Wealth Report Named Top 25 Blog

We’re never above the occasional piece of blatant self-promotion here at the Wealth Report.  So I’ll take the chance to thank all of the readers and commenters who helped the Wealth Report make Time magazine’s list of 25 Best Financial Blogs.

Time said it searched for blogs that offered “the most useful financial advice, offered the best insight into the state of the economy or were just fun.” Clearly, we fall into the last category.

You can read the review from Stephen Dubner of Freakonomics fame here.  It’s comforting to know that at a time when wealth is more divisive than ever — generating truthy screeds on both sides – some readers still respond to coverage that “neither panders nor sneers.”

Thanks for your continued contributions, as well as your occasional sneers.

The New Accessory for Yachters: Guns?

Yachting has become a dangerous pastime–at least to judge by the headlines. Four American yachters were captured and killed off the coast of Somalia last month, while a Danish couple sailing near Somalia last week was kidnapped.

Granted, these are all relatively small sailboats near the most dangerous pirate-infested waters in the world. The big motoryachts of the Carribean and Med still seem to be safe (unless you are an Italian tax evader).

That hasn’t stopped some rich yachters from packing heat. According to an article in the Palm Beach Post, billionaire sailor Bill Koch always stocked his 90-foot cruising boat with shotguns and semiautomatic weapons. “If I could have, I would have bought a cannon and a couple of machine guns,” Koch said. “You can’t get them, but that’s what you’d want if some of these guys were coming after you.”

The International Maritime Bureau advises yachters not to carry guns, since they have to be declared at every port and can be confiscated by governments. The Bureau  recommends putting lots of dummies on deck and sailing quickly through bad areas. (I’d still prefer the gun).

Several yacht brokers told me that today’s yachters are certainly concerned about safety, but no more than usual. They said people who are  security-obsessed usually bring their own bodyguards, who are armed and trained.

What is more, today’s bigger yachts–120 feet or more–are tricked out with so many security cameras, klieg lights and defense mechanisms (like high-pitch “sound canons”), that guns aren’t necessary.

Boats that have to pass near Somalia or through the Suez canal usually hire specialized security teams. One yacht that passed through the canal was recently outfitted with barbed wire on the deck to keep out pirates.

“Usually the clients aren’t on board for those trips,” said one broker. “It’s just to transport the boat.  The clients join the boat in the Med or in the Sychelles or Maldives.”

Do you think more yachters will start packing heat?

Billionaires Own as Much as the Bottom Half of Americans?

In his “America is NOT Broke” speech to the workers of Wisconsin Saturday, Michael Moore cited an eye-popping wealth statistic.

“Today,” he said “just 400 Americans, 400, have more wealth than half of all Americans combined.” (Boos from the crowd.) “Let me say that again. 400 obscenely wealthy individuals, little Mubaraks, who have benefited in some way from the multitrillion dollar taxpayer bailout of 2008, now more cash stock and and property as the assets of 155 million Americans combined.” (Shouts of “shame” from the crowd). The hyper-left-leaning Moore, of course, is prone to hyperbole. And if we set aside the stuff on “obscenely rich people” and looting, there is an interesting fact buried in his message. But it may not be the one he intended. Moore is almost right when he said the Forbes listers have as much wealth as the bottom 50% of the population. As you can see from the chart below, in 2007, the bottom 50% of American households (that is about 57 million households) had $1.61 trillion in wealth in 2007, the latest period for which such data is available. The Federal Reserve defines wealth as all financial and nonfinancial assets, including bank accounts, investments, houses, cars and debt. The net worth of Forbes listers was a combined $1.537 trillion that year, but their wealth fell to $1.37 trillion for the 2010 list. (In an email, Moore cited The Campaign for America’s Future for his source). We don’t know the current numbers for both groups. Presumably the Forbes listers are worth more today than they were last fall, given the stock market run-up. And the wealth shifts of the bottom 50% are unclear, though a report from the Federal Reserve shows the bottom 40% lost less on a percentage basis than any other group, simply because they had less real-estate and stocks). As Moore, not a Forbes Lister but a self-confessed millionaire, told me, “Robert, please note: in my speech I used the words ‘more than’ but I had written ‘as much as.’ As that was the last year stats were available, I would guess that the 400 now have ‘more than,’ as most of the worth of the bottom 50% is in their homes, which have sunk in value since 2007.” Fair enough. And again, his stat is basically correct for 2007. Yet the part that begs clarification is the idea that this intense wealth concentration is new or somehow linked to the bailout. The Forbes listers and the bottom have each held around 3% of the nation’s wealth for the past 20 years. (Reliable and comparable data don’t go further back than that.) Some years they tipped to 3.3%, other years to 2.7%, but basically their shares have move remarkably in parallel through so much economic change. (The Forbesers, of course, pay far more taxes, but that is another argument.) The stats are undeniably troubling. But the fact remains that the wealth shares of the rich haven’t diverged from the bottom since the early 1980s. (The top 1% have also held roughly the same share of wealth since the the late 1980s.) Stories of sudden wealth gaps funded by tax bailouts, of Wall Street heists and financial “coup d’etats” make for rousing speeches. But unfortunately, it is nothing new. Do you think America could or should rebalance the wealth of the Forbes listers and the bottom halfers?

