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Dave Ramsey Supports Pyramid Schemes?

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Quick Synopsis: Dave Ramsey's information greatly contradicts the FTC's guidelines on MLMs/pyramid schemes, which may lead (or already has led) to great consumer harm.

The other day I was reading something about MLM and someone pointed to a video from personal finance guru Dave Ramsey. The video is from his radio show, so you can press play and listen while you read (assuming you are a multi-tasking hero.)

I don't want you focus on the information specific to the particular MLM mentioned. There isn't much important there other than the fact the financial MLM is specifically targeting women. Pretty much anyone breathing can join, male or female, and a specific pitch towards women comes across like tailoring a pitch to Red Sox fan in Boston because that's who you happen to be talking to.

I'm going to pick out a few quote and timestamps from Dave Ramsey here:

Dave (1:35): Multi-level marketing in general is fine. There's nothing wrong with it in essence.

We'll circle back to this one at the end, but for now I'll just show you that over 99% of people lose money

Dave (2:08): I know people who make over a million dollars in 4 or 5 different ones.

I'd be interested to know who these people are. It is extremely rare to make a million dollars in any MLM. We are talking about around 10 people out of 100,000 that are in them. (This is from my experience in breaking down the Income Disclosure Statements of many companies). There are an estimated 15 million people in the US in MLM, which means around 150 people in the United States total making a million in MLM. It's hard to believe that there are 4 or 5 people making a million out of those 150 people. It's harder to believe that Dave Ramsey would know these people.

Most MLMs prohibit you from working in another MLM... it's in the contract of every MLM I've studied. It is common for one MLM company to poach an MLM distributor from another company. When poached, they bring their pyramid with them, so maybe this is how Dave Ramsey thinks one person can make a million in 4 or 5 different ones.

Dave (2:15): In that sense [the people who made the million dollars from it] there is a legitimacy to it. It is a real thing.

So in the sense that Enron executives made millions of dollars what they did was legitimate too. It was a real thing, right?

Maybe I'm being harsh on Dave here. Some scams straight-up take everyone's money. So maybe if you "Robin Hood" a portion of that money to a few people at the top to lure in others, it is somehow more legitimate?

Dave (2:17): Sometimes people call it a pyramid scheme or something like that. It's not a pyramid scheme. In a pyramid scheme the last man standing gets nothing and that's not true of multi-level because a product is being sold in there from a technical standpoint or a legal standpoint. That's kind of the good side of the multi-level.

Dave Ramsey couldn't be more wrong here!

The FTC has a a guide on MLM and pyramid schemes which says: "Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money."

And the FTC has shut down MLM company Fortune Hi-Tech Marketing for running a pyramid scheme years after USA Today exposed it.

So if Dave was referring to "the FTC" as "people [calling] it a pyramid scheme", I guess he'd be right on that. If he's referring to law enforcement and judges, he'd be right about that as well.

Dave is clearly wrong in saying that MLM isn't a pyramid scheme. At best, some are pyramid schemes. Each one of the dozens that I've looked at would be considered a pyramid scheme according the FTC guidelines above.

Unfortunately, sometimes we don't find out until a company "has defrauded hundreds of thousands of customers out of hundreds of millions of dollars." That's a quote from the FTC about Fortune Hi-Tech Marketing when it shut them down.

That FTC guide has a lot more information about MLMs that are pyramid schemes. At a minimum, it should be obvious that having a product doesn't stop something from being a pyramid scheme. Fortune Hi-Tech Marketing sold DirecTV service (among other things) for example.

And according to Dave Ramsey, this is "the good side of the multi-level." Yikes! Let's dig into the bad side.

Dave Ramsey (2:37): The bad side of the multi-level is that you need to understand the business you are in. And if you understand that business you're okay. And business you are in is not the financial business in this case or whatever they do. The business you are in is recruiting. And you are constantly recruiting, recruiting, recruiting... everyone is a recruit.


I'm going to emphasize those FTC guidelines on MLM and pyramid schemes again: "Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money."

Ramsey now states that MLMs aren't about selling the product or "whatever they do." He says it is about recruiting: "constantly recruiting, recruiting, recruiting... everyone is a recruit."

