Entries in Income (12)


Morgan Stanley CEO Says Banking Industry Is 'Overpaid'

Scott Eells/Bloomberg via Getty Images(NEW YORK) -- Morgan Stanley CEO James Gorman has folks in the banking sector buzzing with his comments that the industry is "still overpaid."

"There's way too much capacity and compensation is way too high," Gorman told the Financial Times. "As a shareholder I'm sort of sympathetic to the shareholder view that the industry is still overpaid."

A spokeswoman for Morgan Stanley declined to elaborate or make Gorman available for comment. Gorman's doing pretty well though. He received a $10.5 million pay package in 2011, a pay cut of 25 percent from 2010. He's was the 23rd highest-paid CEO in America last year, according to Bloomberg Markets magazine.

Earlier this year, Deutsche Bank co-chief executives Anshu Jain and Juergen Fitschen said compensation reform was one of their three key objectives.

Gorman's comments come a week before the major U.S. banks report their third-quarter earnings. JPMorgan Chase and Wells Fargo will be the first with their earnings releases next Friday, Oct. 12.

Back in July, Morgan Stanley reported a 50 percent drop in its second-quarter earnings to $591 million. The company reported revenue had dropped to $6.95 billion from $9.21 billion the prior year.

Brian Foley, pay consultant and managing director of Brian Foley & Co. in White Plains, N.Y., said with little evidence in the financial markets that the tide has turned, Gorman's comments seem somewhat foreboding.

"My sense is that what's coming in the third quarter is likewise not going to be pretty or even uglier," he said.

Anthony Polini, analyst with investment firm Raymond James, said he agreed with Gorman that there are too many banks in the U.S., but he disagreed that the banking industry as a whole is underpaid.

"The banking industry is overregulated, not overcompensated," Polini said.

Although, Polini conceded, it depends which industry one uses as a comparison.

Comparing to professional athletes and film stars would make most bankers look like they got the short end of the stick, he said.

By international standards, Polini said executives at Bank of America, the second-largest U.S. bank measured by assets, are not overcompensated. Its CEO, Brian Moynihan, receives compensation of $8.1 million, which includes a salary of $950,000, $6.1 million in performance-based stock, $420,000 worth of tax and financial advice and use of the company's aircraft.

"It's all who you compare them to," he said. "I'll take a stand and say I think teachers should make a lot more money."

Polini also points out that the large number of U.S. banks, approximately 7,000 which are dominated by a handful of national corporations, could mean greater competition and choices for consumers.

"Excess capacity is a bad thing on one hand, but if you're looking for a low-interest bank or convenience, even if you live in the suburbs, you probably don't have to drive to a bank," he said. "You could probably walk to one."

Low interest rates have been negatively affecting banks, but Polini said he expects banks to report positive quarterly earnings in terms of commercial loan growth and mortgage banking.

"It doesn't mean that the outlook is going to get much better. We still have a weak economy and a low-interest rate environment," he said.

Copyright 2012 ABC News Radio


401(k) Fees May Cut 30 Percent from Retirement Balance

iStockphoto/Thinkstock(NEW YORK) -- American workers who don’t think twice about their employer-sponsored 401(k) plans may be surprised to learn that fees can cut their retirement savings by 30 percent over a lifetime.

A household with two people earning the median income of their age group from 25 to 65 will pay an average of $154,794 in 401(k) fees and lost returns, according to a report from progressive, non-partisan public policy research group Demos, based in New York.

The $154,794 is 30.3 percent of that household’s retirement balance of $509,644 that is lost to fees.

The median 401(k) balance was a scant $23,000 at the end of the first quarter this year among Fidelity Investments’ 11.8 million accounts.

The higher your income, the greater the absolute value you pay in fees.

A dual-earning household in which each partner earns an income greater than three-quarters of Americans each year over their lifetime can expect to pay as much as $277,969.

Robert Hiltonsmith, policy analyst at Demos, said the most surprising finding was how much of a retirement balance can be lost to fees.