The Most Expensive Wedding Ever?

A $20 million wedding would be news enough. The fact that the reported wedding took place in India tells us how much the world of wealth is shifting East.

According to a raft of news reports, the son of a New Delhi businessman/politician and the daughter of another prominent businessman/politician were married with thousands of their closest friends. The exact price of hitching Lalit Tanwar and his bride Yogita Jaunapuriais is unclear: The Times of India pegged it at $22 million, while the Mail Today put it at $55 million.

The bride’s family gave the groom a Bell 429 helicopter, which can sell for more than $4 million. More than 100 different kinds of food were served, including Thai, Chinese and Indian dishes. It also featured a Domino’s pizza stand. The huge wedding tent took a month to build and featured Roman pillars, Venetian props and Chinese furnishings. The site was created on a sugarcane field outside Delhi.

Actor Neha Dhupia performed while Gurdas Maan rocked the  audience with Punjabi pop.

Mr. Tanwar downplayed the events granduer. “True, a Bell 429 helicopter was given,” he told the Indian press, “but it was a simple wedding.”

Others speculated that the week-long festivities may be the most expensive wedding in recent history, topping that of the daughter of Lakshmi Mittal at the Palace of Versailles.

There is nothing wrong with celebrating wealth and marriage, of course. But India is in the midst of several political- corruption scandals and rising tensions over inequality.  A sumptuous wedding between the offspring of two politicians may only fans the flames.

And the wedding clearly helped the economy. As one editorial put it: “Just think about the money the two families have singlehandedly pumped into the economy. As for the chopper, it’s not the slightest bit wasteful.”

As if to prove the point, Mr. Tanwar said the chopper will be not only for private use but also for “public, social services and emergencies. A hotline will be set up for the purpose.”

Do you think the wedding is a welcome expense or an inflammatory display?

Rich, Famous and Living in a Slum

There’s a new genre emerging in reality TV: rich people being forced to live like the poor. It began, like most reality-TV trends, in Britain with “Secret Millionaire” and “Famous, Rich and Jobless” then went global with “The Big Switch” in India and “Undercover Boss” in the U.S.

Now comes a new entrant to the genre: “Famous, Rich and In the Slums.” It’s a two-part series on BBC1 that follow four British celebs–comedian Lenny Henry, TV host and journalist Angela Rippon, actress Samatha Womack, TV and radio star Reggie Yates–as they are dropped in one of the world’s largest slums, in Kibera, Kenya.

Each member of the team is given £1.60 to start out and they are forced to forage on their own.

The shows delivers on its core promise: humiliation. Mr. Yates cleans out toilets, Lenny Henry sells street food and Angela considers life as a prostitute.

The show is part of Britain’s “Red Nose Day,” a nationwide campaign (on March 18th) that uses comedy to raise money for charity.

Reviews for the show are largely positive, though they warn it isn’t always light laughs. “Famous, Rich and in the Slums makes for difficult viewing,” wrote one review, “not because it’s bad telly, but because it is reality TV firmly grounded in the horrifying truth of millions of people’s lives.”

Some may argue that humiliating the wealthy (and, more importantly, using the poor as props) is a cheap way to get ratings. But in these times of rising populism, using the wealthy to draw attention to the poor seems to me to be the perfect pairing.