Ramsey's description of an MLM is exactly an illegal pyramid scheme according to FTC guidelines. The FTC makes it clear that a legitimate MLM is focused on selling the "whatever they do" and that "recruiting, recruiting, recruiting" is a pyramid scheme.

Dave (2:59): And if you don't recruit people... because your fall-out is very, very, high. The vast majority of people are gone within 3-4 months, but certainly in a year almost nobody is there."

Again, does this sound like a legitimate sales business or a pyramid scheme based on recruiting?

Also, remember that 99% failure rate above? I'm not saying that running a legitimate sales job is easy. However, we know that mathematically pyramid schemes based on "recruiting, recruiting, recruiting" are unsustainable.

A "year-long" person in your hierarchy is extremely rare. When you get one of those and they go build their own hierarchy that's when the serious money seems to happen.

I like how Ramsey is calling it a "hierarchy" now. Maybe if we call it recruitment hierarchy it won't sound like a pyramid scheme?

So having one consistent person in your pyramid is extremely rare. And then you have to consider that person needs to build their pyramid of extremely rare circumstances. This continues on and on.

To be successful in MLM is like hitting 10 straight hole-in-ones... just a series of extremely unlikely events. This doesn't sound like a scam at all, does it? (Sorry if I'm heavy on the sarcasm here. My mind is boggled.)

CALLER (3:30): - So you're not making money selling financial services...

Dave (3:33):

Not if you want to make minimum wage... In the case of Amway, you are not making money selling the products that Amway sells. You're making more money getting people on their team, that get people on their team, that get people on their team, that get people on their team. You're hiring and training a high-turnover salesforce.

I'd be beleaguering the point if I focused once again on how Ramsey mentions that product sales don't work in MLM and it is instead recruiting. Instead I'll focus on how he chooses to use the word "team" instead of pyramid. We'd both be talking about the same thing, but just using different nomenclature.

For the next few minutes Dave and the caller speculate a little about the specific company mentioned. Neither one seems to know much about it... and even if they know its name, so I don't see much point in analyzing this idle talk.

Dave (7:05): So that's the low-down on the Multi-Level Marketing. So sometimes people say 'Dave's anti-multi-level.' Not really. Umm, I just call it like it is. And like it is sometimes it's all hyped up and a bunch of crap. And it is a recruiting business. But is it legitimate? Do I have friends who make over a million dollars a year. Yeah I do. So you can't it's not legitimate or illegal or something like that.

I guess I don't understand what legitimate means any more. I guess if the definition is "one can have friends who make over a million dollars" then we'll have to through embezzlement in the legitimate category too. Of course embezzlement is illegal, but ummm, again, according to the FTC guidelines MLM as Ramsey describes is illegal too.

The rest of the video mentions that MLMers confuse friends as "transactions" and that's big problem. People get annoyed at hearing your business opportunity pitch all the time. Unfortunately the MLMer, really doesn't have much choice, because they have to recruit, recruit, recruit and it certainly makes sense to recruit friends rather than strangers at the bus stop. That are chapters in books written about this and I'm not going to try cover it in a paragraph. I'll just leave it as a HUGE issue that you should know getting in.

So What Can We Conclude from This

What can we say about Dave Ramsey this?

From this, one might conclude any of the following:

1) Dave Ramsey knows a lot about MLMs.

He is informed enough to know that the real business is recruiting and not selling product. He is informed about the high churn rate of MLM. He certainly seems to know his stuff.

2) Dave Ramsey is ignorant about the FTC guidelines on MLMs.

The FTC has been saying some form of the guidelines that I mentioned since the 1997 JewelWay MLM shutdown (and even before that):

"Legitimate multi-level marketing plans are a way of making retail sales of products or services to consumers through a network of representatives. However, in an illegal pyramid scheme the main focus is not on sales, but on recruiting new representatives into the program. Typically, each new representative must buy a certain amount of products and must recruit a specified number of new participants in order to earn money in the program. In a pyramid scheme there is almost no emphasis on making retail sales of products to persons who are not participants in the program."

I find it very hard to believe he'd know so much about MLMs and not know the basic guidelines of what makes them legitimate or a pyramid scheme, especially when this stuff goes back decades. It's like being an expert in advanced calculus and at the same time not being able add a couple numbers together. I find the combination so unlikely that it stretches believability past the breaking point.