“I knew it was going to be a lot. I didn’t realize it was going to be more than 30 percent of what your retirement nest egg would have been,” he said.

The mutual fund industry provides a different picture.

The Investment Company Institute, a fund industry trade group, said the average person pays $248 a year in 401(k) fees, according to a study last year. The Los Angeles Times reports that would cost the average dual-income household under $20,000 while working over four decades.

But Hiltonsmith said the institute does not take into account trading fees, which represent nearly half of fees paid in Demos’ calculations.

Second, the household in our model is able to make consistent -- and increasing -- contributions each year, and never withdraws or cashes out their balance due to a life trauma or shock, Hiltonsmith said.

“Most households, however, don’t have the economic or job security for this to be the case, and aren’t able to do one or both of these things,” he said.

Hiltonsmith said the institute uses the median retirement balance, which is low because of the economic realities faced by most households trying to save for retirement.

The 30.3 percent figure that Demos discovered doesn’t vary based on household contributions or balances.

“And that percentage bite is, I think, the number to focus on,” Hiltonsmith said.

Workers with 401(k) funds can act to minimize the fees for their accounts in at least three steps:

1. Workers should learn what their fund’s expense-ratio is.

An expense ratio is a mutual fund’s fixed costs, such as administrative and marketing fees divided by the total assets of the mutual fund.

In the 401(k) funds available to Demos employees, the expense-ratios range from 0.70 to 1.3.

You can find most fund’s expense-ratios and compare funds on sites like and  Starting July 1, 401(k) providers will be required to disclose fees and expenses according to a rule first approved by the Employee Benefits Security Administration’s rule in October 2010.

Higher fees do not guarantee a higher return.

2. You can ask a financial advisor about shifting their money into lower-cost funds.

Actively-traded funds, which aim to maximize returns by rapidly buying and selling assets, incur much higher trading costs than passive funds, such as index funds. The latter invests in a set diversified portfolio or in a fixed mix of assets.

3. Workers can ask their employer about having lower-cost 401(k) options available or switching providers.

Elisabeth Leamy, ABC News’ consumer correspondent, said that if banding together with your co-workers and pushing for better choices still fails, workers should make the minimum contribution to get the company match and put the rest of your savings into a low-fee IRA.

“I think the major point that we want a lot of people to take away from this is that these high fees in the system are part of the greater shifting of retirement risks and costs that have happened in the past 30 years,” Hiltonsmith said. “They shifted from the shared responsibility of employers and employees to solely on the backs of employees.”

Hiltonsmith said 401(k) funds should not be the primary place to supplement a worker’s Social Security benefits.

“The system isn’t suitable to be the main place for workers to save for retirement,” he said of 401(k) funds. “It’s not safe and it’s not low cost.”

Copyright 2012 ABC News Radio


Want More Money? Move to the Mid-Atlantic or New England

Nick M Do/Getty Images(NEW YORK) -- Want to get richer during your lifetime? Live in New York, New Jersey or Maryland, according to a groundbreaking study released Thursday by the Pew Center on the States. People living in the Mid-Atlantic and New England states tend to be the most economically mobile, while those in the South are the least mobile, the study found.

The best places to climb the economic ladder are Connecticut, Pennsylvania, Maryland, Massachusetts, Michigan, New Jersey, New York, and Utah, while the worst states include Alabama, Florida, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina and Texas.

And just the act of moving could also could also help you attain the American dream, the study found. One-third of Americans who live in a different state from where they were born are more likely to be upwardly mobile, according to the data.

"Where you live matters for your economic mobility prospects," study author Erin Currier told ABC News. This is the first time economic mobility has been analyzed on a state-by-state level. And while the study did not look at why the states performed the way they did, past research suggests that higher education, savings and assets, and neighborhood prosperity or poverty during childhood drive economic advancement, said Currier.

Drawing U.S. Census and Social Security data from nearly 65,000 individuals in all 50 states over a 10-year period, the study analyzed three measures of economic mobility: individuals' earnings growth; individuals' earnings growth relative to others in their state, and state-wide economic mobility compared to national averages.  