The problem, of course, is finding enough rich people willing to live in a slum.

Why the New Rich Pretend to Be Old Nobles

A Hong Kong developer is building one of the world’s largest polo communities. It will have two international-standard polo fields, stables for 150 horses, a 167-room hotel, 10 restaurants, a three-storey wine cellar with a capacity of 10,000 bottles, a ballroom for 1,000 guests and conference rooms, spas, gymnasiums and a Roman-style indoor swimming pool.

And the best part….it is located in a industrial zone in the Chinese city of Tianjin (about an hour’s drive from Beijing). Polo isn’t a big sport in China, in fact it is “barely known,” according to an article in the South China Morning Post. According to my colleagues at The China Real Time Report, China imported 1,300 horses in 2010, compared with about 300 five years ago–a fraction of the 40,000 imported to the U.S. Still, the developers of the Tianjin Goldin Metropolitan Polo Club & Hotel are betting more than $240 million on appealing to the new Chinese rich who want to be identified with European aristocracy. No doubt the place will be covered with gold crests, faux-historic polo gear and red-velvet Napoleonic chairs. The club “brings the spirit of nobility” to Tianjin, Rowland Wong, president of the polo club, told the Post. Membership will cost about $57,000, with memberships for “patron” team owners to be much higher. That China–with its history of anticolonialism–is embracing the Sport of Kings has many ironies. Yet it isn’t all that different from the Ralph Lauren phenomena in the U.S., where the new rich, and even the new barely-affluent, drape themselves in the trappings of Old Money. This remains one of the great paradoxes of modern wealth. While the new rich are quick to distance themselves from the Leisure Class, with their attacks on inherited money and devotion to hard work and “middle class values,” they still crave the respectability and traditions of the aristocracy. Spend a day at the polo grounds at Wellington in Florida and you’ll see the contradiction on full display–fast-food magnates and car-dealership kings parading their wealth at a game they barely understand. In the end, the effort to adopt the image of Old Money is really about things that New Money can’t buy: a sense of belonging to a long tradition of wise wealth. Why do you think the rich crave the trappings of Old Money?

The Fall of a Billionaire’s Wife

When media billionaire John Kluge and his wife Patricia divorced in 1990, she walked away with a settlement reported to be more than $1 billion.

Now, her 45-room Virginia estate has been sold off after foreclosure and her prized vineyard and luxury-real estate development have been seized by creditors. She has even sold off jewelry and antiques.

According to an article in The Washington Post, Ms. Kluge and her husband have “decamped to a $3 million spec home” behind their failed development.

So how does someone go from billionaire to debtor?

According to the Post piece, it was a combination of a “tanking economy, an ill- timed expansion and other bad business decisions.” I would add a fourth factor that was probably the most important: debt.

Ms. Kluge owed more than $60 million in loans to various banks and lenders. Among them:

A reported $34 million from the Farm Credit of the Virginias for the 960-acre Kluge Estate Winery Vineyard. The bank is now operating the winery and plans to sell it at an auction scheduled for April 9.

Ms. Kluge owed $23.9 million in unpaid principal and interest on a a loan Bank of America against her mansion, Albermarle House.

An $8.5 million loan from Southern National Bancorp of Virginia Inc. on a 22-lot development property called Vineyard Estates.

Of course, $60 million in loans may have been manageable as long as they were covered by the value of her assets. Yet Albermarle House, which first went on the market in 2009 for $100 million, was bought by Bank of America for $15.3 million.

The Vineyard was selling only half of its production and the luxury real-estate development ran smack into the housing bust.

The lesson: No matter how rich you might be, or how much you think your assets are worth, you are only as smart as your debt. It is a lesson even billionaires can easily forget.

The Rich Have 80% More Energy Than the Rest

One thing I have noticed about rich people is that they are insomniacs. If money never sleeps, why should they?

Billionaire Lynn Tilton, who I profiled last month, rarely gets more than a few hours sleep a night. John D. Rockefeller was famous for his brief nighttime naps. Donald Trump says he only gets three hours a night, while Martha Stewart says she only needs four.

What we don’t know is whether sleep deprivation is a cause or a consequence of wealth.

A new study suggests it may be a cause.

According to a survey of more than 1,400 people around the world with an average net worth of $2 million, the wealthiest respondents in the sample had 80% more energy than those at the bottom of the sample.