Maybe something else is going on?

Care to put on a tin foil hat with me for a minute or two? Don't worry, it won't hurt a bit.

In the video, Ramsey admitted to knowing some of the top people in MLM a couple of times. Perhaps he's trying to protect his friends? Perhaps he can't believe that they would be criminals running a pyramid scheme because they seem like very nice people? Either one would make sense to me.

Ramsey is very Christian in his opinions. Wikipedia writes, "His books and broadcasts often feature a Christian perspective that reflects Ramsey's religious beliefs." MLMs often target churches. I can't tell you how many emails I've gotten from people writing (paraphrased), "This pyramid scheme is spreading through our church now." Maybe Dave Ramsey is afraid of losing a significant audience that may already be in MLMs?

Finally, there's a couple of mentions of Ramsey getting his start on radio with people (Roy Matlock) from Primerica, a well-known MLM company. He was in fact a Primerica sales person for a very brief time and seemed to come away with a negative impression of MLM with how it worked for him.

At the end of the day, I appreciate Ramsey for telling it like it is with MLM. I just can't wrap my head around why a consumer advocate would have his head stuck in the sand when it comes to protecting consumers.

Last updated on April 14, 2015.

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18 Responses to “Dave Ramsey Supports Pyramid Schemes?”

  1. Mario says:

    Thanks for flagging this. I’m less surprised that he’s knowledgeable about this because he’s almost certainly been asked this question several times by people looking to dig themselves out of a stagnant financial situation, but very surprised at just how cavalier he is about the very real potential for losing a lot of money.

    I too wonder what his motivation is… tinfoil hat or not…

    • Lazy Man says:

      I’m not surprised that he’s knowledgeable about MLM/pyramid schemes, but just that there’s a big blind spot on the most important issue. It’s not quite the same as Tom Brady not being able to recognize a football, but it is close in my mind.

  2. Vogel says:

    I nearly fell off my chair when I heard Ramsey at first attempting to legitimize MLM and then later stating in no uncertain terms that “the business you are in is recruiting. And you are constantly recruiting, recruiting, recruiting… everyone is a recruit.” That is the very definition of an MLM that’s an illegal pyramid scheme – an endless recruitment scam where the money one makes depends primarily on recruitment rather than retail sales. As if that wasn’t bad enough, Ramsey sunk himself even deeper into the quicksand when he stated:

    04:20 – “We need to understand, y’know you’ve been fighting this thing and you’re a great recruiter and a great sales trainer and you’re growing a large, large organization and that’s how that happens. It doesn’t just happen going door to door selling stuff. You gotta understand if you want to get into the sales training and recruiting business; that’s what you’re doing; you’re fine.”

    The subtle part to notice here is that twice he made a misrepresentation about “sales training”. He already admitted that what the business is all about is recruiting, not sales; so therefore what he’s really referring to is recruitment training, not sales training. The business is all about recruiting and training others to recruit – a quintessential pyramid scheme.

    It would have been nice if Ramsey had been straight up about the nature of the business, and if he had demonstrated even a vague grasp of pyramid scheme laws. How does a bumbler like this get a radio show?

  3. oxide says:

    Not only is Ramsey misinformed, too arrogant or too lazy to research facts, he continues to spread his “wisdom” to his followers and ignorantly inflicts consumer harm : http://www.daveramsey.com/blog/guide-joining-multilevel-marketing-company

  4. Vogel says:

    The logical assumption is that Ramsey is getting compensated somehow for plugging MLM; maybe a direct payment from an MLM, or a quid pro quo arrangement with a sponsor, or helping out a buddy who’s an MLM exec, or maybe he has a relative who’s in the MLM biz. That’s par for the course for MLM – anyone with a name of any kind who endorses or promotes MLM is making a calculated decision that the risks (the potential hit to their reputation) are outweighed by the rewards (remuneration). The bigger one’s reputation and earning potential, the less they have to gain and the more they have to lose. That’s why you don’t see any big name celebrities or MDs endorsing MLM crap; just the B-team players, and they’re all in it for the payday – e.g., recall LifeVantage’s contracts with Donny Osmond and Montel Williams, and Joe McCord, who got paid millions to cash in on what was left of his reputation.

    The only other plausible scenario is that Ramsey is misinformed/ignorant and too lazy to get up to speed. Either way, Tracey Coenen of sequencinc.com called it right when she proclaimed “DAVE RAMSEY SUCKS!” I agreed. It’s official – he sucks! If he didn’t make a deal with devil, then the only right thing for him to do is to recant everything he wrote about MLM and apologize for misinforiming people and being intellectually lazy.

  5. Bill Gilman says:

    OK, hang on.
    I think I see where Dave is going here.
    There is a huge difference between legitimate MLMs and pyramid schemes.
    For example … Avon is an MLM.
    31 (purses and bags) is an MLM
    Pampered Chef is an MLM
    Send Out Cards is an MLM
    These are all legitimate businesses. You sell, you make a commission. But yes there is a “chain” of people in your sales line, all of whom make a little on each sale.
    So if you are at the bottom and you make no money it’s because you arent selling the product.

    Those are justa few examples. But none of those are pyramid schemes.

    • Lazy Man says:


      That’s a good try, but from the video Dave is saying that MLMs aren’t about “doing whatever it is that the company does.” So for example, Ramsey makes it clear that the business of Avon isn’t really selling make-up. The business of 31 (whatever that is) isn’t about selling purses and bags. This according to what Ramsey says in the video.

      He says that the business of MLMs is “recruiting, recruiting, recruiting…” However, that’s the definition of illegal pyramid schemes. So he’s described MLMs as illegal pyramid schemes, but then says they are not. That’s the problem.

      Be careful if you think Avon isn’t a pyramid scheme I haven’t looked into the others.

  6. Hunter says:

    MLM teaches many people how to leverage their time and money, get organized, and surrounds them with many motivated individuals.

    I, like Dave, know a few people who make over a million dollars a year in MLM with several companies, Brian McMullen being one of them. Most companies do not prohibit you from joining multiple companies, they simply prohibit you from joining people from the same company to another one.

    Recruiting in important in MLM to make big bucks, but it doesn’t mean that you can’t recruit and have customers. Dave is right. If you want to make good money, it is important to be able to recruit. If your goal is to gain 100 customers, what is easier? Yourself trying to get 100 customers, or building a sales team of 10 to get 100 customers?

    Fact is, some MLMs do things ethically and some do not. Some are built off of hype and pitching a dream, where others are full of people who truly love the product and simply wish to share and get compensated for it. 99% of people do not lose money in MLM. It’s more like 95%. But if I enjoy a product I’m going to buy anyway, I don’t see why I wouldn’t want to offer the product or opportunity to others…even if it takes me 2 years to break even in my business and have some passive income coming in.

    Now, lets see who can respond to me without replying with an insult.

    • Lazy Man says:

      MLMs don’t teach people how to leverage time. On average people make less than minimum wage. That’s not leveraging your time in a useful way.

      MLMs certainly don’t leverage money very well. You said the people losing money was closer to 95%, but you didn’t cite a source. Studies have shown it is actually higher than 99.5% for some of the most popular ones – http://mlm-thetruth.com/research/mlm-statistics/shocking-stats/. Maybe you doubt that source, but my own research here shows that 99.64% in MonaVie lose money. It checks out.

      There are indeed people who make over a million dollars in MLM. The numbers are fairly well-documented.

      I just looked up Brian McMullen. Seems he sells some MLM training videos, which is the equivalent of selling shovels to prospectors looking for gold when there is none. I also see he’s highly ranked in MonaVie and Vemma. I’ve shown in great detail that MonaVie is a scam and appears to be pyramid scheme. I’ve also shown how Vemma is a scam. I’m not the only one. Many consumer groups have jumped on exposing the Vemma scam like Truth in Advertising and the Today Show.

      It is rare for someone to be high-ranking in two organizations like this. It looks like McMullen bought Brig Hart’s line in MonaVie when he left… it wasn’t something that he earned. He isn’t making a bulk of his money from selling product to the public as the FTC states in a legal MLM. He appears to have bought into the top of a pyramid scheme.

      He’s probably also not selling product to the public in Vemma either… just has a high spot in the pyramid.