Copyright 2012 ABC News Radio


Number of Ph.Ds on Public Aid Triples in US

iStockphoto/Thinkstock(NEW YORK) -- The life of an academic who pays hundreds of thousands of dollars in tuition and lives off stipends and scholarships is becoming more financially treacherous. A skyrocketing number of Americans with Ph.Ds say they are facing a reality in which they are turning to food stamps to survive.

One in six Americans received food stamps or other public assistance last year, but the number of people with a Ph.D. or Masters degree who receive that aid has tripled in the past two years, according to government data.

In a story published by The Chronicle of Higher Education this week Ph.D. holders and students who are teaching on the non-tenure track in community colleges and universities bemoaned their prospects.

Elliott Stegall, 51, is pursuing a Ph.D in film studies at Florida State University while he teaches two English courses at Northwest Florida State College in Niceville, Fla.

To help support their two young children, he and his wife rely, in part, on food stamps, Medicaid and aid from the USDA program, Women, and Infants and Children (WIC). He and his wife also have worked part-time jobs as house painters and cleaners and food caterers.

"As a man, I felt like I was a failure. I had devoted myself to the world of cerebral activity. I had learned a practical skill that was elitist," he said. "Perhaps I should have been learning a skill that the economy supports."

Various factors, mostly related to the down economy and state and local educational budget cuts, have helped drive educational institutions to rely more on part-time or adjunct professors. They are paid much less than regular professors and get few or no benefits.

Overall, 44 million people were on food stamps on a monthly basis in 2011, compared with 17 million in 2000, according to the U.S. Department of Agriculture.

The number of people with Ph.Ds who received some kind of public assistance more than tripled to 33,655 in 2010 from 9,776 in 2007, according to Austin Nichols, a senior researcher from the Urban Institute, who used data from the U.S. Census Bureau and U.S. Bureau of Labor.

"While on average higher learning still results in higher salaries, the promise of that financial payoff isn't materializing for some," Sara Hebel, senior editor with The Chronicle of Higher Education, said. "And for growing numbers of people with advanced degrees, they have not been insulated from financial hardship for a number of reasons."

Of the 22 million Americans with master's degrees or higher in 2010, about 360,000 were receiving some kind of public assistance, according to the latest Current Population Survey released by the U.S. Census Bureau in March 2011.

The number of people with master's degrees who received some kind of aid grew to 293,029 from 101,682 over the same three-year period.

The average salary for U.S. professors is $82,556, according to an annual report from the American Association of University Professors, released in April.

"People off the tenure track now make up 70 percent of faculties. People in those positions often have working conditions that can be tough, including not knowing from semester to semester how many courses they might teach," Hebel said.

That leads to an inconsistent income for adjunct professors, which is often much lower than a tenured faculty member.

Copyright 2012 ABC News Radio


Americans Earning a Bit More, But Spending Cautiously

Comstock/Thinkstock(NEW YORK) -- Monday’s income and outlays report from the Bureau of Economic Analysis is about as expected, with not much good news but no major bad news.
American incomes increased 0.4 percent, according to the report. If this trend continues, maybe the strength of the consumer will continue to buoy the economy in the future.
But spending dropped compared to a month ago.  This may be because spending had been pushed up earlier in the year because of warm weather.
The personal savings rate edged up to 3.8 percent last month from 3.7 percent in February.
While the U.S. economy isn’t in a recession, the recent batch of data does not show a robust recovery.
Copyright 2012 ABC News Radio


Poll: Six in 10 Support Policies Addressing Income Inequality

Adam Gault/Thinkstock(NEW YORK) -- Six in 10 Americans say the federal government should pursue policies to reduce the gap between the wealthy and less-well-off Americans, although fewer express support for the Occupy Wall Street movement that’s been protesting U.S. income inequality.

Sixty-one percent of respondents in the latest ABC News/Washington Post poll think the wealth gap is larger than it’s been historically.  And despite longstanding public concerns about activist government, six in 10 also say the federal government should seek to reduce that differential.

