
I was glad to see this. With the Endorsed Local Provider program, you would get sold on high 5.75% up-front commissioned products from American Funds. While I don’t have any details on what investment choices you will be offered by SmartVestor, here’s to hoping you get access to low-cost index funds.
Code of Conduct
This is my biggest issue with SmartVestor, and it was with the ELP program as well:
“SmartVestor Pros are subject to initial vetting by Ramsey Solutions, and they affirm a Code of Conduct.”
With the old ELP program, what did it take to become endorsed?
How much vetting is going on is an open question. One former ELP I spoke with (who asked that his name not be printed) described it as ”a five minute process“ where a Lampo employee ”basically told me how much it cost,“ which, in this case, was about $1,000 a month. – Pound Foolish, Exposing the Dark Side of the Personal Finance Industry, page72.
You can find the Code of Conduct here.
See this line from the SmartVestor Code of Conduct:
“Moreover, neither this Code nor any other aspect of SmartVestor advertising shall dictate, mandate or prohibit any particular product or service offered or provided by Pro to any particular client whatsoever. ”
What that means is the code doesn’t prevent the investing professional from selling you anything, and they have no fiduciary or legal duty to do what is in your best interest.
SmartVestors are only required to follow what is called the suitability standard and be registered with the Financial Industry Regulatory Authority (FINRA).
Let’s compare the SmartVestor Code of Conduct to something that has some teeth.
The National Association of Personal Finance Advisors (NAPFA) is the country’s leading association of fee-only financial advisors. Members are required to follow the fiduciary standard.
…we have developed high standards in the field and each advisor must sign and renew a Fiduciary Oath yearly and subscribe to our Code of Ethics.
What do NAPFA members have to agree to?
- The advisor shall provide written disclosure to the client prior to the engagement of the advisor, and thereafter throughout the term of the engagement, of any conflicts of interest, which will or reasonably may compromise the impartiality or independence of the advisor.
- The advisor, or any party in which the advisor has a financial interest, does not receive any compensation or other remuneration that is contingent on any client’s purchase or sale of a financial product.
- The advisor does not receive a fee or other compensation from another party based on the referral of a client or the client’s business.
Suitability vs. Fiduciary – SmartVestor vs. Fiduciaries
Investment professionals (brokers) that follow the suitability standard can end up with a conflict of interest between themselves and the client. The biggest conflict is with fees.
Under the fiduciary standard, an investing professional would be prohibited from selling you a higher priced product to get a commission or fee, when a lower cost option exists.
Under the suitability requirement which is what SmartVestors must abide by (because they are registered with FINRA), as long as the investment is suitable for you, it’s ok for the investing professional to sell you, even if lower cost options exist.
Remember earlier when I mentioned the most likely reason the ELP program for investing was closed was due to the exorbitant commissions ELPs are charging to customers.
SmartVestors must follow the more lenient suitability rule, not the fiduciary standard which requires investment professionals to put your best interest first both from an ethical and legal standpoint.
The bottom line
SmartVestor is an advertising service. From the website:
SmartVestor™ is an advertising service for investing professionals. Advertising fees are not connected to any commission, portfolio, service, product, or other service offered or rendered by any SmartVestor Pros.
SmartVestor investing professionals are not required to follow the fiduciary standard, but must adhere to a Code of Conduct which is not legally enforceable.
Where should you get help with your investment decisions?
When people ask me on my show for where to go for help, I point them towards someone who has agreed to the fiduciary standard and is legally bound to do what is in their best interest.
You can find good fee-only Certified Financial Planners through one of the following organizations.
Disclaimer: I receive no compensation, advertising revenue, or benefit of any kind from these companies: