Why the Rich Tend to Cheat on Their Brokers
For affluent Americans, having more than one financial adviser has now become the norm.
One in three Americans with more than $100,000 in investable assets started a relationship with a new financial services firm last year, seeking to combine the strengths of various firms to gain advice and resources, according to a new study released Tuesday by Hearts & Wallets, a financial research platform for consumers.
Related: The 6 Times You Really Need a Financial Adviser
Hearts & Wallets also noted that 55 percent of consumers with $500,000 in investable assets or more work with three or more firms.
Contrary to the popular image of wealthy investors dialing up their Wall Street broker, the Hearts & Wallets survey found that affluent investors are more likely to use self-service firms — discount brokerages like E*Trade or TD Ameritrade — than full-service brokers. More than 70 percent of investors with $500,000 or more use those self-service brokers, even if it’s for smaller “play money” accounts, compared with 40 percent for full-service firms such as Ameriprise and Edward Jones.
“It’s astonishing the self-service competitive set has deeper reach into investors with $500,000-plus, engaging more affluent investors than the full-service competitive set,” said Laura Varas, Hearts & Wallets partner and co-founder, in a press release.
Related: 6 Traits of an Emerging Millionaire: Are You One?
Some wealthy investors use both. A common pattern is what Hearts & Wallets calls “stable two-timing,” or when investors balance a self-service firm with a full-service firm. Some consumers might even tap into multiple high-service firms to obtain different advice.
“Just as in retail stores, wealthy customers may trust and frequent a Bloomingdale’s, but they will still shop at Costco, too,” Varas said. “Smart consumers compare.”
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Chart of the Day: 2019’s Lobbying Leaders
Roll Call reports that trade, infrastructure and health care issues including prescription drug prices “dominated the lobbying agendas of some of the biggest spenders on K Street early this year.” Here’s Roll Call’s look at the top lobbying spenders so far this year:
Can You Fix Social Security? A New Tool Lets You Try
The Congressional Budget Office released an interactive tool Wednesday that shows how some widely discussed policy changes would affect the long-run financial health of the Social Security system.
“This interactive tool allows the user to explore seven policy options that could be used to improve the Social Security program’s finances and delay the trust funds’ exhaustion,” CBO said. “Four options would reduce benefits, and three options would increase payroll taxes. The tool allows for any combination of those options. It also lets the user change implementation dates and choose whether to show scheduled or payable benefits. … The tool also shows the impact of the options on different groups of people.”
Click here to view the interactive tool on the CBO website.
Why Prescription Drug Prices Keep Rising – and 3 Ways to Bring Them Down
Prescription drug prices have been rising at a blistering rate over the last few decades. Between 1980 and 2016, overall spending on prescription drugs rose from about $12 billion to roughly $330 billion, while its share of total health care spending doubled, from 5% to 10%.
Although lawmakers have shown renewed interest in addressing the problem, with pharmaceutical CEOs testifying before the Senate Finance Committee in February and pharmacy benefit managers (PBMS) scheduled to do so this week, no comprehensive plan to halt the relentless increase in prices has been proposed, let alone agreed upon.
Robin Feldman, a professor at the University of California Hastings College of Law, takes a look at the drug pricing system in a new book, “Drugs, Money and Secret Handshakes: The Unstoppable Growth of Prescription Drug Prices.” In a recent conversation with Bloomberg’s Joe Nocera, Feldman said that one of the key drivers of rising prices is the ongoing effort of pharmaceutical companies to maintain control of the market.
Fearing competition from lower-cost generics, drugmakers began over the last 10 or 15 years to focus on innovations “outside of the lab,” Feldman said. These innovations include paying PBMs to reduce competition from generics; creating complex systems of rebates to PBMs, hospitals and doctors to maintain high prices; and gaming the patent system to extend monopoly pricing power.
Feldman’s research on the dynamics of the drug market led her to formulate three general solutions for the problem of ever-rising prices:
1) Transparency: The current system thrives on secret deals between drug companies and middlemen. Transparency “lets competitors figure out how to compete and it lets regulators see where the bad behaviors occur,” Feldman says.
2) Patent limitations: Drugmakers have become experts at extending patents on existing drugs, often by making minor modifications in formulation, dosage or delivery. Feldman says that 78% of drugs getting new patents are actually old drugs gaining another round of protection, and thus another round of production and pricing exclusivity. A “one-and-done” patent system would eliminate this increasingly common strategy.
3) Simplification: Feldman says that “complexity breeds opportunity,” and warns that the U.S. “drug price system is so complex that the gaming opportunities are endless.” While “ruthless simplification” of regulatory rules and approval systems could help eliminate some of those opportunities, Feldman says that the U.S. doesn’t seem to be moving in this direction.
Read the full interview at Bloomberg News.