Energy, of course, is a subjective quality. In the survey, respondents were asked to use a scale from 1 to 10, asking them how much energy they put into certain tasks, with 10 being the highest.

The survey found that the wealthiest of the group devoted 60% of their energy toward focused goals like “making things happen” and “hunting out new opportunities.” They not only focused their energy on these goals, but they devoted more total energy (80% more) to all of these goals than the lower samplers. (To see a chart of this click here)

Of course, this may simply mean the wealthy give themselves higher scores–more 8s, 9s, and 10s–rather than having more energy. Yet the study authors say the across-the-board higher scores represent higher energy.

“They have above-average energy levels for every single quality associated with success,” said the report, done by Scorpio Partnership, Standard Chartered Private Bank and SEI. “More than that they are channeling that extra energy primarily into the innovation tasks that are most likely to get ahead.”

The report added that the wealthy seem to “make time” for these tasks–perhaps when the rest of us are sleeping (although the inherited wealthy can or did sleepwalk their way to wealth).

The survey found a similarly wide energy gap between wealthy business owners and “employed professionals.” Business owners focus a huge amount of energy (more than 12% above the survey average) on “doing things differently,” while employed professionals far less–7% below the average.

Prodigious energy doesn’t ensure wealth. Do you think total energy is a secret to being wealthy or is it more about energy focus? Do you know any low-energy rich people?

The Downside of Control-Freak Philanthropy

Venture philanthropy has been heralded as a much-needed revolution in the business of giving. Gone are the days of rich people writing checks to nonprofit groups that can spend it as they please. Today’s venture philanthropists (a k a social entrepreneurs or philanthrocapitalists) give big but want big returns. Specifically, they want results, accountability and, often, control.

This doesn’t always sit well with nonprofit groups–especially universities.

Coal magnate James McGlothlin notified the College of William & Mary of his intent to withdraw a $12 million donation after the college’s president announced the removal of the Wren Chapel Cross on the campus from permanent display in the late 2000s.

In 2007, the heirs of the A&P grocery-store fortune demanded that Princeton University give back money to their family claiming the school failed to follow the wishes of a $35 million gift made in 1961.

Now comes a flap over that most sensitive of donor subjects: college football.

Robert G. Burton, a 72-year-old publishing entrepreneur, demanded that the University of Connecticut return more than $3 million in donations and take his name off a campus building because he didn’t get a say in the hiring of a new football coach.

In a six-page letter to the school’s athletic director, copied to the governor, Mr. Burton wrote that he wanted to be involved in hiring the new coach. “For someone who has given $7,000,000 to the football program/university I do not feel as though these requests were asking for too much.”

He added that as a former football player himself, “I know more football coaches than the majority of athletic directors in America.”

He added that “I’m sure you can take a collection from your hiring committee and friends to offset the loss of future donations from the Burton family.” He threatened legal action and said “You have hurt and embarrassed the Burton family for the last time.”

The college and the Burtons have since called a truce, with Mr. Burton announcing that he’s “not going to let one experience change the relationship my family and I have with UConn.”

Yet his letter has since become famous in Connecticut, with one columnist calling it part of a “sense of entitlement” among the new rich.

Yet tirades and excessive demands are nothing new among the wealthy. The real lesson here is for UConn. Whatever the merits of Mr. Burton’s advice or his qualifications for picking football coaches, the school should have understood that today’s big donors don’t just want a receipt. They also want influence.

That has become more important as schools increasingly rely on rich donors to fund multimillion-dollar sports programs–see T. Boone Pickens and Oklahoma State or Phil Knight and Oregon.

Legendary Penn State coach Joe Paterno once said of rich donors: “We want your money, not your two cents.” But if they are taking millions, today’s coaches may have to take the pesky pennies as well.

Do you think Mr. Burton was right to demand his money back?

New York’s Vanishing Millionaires–and Other Myths

High state taxes are chasing out the rich, according to the antitax crowd. We have it in Maryland, New Jersey, Rhode Island, and Connecticut.

Now comes some new research claiming that taxes are driving the rich out of New York. But like the other research, it contains some fundamental flaws.

