When writing this column, I enjoy using Dave Ramsey's written opinions far more than what he says on the radio.
Unlike live radio, in his column, Dave Says, Ramsey has the chance to think about what he wants to say. He can review each word, sentence and paragraph to make sure the message given is the message intended.
Ramsonites often charge me with not giving Mr. Ramsey enough leeway and encourage me to consider that everyone makes mistakes. While true, written work largely debunks this assertion.
Let's take a look…
In the January 28, 2017 edition of Dave Says, Durnae asks:
"Dear Dave: My husband was recently laid off, and he has $229,000 in a 401(k). He has been told that he should roll it into a hybrid annuity. Is this a good idea?"
Before we jump into this, I must say I do find it fun every time someone brings up permanent life insurance, asset allocation, annuities, or gossip in the workplace. Be careful to only talk about gossip when you're not near Dave because Ramsey once brought a gun to a team meeting as a visual aid to deter gossip. (I invite you to Google it. It's true, promise.) Also, when Durnae references 'a hybrid annuity,' she's likely referring to a fixed indexed annuity.
Back to business. Dave wrote: "Absolutely not! It sounds to me like he's been talking to an insurance agent instead of an investment adviser. There's no reason to put a 401(k) into an annuity. Annuities are there to protect money, as it grows, from taxes. Well, guess what? The 401(k) is already protecting it from taxes."
Where to start? First let me say that my column isn't arguing for or against annuities. I'm using an example about annuities to illustrate how little Ramsey knows about financial products and financial terms. Let's begin with a subtle detail most will miss.
"It sounds to me like he's been talking to an insurance agent instead of an investment adviser."
Ramsey inferred that Durnae's husband should be talking to an investment advisor rather than an insurance agent. This is very interesting because Ramsey has continually made it clear he doesn't advise using an investment advisor.
Basic knowledge of financial products is important when advising people what to do with their money. (Photo: iStock)
According to "Dave Ramsey's Guide to Investing," Ramsey "prefers paying [a] commission because it is cheaper." This means he's recommending a financial advisor over an investment advisor. For those who are unaware, fee based advisers are ALWAYS investment advisers.
Basic knowledge is important when advising people what to do and how to do it. Dave Ramsey is clearly unaware an investment adviser is different than a financial advisor. He went on to tell Durnae to, "find a good financial adviser."
Apparently Ramsey is oblivious to the fact that these two terms aren't interchangeable.
Let's keep going.
Ramsey often says that a traditional IRA, invested in good growth stock mutual funds, incurs "half the fees," of an annuity. I can't fault Ramsey, who didn't know he was suggesting a compensation model he's publicly argued against for years. But fixed index annuities are available without fees.
Annuity pundits might argue caps, spreads and participation rates are all actually fees with other names, since they limit growth. But this is foolish, since "fees" occur in both positive market cycles and negative. No policy holder has experienced a loss due to participation rates, caps or spreads.
Further, they might argue that riders, which many annuities have, come with a fee. But again, not all indexed annuities are purchased with riders. Even more perplexing to the average anti-annuity rhetoric is the fact that there are riders without fees and riders that refund the fee if the rider isn't used.
Lastly, one could argue that surrender charges are fees. But let's face it, you could also drive a car 100 miles per hour without wearing a seat belt. Both are pretty stupid.
Products fees and commissions should be evaluated on a case by case basis, not subject to blanket generalizations. (Photo: iStock)
