Should You Listen To Financial Gurus?

In the time that I’ve been a personal finance blogger I’ve become pretty familiar with a number of so-called financial gurus, people who have become the go to source for financial help and information for people who are struggling to get by – or for those wanting to take their finances to the next level.

In many cases these gurus have taken on a pseudo-celebrity status because they’re constantly on the radio and TV with their own shows, and as financial experts on morning shows and other popular talk shows.

Gurus from Suze Orman to Jim Cramer, Dave Ramsey to David Bach are teaching you how to get out of debt, and what to do with your money and investments. The question is, should you follow their advice?  Or should you take what they’re saying with a grain of salt?

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7 Reasons Why You Shouldn’t Listen To Financial Gurus

There are a lot of reasons why you should be wary of completely trusting financial gurus when it comes to your money. Some like Helaine Olen, author of Pound Foolish: Exposing the Dark Side of the Personal Finance Industry have come down pretty hard on those in the personal finance industry, saying that they have “engaged in dubious, even deceitful, prac­tices—from accepting payments from banks and corporations in exchange for promoting certain prod­ucts to blaming the victims of economic catastrophe for their own financial misfortune”.

While I think Helaine Olen overstates the case a bit too much to place blame on society in general for our financial woes in her book, there certainly are things to be aware of when it comes to financial gurus.

• They have ulterior motives (usually financial): Often the gurus get so big and have made such large fortunes because they have a commercial interest in the advice they’re giving you – selling you products that may or may not be the best available option. For example, Suze Orman had the “approved” card that ended up not being such a great deal. After it got awful reviews it ended up getting shut down, but not before she got into flame wars with personal finance bloggers on Twitter.  Knowing that gurus have commercial interests – is in your best interest.
• Their advice is one size fits all: Gurus don’t always account for unique situations when giving their advice. They have to tailor their advice to fit the widest possible audience.  That means that the advice they’re giving may or may not be the best suited to your situation.
• They may not be an expert in all areas:  Dave Ramsey to me is an expert when it comes to the psychology and methods for debt reduction, he’s one of the very best. When it comes to investing he’s good on some of the basics, but other experts have questioned some of the numbers and assumptions that he uses. Suze Orman is good at getting people to take responsibility for their finances, and on insurance.  On investing or more advanced investing strategies she’s not as good.
• Sometimes their advice is just bad: Some of the advice gurus give is just wrong or contradictory.  For example, Suze Orman has been taken to task more than once for telling her fans to expect average stock market returns of of 11-12%, not taking into account market volatility, risk tolerance, fees and so forth.  Actual returns can often be much lower – anywhere from 6-8% depending on who you talk to, and the methodology you use. While she touts the high returns of the stock market, at other times she has talked about how risky the market can be, reminding listeners that the U.S. stock market was up only 1 percent from 1965 to 1982, and that such a lull in growth could happen again. She has also given advice to pay down the mortgage first before investing (unless you have a company match), cutting short the time horizon people have to invest – and making market volatility a much larger issue. In short, she has been all over the map with her investing advice.
• Even the experts get it wrong: Sometimes gurus get it wrong, and spectacularly. In June of 2008 Suze Orman in Money Magazine went against her previous advice to invest in index funds (despite acknowledging that they outperform actively managed investments 80% or more of the time) and recommended that investors buy actively traded exchange-traded funds specializing in emerging markets, U.S. oil and metals & mining.  Fast forward through the end of the year and those sectors of the market went down 44 percent, 71 percent and 71 percent respectively. Obviously 2008 was a bad year for investing in general, but if investors had stuck with her previously recommended index funds, they would have been down only between 28-29%. In other words, look for a second opinion.
• They’re entertainers first:  While financial gurus will likely have some level of expertise, they’re often successful because they’re engaging personalities and great entertainers first, and financial experts second.
• Some put too much emphasis on small things: Some of the experts will put an emphasis on smaller picture things, rather than bigger picture things.  For example, David Bach often focuses on the what he calls the latte factor, where you cut small expenses out of your budget and instead save or invest that money for the long term. Focusing on those small expenses isn’t a bad thing, but at times it can be at the expense of focusing on bigger picture things like improving income, cutting large dollar expenses and more.

7 Reasons Why You Should Listen To Financial Gurus

Much of the time the basic personal finance advice and financial frameworks that gurus teach is very solid. The key when looking at a lot of these experts is to listen and learn, and take what pieces of their message can help you.  Trust what they’re teaching you, but verify important decisions with trusted 3rd party sources.

• Their advice on the basics is pretty good: A lot of the financial gurus are good on the basics of dumping debt, creating a budget and getting your finances in order.  So take advantage of their advice in those areas. When it comes to taking next steps, however, be wary.
• They’ve legitimately helped a LOT of people: Dave Ramsey, Suze Orman, David Bach and others have legitimately helped a lot of people with their advice, books, tv shows, seminars, etc. They can likely help you as well.
• The gurus truly are experts in some subjects:  Dave Ramsey is great on debt.  Suze Orman is good on taking financial responsibility and insurance. David Bach is great about focusing on tracking your expenses.  Know what they’re good at, and take advantage of their advice in areas that they excel.
• You’ve researched the advice they give, and found it to be solid: As mentioned above it’s good to trust the advice they’re giving once you’ve given it the common sense test, as well as verifying it’s a good advice through other trusted sources.  Know what their financial motives are, and where their biases lie.
• Some of their advice applies to you, and you’ve educated  yourself about the options: Don’t let the financial gurus think for you.  Instead educate yourself about financial matters, figure out which pieces of their advice work for you and make sense, and then implement it.
• They’ll get you thinking about financial topics: When  you’re taking a class from a financial guru, reading their books or watching them on TV, one of the biggest things you’re doing is taking the first step to actually educate yourself about your finances, which is great.
• They’ll give you the nudge and motivation you need to get started: Sometimes when you’re in debt, you need a bit of extra help and motivation to get you started.  Financial gurus are good at getting you moving, and getting you excited about changing your finances.

Let Advice From Financial Gurus Be A Good Starting Point

Listening to the advice doled out by financial gurus can be a good thing. I say this as someone who has been through the Dave Ramsey Financial Peace University course, as well as helping to facilitate it.  The course did help me a lot, helping me to think about money and debt in new ways. There were, however, things that I didn’t completely agree with in  his classes after I had done my own research, and that’s OK.

The key is to know what inherent biases and commercial interests the gurus have in the advice they’re giving you, what they’re strong on and then take their advice with a grain of salt. Let their advice be a starting point as you work towards educating yourself, and not the end all, be all word from on high.

Educate yourself and figure out what financial framework is going to work for you.  Figure out what your plan is for your life, set some goals that you want to achieve and then take the advice from the experts that will help you to get there. Then be your own financial guru, after all, no one cares about your money as much as you do.

What are your thoughts? Do you think we should be listening to financial gurus?  Tell us your thoughts on listening to financial experts in the comments!