The Partnership for New York City, comprised of business leaders, says the state’s “Millionaire’s Tax” has forced some of the state’s most valuable earners and tax-payers to other states. The tax, which applied to those earning $200,000 or more, expires at the end of 2011. But some Democrats want to keep it from expiring.

The Partnership says New York lost a net 1.7 million residents from 1999 through 2008, and the average net worth of people who left was $338,000, citing stats from the Center on Wealth and Philanthropy. (Note, this is before the “Millionaire’s Tax” was imposed).

The report says that from 2007 to 2009, when the Millionaire’s tax was imposed, New York saw a 9.4% decline in state taxpayers who earn $1 million or more. Citing stats from Phoenix Marketing, the Partnership says the number of $1 million earners fell to 345,892 in 2009 from 381,786 in 2007.

It sounds scary. But it isn’t entirely accurate. As the liberal Citizens for Tax Justice points out, the 9.4% decline was actually for people who have wealth of $1 million, not for those who earn $1 million or more. And during that time, the nation as a whole lost wealth and millionaires because of the stock-market swings.

But there is something else to note in the Partnership’s research. The number of millionaires in New York actually increased in 2010–while the tax was in place. New York had 381,197 millionaires in 2010, an increase of 35,000 millionaires from 2009. This again likely reflects wealth gained from the stock market and Wall Street, not from taxes.

Kathryn Wylde, the president and CEO of the Partnership, was kind enough to call me while she was out of the country to clarify. She said the population number is indeed for wealth not income. But when I pointed out that the numbers still failed to prove a link between tax changes and the population of rich people, she said that “anecdotally” she was hearing a lot about wealthy people leaving the state, to lower-tax New Jersey, Connecticut and Florida.

“It’s a very difficult thing to measure,” she said. “We get a lot of it anecdotally. Our evidence is from conversations with lots of high earners and there is an increasing tendency to gravitate to lower-tax places.”

She is absolutely right. Measuring the precise movements of the wealthy is difficult without data. It is even harder to measure the reasons for their movements. And that is why we should take all of these studies for what they are–political talking points with very little supporting data.

It is very possible rich people are leaving New York because of high taxes. But there is little or no supporting evidence.

Do you think the rich are leaving New York because of taxes?

Are the Rich Rushing Into Stocks?

Stocks may look richly priced to some, but not to the rich.

According to a new survey from Spectrem Group, 52% of U.S. households with a net worth of $5 million to $25 million (not including primary residence) say stocks are their favorite investment choice for the next 12 months.

Ranking second for the group was cash (35%), followed by international investments (33%) and fixed-income products (31%).

“After pulling away from equities during the recession, America’s wealthiest investors are looking to jump back into stock investing,” said George H. Walper Jr., President of Spectrem Group, a Chicago wealth-research firm.

If true, investments from the rich could add to the virtuous cycle of the current bull market. Each of these ultra-high-net worth households has an average of $659,000 sitting in cash, according to Spectrem. Taken together, their cash represents billions of dollars waiting on the sidelines.

On the other hand, the fact that cash still ranks above all other investments–including international–shows that the rich are still playing it safe. My hunch is that while some of the ultrawealthy will move into stocks, many more will continue to value preservation over returns.

As much as Wall Street would like to forget the global financial crisis, the lessons of wealth loss aren’t yet forgotten by the rich.

Do you think the rich will move from cash to stocks this year?

Why Do the Wealthy Shoplift?

Lindsay Lohan, Caroline Guiliani, Winona Ryder. Are well-heeled girls and women accused of shoplifting representative of the norm or are just the highly public exception?

According to Britain’s Home Office, the number of girls age 14 to 16 caught shoplifting has more than doubled since 1997, to 7,000. More interestingly, about two-thirds are believed to come from affluent or middle-class backgrounds. Most of what they take are high-price fashion items, with the average value of each pilfered good rising 50%, to $113.

“A typical shoplifter used to be a drug addict,” the founder of a British support group called Crisis Counselling for Alleged Shoplifters told the Daily Star. “Now it’s girls from well-off families doing it for kicks. Today’s youngsters think they can get away with anything.”

Now one child caught stealing often is called a cry for help. But 7,000 girls stealing? Is that society’s cry for help?

Experts say these girls shoplift out of a need to look like their favorite celebrities. Not surprising. But why can’t they get money from mom and dad? Or, heaven help them, use income from a part-time job? Is it simply a game for them?

