Dave Ramsey is a well-known radio personality, author and motivational speaker, known for preaching a gospel of debt-free living to a fan base that appreciates his message and tries to follow his advice.
But Mr. Ramsey also has another appreciative fan base — the legions of financial advisers who have benefitted from his referrals over the years.
Julia Carlson, an adviser in Newport, Ore., affiliated with LPL Financial, read Mr. Ramsey's book, "The Total Money Makeover" about a decade ago and was hooked. "I believed in his philosophy of investing and teaching people to win with money," she said. "It changed how I worked with people."
Ms. Carlson signed up to become what Mr. Ramsey's organization called an "endorsed local provider" and began receiving a steady flow of referrals. Her practice, Financial Freedom Wealth Management Group, has grown significantly, in large part due to her association with Mr. Ramsey. Now with close to $200 million in client assets, Ms. Carlson said that about half of those assets, or $100 million, came to her through Mr. Ramsey's radio show and website. The arrangement proved so lucrative she had to hire a full-time employee just to handle the leads generated by Mr. Ramsey.
Working as a Dave Ramsey associated adviser is not for everyone, Ms. Carlson explained. "Advisers in this program need to be in line with what Dave Ramsey teaches," she said. "If you're in it just for the leads it probably won't work out. People will see through you."
Damon Walker, an adviser with Premier Investments of Iowa Inc., which is registered with Cambridge Investment Research Inc., said Mr. Ramsey's message resonates with clients who have heard his message.
Potential clients, many of whom are evangelical Christians like Mr. Ramsey, come to an adviser's office after being groomed by Mr. Ramsey, whose radio show is now on 575 stations and a variety of digital outlets, almost double the stations it was on 10 years ago.
"I've seen Dave Ramsey people with $100,000 in non-mortgage debt and four years later they are completely out of debt, set up a six-month emergency fund and are investing 15% of their income," Mr. Walker said. "I've seen it a hundred times."
Mr. Ramsey's referral program proved so successful that it recently drew the attention of state securities regulators in Missouri, which had 26 advisers participating in his referral program. The Missouri securities division concluded that from 2010 through 2014, Mr. Ramsey's company, The Lampo Group, "qualified," or acted, as an investment solicitor, and because of its marketing materials, as an independent investment adviser rep, though it was not registered as either.
Last fall, the state ordered Mr. Ramsey's company to pay $50,000 to a Missouri investor education fund and $5,000 for the cost of the investigation. After January 2015 and continuing to the present, Lampo fixed the issue, meeting all the regulatory requirements regarding an exemption for solicitors from registration as an investment adviser rep, according to the Missouri order.
Shortly before that order was issued, The Lampo Group changed the way its referral program worked. Instead of receiving leads, now advisers pay an advertising fee and are part of a directory, called SmartVestor Pros. As a result, they have no exclusivity in their geographic area. Instead of being directed to one adviser, Mr. Ramsey's radio listeners and website visitors are given the names and addresses of several advisers.
Darrell Moore, vice president of strategic alliances for Ramsey Solutions, another name for The Lampo Group, said that the change to Mr. Ramsey's program for advisers was in the works before the Missouri action.
Mr. Moore said the change was made because of a "perceived" risk among advisers. "If we continued [with the referral program] broker-dealers and their advisers would not want their advisers to continue with us," Mr. Moore. "The perceived risk was that we opened them up to regulatory scrutiny."
"The big changes are how the advisers pay us, opening up choice to investors and how we characterize the program," Mr. Moore said. "It's not an endorsement anymore."
A spokeswoman for Ramsey Solutions, Beth Tallent, said that advisers perceived risk was at the SEC level. "The advisers felt it might open them up to audits and uncover other areas of concerns in their business that were not related to us. Valid or not, they wanted to avoid the risk of audits."
To date, the SEC has not taken any action against Mr. Ramsey or his companies.
While advisers now compete to turn Mr. Ramsey's followers into clients, the change to Mr. Ramsey's business appears cosmetic to at least one industry attorney.
Most states have rules that require solicitors to be registered and rules under the federal Investment Advisers Act require they disclose compensation, noted Terry Lister, a senior consultant with Edgerton & Weaver and a longtime industry attorney.
"To say that advisers are paying Dave Ramsey an advertising fee instead of a solicitor's fee should be seen by regulators as form over substance," said Mr. Lister. "These are not just great leads, they're hot."
Mr. Moore said the disclosure about Mr. Ramsey's compensation was on his website.
It describes that new program as an advertising service for investment professionals and states: "Advertising fees are not connected to any commission, portfolio, service, product, or other service offered or rendered by any SmartVestor Pros."
Advisers are paying about the same amount under the new program as they were under the old one. Fees range from $400 per month to close to $900 per month, based on the size and population of the territory, as well as the number of referrals that come in over a period of time.
Back of the envelope math shows that the former referral program and the current advertising program have been cash cows for Mr. Ramsey. If each of the 1,000 advisers in the program paid on the low end, $400 per month, that would translate into $400,000 of monthly revenue. If those same advisers paid on the high end, about $900, Mr. Ramsey's business could see revenues of as much as $900,000 per month from adviser advertising.
Ms. Tallent, the spokeswoman, said that the company would not comment about figures specifically regarding the new SmartVestor Pro program for advisers. Ramsey Solutions, which has 600 employees in assorted business lines such as classes, events, publishing and digital content, is on track to produce $150 million in revenue this year, she said.
Not all advisers previously endorsed by Mr. Ramsey are happy with the revamped program. The quality of the leads suffered, and Mr. Ramsey no longer put his personal stamp on the advisers, said Eric Wishon, an LPL Financial adviser based in Portland, Ore. He started paying for Dave Ramsey leads in 2010 and was getting 30 to 50 referrals per month.
"It was astonishing. It helped me build my business to more than $120 million in AUM," he said. "It never would have happened without Dave."
That began to change in 2015 when the Ramsey organization told Oregon advisers that changes were coming in 2016, and that they would have to compete for clients, he said. "I was one of many all of a sudden," Mr. Wishon said. "The fees were high and the quality of the leads were mediocre at that point." He then cut ties with the program.
"In the past, Dave used to endorse advisers personally," Mr. Wishon said. "It was real first-hand and personal. Now, you're just a name on a website," he said, adding that he was grateful for the opportunity to work with Mr. Ramsey.
Other advisers are quick to note that, while Mr. Ramsey's business model has changed and they are competing now for prospective clients, the power of Mr. Ramsey's message is as strong as ever.
"I've been with Dave Ramsey for 10 ½ years, and I think what he does is awesome," said Mr. Walker. "We understand we have to deal with regulation, and I think Dave has handled this the best way possible to preserve the opportunity for the people he knows."