The public’s concern is buttressed by a recent Congressional Budget Office estimate that the wealthiest 1 percent of Americans have nearly tripled their incomes since 1979, while the bottom 80 percent of earners have seen their share of the nation’s total income slightly decline.

The poll, produced for ABC by Langer Research Associates, finds that 37 percent perceive the wealth gap as “much larger” than it’s been; just 5 percent think it’s smaller.  And 43 percent feel “strongly” that the government should pursue policies to address it, versus 24 percent who are strongly opposed.

Overall support for such policies is linked to perceptions of a widening wealth gap.  Among those who think the gap is much larger than it’s been historically, 84 percent say the government should pursue policies to address it.  That declines to 54 percent among people who think the gap is just somewhat larger than in the past, and 41 percent of those who think it’s about the same.

But while 60 percent support polices to address wealth distribution, substantially fewer -- 44 percent -- identify themselves as supporters of the Occupy Wall Street movement, and just 18 percent strongly so.  About as many, 41 percent, say they oppose the movement.

Copyright 2011 ABC News Radio


Consumer Spending in July Rises to Highest Point in Five Months

Brand X Pictures/Thinkstock(WASHINGTON) -- After showing a deficit the month before, consumer spending in the U.S. rose in July to the largest increase in five months, according to a new government report released Monday.

The Commerce Department says consumer spending rose 0.8 percent -- or $88.4 billion -- last month, rebounding from a 0.1 percent decline in June.

The same report also shows that personal incomes rose 0.3 percent, or $42.4 billion, in July.  The previous month, incomes grew slightly less, standing at a .2 percent gain.

Copyright 2011 ABC News Radio


Consumer Spending Unchanged in May

Brand X Pictures/Thinkstock (WASHINGTON) -- In the latest sign of a weak economy, consumer spending sagged last month, according to the latest report released Monday by the U.S. Department of Commerce.

The agency says consumer spending was unchanged in May, the first time it had been in several months.  Furthermore, when inflation was factored in, consumer spending decreased 0.1 percent.

The report also showed that incomes rose 0.3 percent last month, matching its increase in April.  When adjusted for inflation, incomes were still in the positive, rising 0.1 percent.

Copyright 2011 ABC News Radio


Survey: Women Worry More About Economy Than Men

George Doyle/Stockbyte/Thinkstock(NEW YORK) -- While many women are hopeful about a brighter financial future, a new financial survey out in time for Mother's Day says they're more likely than men to worry about today.

Jonathan Clements of Citi Personal Wealth Management explains that these worries stem from women's financial standing and the rising price of commodities.

"We know that women tend to have lower incomes," says Clements.  "A rise in the price of these economic necessities, things like gas, things like food, are going to crimp their household income more."

Moreover, in the average household, women are more likely than men to handle the bills.  But mothers may reap some rewards for their financial worries this Sunday.

"Americans are going to spend twice as much on Mother's Day than they spend on Valentine's Day," Clements says.

Copyright 2011 ABC News Radio


Berkshire Hathaway Expects Decline in First-Quarter Profits

Jemal Countess/Getty Images for Time Inc.(OMAHA, Neb.) -- In his address at the Berkshire Hathaway Annual Shareholders meeting on Saturday, investor and philanthropist Warren Buffett is expected to inform shareholders that the company’s estimated 2011 first-quarter profits have decreased significantly when compared to profits from the previous year.

According to a press release from the company, Berkshire Hathaway expects to report about $1.5 billion in net earnings for the first three months of 2011, down from the $3.6 billion posted for the same period in 2010. One factor which led to the decline in expected profits is an estimated $1.07 billion in losses incurred as a result of the Japan earthquake in March. Buffet, who is the chairman and Chief Executive Officer of Berkshire Hathaway, is also expected to inform shareholders about significant losses caused by an earthquake in New Zealand and flooding in Australia earlier in the year.

Copyright 2011 ABC News Radio

ABC News Radio