I don’t have the answers. And it is unclear whether the stats are mirrored in the U.S. Still, I wonder whether this statistical increase points to a larger problem that many of today’s affluent children will face in the future. They want the lifestyle and accessories of wealth, but they many be ill-prepared or unwilling to do what it takes to make the required income.

Of course, this is over-generalizing. There are plenty of wealthy and affluent children who work hard, don’t steal and live simply. And stories of pampered children stealing have been boarding-school fodder for decades. Yet the twin rise in the number of affluent children and the spread of luxury culture may have made it more of a mass problem. So it is an open question whether luxury entitlement is becoming increasingly common among today’s affluent children.

Why do you think the affluent shoplift?

The Future of Our Plutonomy: Deficits, More Booms and Busts

It has been more than five years since equity strategist Ajay Kapur introduced the idea of a “plutonomy“–an economy dominated by the spending and consumption of the wealthy.

Since then, plutonomy has become a popular economic catchphrase, a political slogan and left-leaning conspiracy theory.

Yet with all the noise, we haven’t heard from Mr. Kapur on the actual state of the plutonomy and where it is headed. I called Mr. Kapur, now Deutsche Bank’s head of Asian equity strategy, for the latest.

Among the surprises: The plutonomy is stronger than ever and likely to produce chronic budget deficits, political tensions and more economic volatility for the rich and nonrich alike. But there are still ways to profit from the trend. (The term “plutonomist” used below refers to rich people).

Wealth Report: What is the state of the plutonomy after the global financial crisis?
Ajay Kapur: One of the risks to the plutonomy that I highlighted in that earlier research was a financial crisis. I wasn’t expecting a financial crisis, but it was one of the things I noted that could lead to the plutonomy being challenged. Well, the financial crisis came and went, and the plutonomy has survived in tact and probably even gotten stronger. That fascinates me given the serious threats that it faced.

WR: Why did it fare so well?
Mr. Kapur: I think the plutonomy has built upon itself and it has deep roots now. One of the main reasons you get a plutonomy is you have capital-friendly governments and I think that is still in place. Across the political spectrum is it very tough to destabilize or reverse the nexus of the plutonomists and politicians and policy makers. Normally, there is a very tight correlation between deregulation and a plutonomy. You had periods of deregulation in the 1920s and in the 1980s and those created plutonomies. We’ve now had financial reform, but I don’t think it’s enough to reverse the course of such a financialized economy.

WR: What stocks should people buy to profit from the plutonomy? Should investors be buying Plutonomy stocks in Asia instead of the U.S.?
Mr. Kapur: My global plutonomy basket has almost tripled off its lows. In Asia, there are some luxury hotels and luxury-car retailers and distributors and watch retailers, but those stocks have already done very well, they’re up more than four times from their lows. I would focus on the more well-known global brands.

WR But aren’t luxury stocks and plutonomy stocks far more volatile than the broader stock market?
Mr. Kapur: Yes, of course. That’s because the volatility of the earnings stream for these companies is much higher than the average retailer or average Dow Jones Average company. Most people need to buy toothpaste or broccoli or daily needs, while plutonomists may get a lower bonus one year and decide not to buy a plutonomy item. Plutonomist consumption is almost 10 times as volatile that of the average consumer.

WR: If the spending of the wealthy is 10 times more volatile than the average, and our economy is dominated by spending of the rich, aren’t we headed for more booms and busts caused by the plutonomy?
Mr. Kapur: Yes, by definition. If plutonomists dominate consumption and incomes, the rest of the economy will become more volatile.

WR: What are the political implications of a rising Plutonomy today?
Mr. Kapur: We have an economy today where a large fraction of the population doesn’t pay federal income taxes and, because of demand for entitlements, we have a system of massive representation without taxation. On the other hand, you have plutonomists who protect their turf and the taxation amounts are not enough to pay for everyone’s demand. So I’ve come to the conclusion that budget deficits are biased toward getting bigger and bigger. Budget deficits are going to become a manifestation of a plutonomy.

WR: Are there any other political implications?
Mr. Kapur: Well, with plutonomists in emerging markets…you have these huge economic developments, and there are certain folks who are risk-takers or entrepreneurs, who are in the midst of all this complexity and change, who will benefit quite substantially from that growth. I don’t know how anyone can reverse that. I don’t know whether you would want to reverse this process since the prospects of becoming a plutonomist drives the risk-taking.