      Of course you can have customers in MLM, but having a few customers doesn’t mean much. It’s whether you make the big bucks from recruiting that makes it a pyramid scheme… and that’s what you said is important in MLM. Using the FTC guidelines you are essentially making the same mistake as Dave Ramsey, not realizing that the money coming from recruiting makes it a pyramid scheme.

      As for your 100 customer example, you can adapt that to a classic chain letter pyramid scheme. How quickly could you get people to give you a dollar? How quickly could you get it to happen if you used a chain letter. Just because it is easier, it doesn’t make it legal. Also, let’s once again note that it isn’t easy… remember that 99.5% failure rate to make any money?

      And honestly, I could probably sell 100 units of a book on this site, before I could convince 10 people to join an MLM with a 99.% failure rate and have them all sell 10 copies.

      Most people don’t enjoy the products to buy enough anyway. That’s why there’s a massive turnover rate. People don’t even want to stay in for the discount on the product.

      I hope that was a polite enough response for you. Thanks for at least attempting a legitimate debate, even if it was a failure ;-).

  7. Rona says:

    You need to get educated! The direct sales:MLM industry has helped keep me off of welfare! I have to work from home due to a permanent fatal disability. I sell products to consumers outside of my network that add value to my customers lives. I recruit and teach others to do the same. I have learned a lot about this industry from Tim Sales. He reinforces my values of honesty and integrity. I can give you at least 30 names of friends who have made over a million each in the MLM industry. Most people are content to make just an extra $500 a month. I prefer $6000 myself.

  8. Sonny Kim says:

    Brian Mcmullen is a scam artist. He buys and sells MLM companies and make his money off pyramid schemes and has for a long time. I know him personally and have seen him doing this in American and abroad.

    It’s truly amazing how people can get away with being a thief on such a grand scale, for so long, and in plane sight, with the internet and all.

    I supposed being suckered is really embarrassing and many people don’t want to admit they got scammed people keep quiet and so scammers carry on with impunity. Until someone outs them.

    I guess those days are numbered for those people since everyone is so well connected with the internet now.

    What is done in the dark will be shown in the light of day with digital memory.

  9. Thanks so much for putting the truth out there for people to see. I myself was once completely lost chasing the “MLM Dream” of riches. What I discovered is that I looked at family members and friends as potential prospects until many of those relationships suffered as a result. Time after time, something “happened” with the company and I would get back on the horse and go hawk another “game changing” product. The days of heavy upfront costs are over, and so are overpriced products such as the ViCrunch Cereal at $50 a box! LOL Guys like Tim Sales are so blind to the fact that most MLM companies are designed to allow a few to prosper while many perish in their wake. I don’t believe all MLM models are bad, but I do believe the industry needs a serious wake-up call in regards to leading with product first, not recruitment. If the value of the products don’t pass the Walmart or retail test, there is no chance of survival long term. I have a Small Business Marketing Blog that now focuses on helping small business owners and help individuals avoid making the same mistakes I did in regards to chasing this elusive dream. Affiliate Marketing or learning a new skill is a better way to earn extra income. Kudos to you in your work here on educating consumers. I sincerely hope they hear your message and sincere intentions. Great job!

  10. […] Dave Ramsey talks about the constant need for recruiting and the fact that retail sales will not generate much income. Lazy Man and Money provides a good analysis of an important part of the video: […]

  11. Christy Shaffer says:

    Somewhere in my history, my memory & mind go back to names and I think possibly Dave Ramsey was in Amway. I’m not sure how you could prove that but I’m almost certain that the name stands out as a member. If not, the moment that I heard his pitch my mind went directly to the corporation and MLM and the pyramid scheme. Immediately. My son-in-law went and was relaying what he had been told about recruiting five members and then recruiting five members and then recruiting 5 members and my mind was immediately flagged and recalled Amway. The name Dave Ramsey is a very familiar name however, almost everybody has been duped into the Amway scam at one time or another it would not be so impossible that he was a former Member.

  12. toolbelt says:

    A well known financial MLM, Primerica, has had over 1.5 million join, then leave, since 2009 alone (but not before they paid their sign up fee). On average, over 30% of their 100,000 licensed reps quit annually, as well as 84% of their recruits. Their stated average rep commissions figure is highly skewered upwards by the earnings of their top 5%. Their annual reports state the average rep sells approx 2 1/2 policies and recruits 2 people annually.

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