Rich Investors Trust Bankers More than the Press

After the mauling they experienced in the past few years, the rich might be forgiven for losing trust in their bankers and wealth advisers. But apparently, there is one group they trust even less: the press.

A survey from SEI, which, which polled investors with $5 million or more in investible assets, asked respondents where they they get the most trusted investing information. The overwhelming majority (87%) said they consider industry professionals (bankers, wealth advisers) to be the most trusted source of investing information. Only 17% said the press was the most trusted source. None of the respondents chose the third category, which was peers.

We should take these results with a boulder-size grain of salt, of course. The company that conducted the poll, SEI, is a wealth-management and asset-management firm that is in the business of trying to win more rich clients. Its obviously in their interest to say that the wealthy trust companies like theirs.

Still, I am surprised that after so many Wall Street conflicts have been exposed–Goldman Sachs Group’s Abacus deal, the Merrill Lynch prop-trading settlement, the State Street settlement–wealthy investors still trust information from their bankers more than the press.

Of course, as a member of the press, I am not exactly objective either. And the press can always be faulted for not uncovering some of these conflicts earlier or giving them enough attention.

Who do you trust more for investment information? Bankers? The press? Your peers?

Are High Taxes Driving the Rich Out of Connecticut?

Beware the angry Golden Goose.

From California to New York to New Jersey and Washington state, state governments considering higher taxes on the wealthy are all being warned against pushing their rich residents too far. If the so-called Golden Geese leave, some argue, the states will face dire financial consequences.

The claims are supported by a string of independently produced research reports. We have heard reports on Maryland, New Jersey and most recently, Rhode Island, all saying that if the tax bill for the rich is too high, they will move to lower-tax states. Since these Golden Geese pay the bulk of income taxes, the theory goes, states risk losing one of their main sources of revenue and jobs.

The latest report on the subject comes from Connecticut. The Connecticut Policy Institute, a think-tank founded by Tom Foley, the Republican former candidate for governor, just released a report called “Don’t Kill the Golden Goose,” that says the state’s income tax rate of 6.5% is chasing out high earners and much-needed tax dollars.

The report states that the 9,506 Connecticut taxpayers who earned more than $1 million in 2008 paid more than a quarter of the state’s income taxes ($1.28 billion of $4.79 billion). It argued that more than 6,000 taxpayers (of all incomes) have left the state every year since 2003, when the income-tax rate climbed to 5%.

“As rates go up, we know the size of the golden goose goes down,” the report stated, adding that “Connecticut needs its high earners to support its ailing economy and pay its debts.”

All of which sounds reasonable. But the report fails to answer some fundamental questions about the migration patterns of Connecticut’s Golden Geese. Among them:

1–How many rich people are actually moving out? It isn’t until deep into the report that we find out how many high-earners are really leaving. As it turns out, very few. In fact, their numbers have actually increased as the state’s income tax has gone up. “In 2005, Connecticut had 8,793 taxpayers with incomes over $1 million. In 2008 there were 9,506,” the report states.

What gives? The report argues that if you inflation-adjust for 2005 dollars, the number of high earners would drop by about 200 a year or about 2%. Still, not exactly an exodus.

2–Are taxes the reason? Even if we use the inflation-adjustment to take down the 2008 number, how do we know why or even if high-earners moved out? It is possible that some previously high earners simply fell below the $1 million-dollar-a-year mark because their incomes fluctuated. In the land of hedge funds, this seems to be just as likely as people moving to Florida.

It also is unclear whether the population of high-earners in Connecticut is aging and simply moved to warmer, more golf-friendly climes.

3–Where do they go? The report doesn’t break down the destinations. Still, it says many go to Florida and New York. Florida, of course, has no state income tax. But New York state has a top tax rate of 8.97% and New York City’s top rate is 3.876%. Combined that is nearly twice as high as Connecticut’s tax. If the rich decide where to live based on taxes, why would they be moving to a higher-tax city? Perhaps because the quality of their life matters as much or more than the quantity of their taxes–-up to a point, of course.

Do you think the Golden Geese are fleeing Connecticut? If so, are taxes the reason?