David Kirkpatrick

January 19, 2010

Taxation temperature? Cold days ahead for the financial industry

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 3:45 pm

And given the performance of the financial industry, coupled with some massive public relations missteps and populist uprising looking to put at least a few banker’s heads on pikes for a Main Street parade, it’s a pretty safe bet when D.C. goes looking for new money banking and financial services will be the most public targets.

Here’s a breakdown of seven potential tax changes coming this year. Over half target the financial industry.

From the link:

Tax banker bonuses more

The populist fury unleashed when bonuses were paid to AIG executives is back. This time it’s during bonus season on Wall Street, where investment banks are expected to distribute tens of billions of dollars to reward their employees for the banks’ 2009 performance.

House Financial Services Chairman Barney Frank, D-Mass., will hold a hearing on Wall Street compensation next week. On the agenda will be consideration of bonus taxation, as well as President Obama’s proposal to tax banks to make up for any bailout money that isn’t repaid.

Frank’s committee doesn’t write tax law. That’s up to the House Ways and Means and the Senate Finance committees. But he is beating the drums for change.

“I think compensation has gotten excessive,” Frank said in a statement. “I want to underline what we are already doing. Frankly, in the hope that maybe the Senate will be even more inclined to [act].”

So don’t be surprised if talk of a banker bonus tax is revived. But it’s not clear how viable it would be. “That’s more politics than policy,” Schwarz said.

July 2, 2009

Cloud computing and Wall Street

Looks like IT tight budgets at financial firms are the rubber and cloud computing is the new road.

From the link:

Can new technology initiatives help pull Wall Street out of the danger zone? A new survey released by IBM and Securities Industry and Financial Markets Association (SIFMA) finds that IT budgets are tight on Wall Street, but things are loosening up, and there’s going to be plenty of demand for new technology initiatives in the near future as firms on the Street look to “transformational” solutions to help better manage risk.

The survey of more than 350 Wall Street IT professionals found a “significant” increase in interest in new technologies and computing models, in particular cloud computing, as firms seek to overcome budgetary restrictions and skills shortages. Almost half of the respondents now see cloud computing as a disruptive force.

The past year has seen marked growth interest in cloud computing. The number of respondents predicting that cloud computing would force significant business change more than doubled (from 21% in 2008 to 46% in 2009), making it the top disruptive technology, ahead of operational risk modeling and mobile technologies.

Major initiatives underway at most Wall Street firms include enhancing electronic trading tools (69%), improving data capacity and bandwidth (58%), and improving technology framework and infrastructure
(58%). It can be assumed that the last item includes SOA efforts.

June 1, 2009

Scott Burns on retirement

If you’ve never read any of Scott Burns’ financial advice, you are in for a treat. For years I’ve read his very practical and accessible ideas on investing, retirement and other financial topics. His “couch potato portfolio” investment plan is a work of simplistic genius and is now made even easier to implement at his website AssetBuilder.com.

His latest column is on the problem of retirement income being eaten up by financial services industry fees. He offers a few novel solutions and points out the institutional hurdles any plan will face from industry lobbyists.

Financial planning and investment is not easy, but it can be made easier by leaps and bounds. Read a little more of Burns to see what I mean.

From the final link:

As I have shown in earlier columns, the high cost of some 401(k) and 403(b) plans can cut a worker’s lifetime accumulation by one-third— as much as a major market decline. Worse, when those high fees continue in retirement, the probability that workers will run out of money nearly doubles.

But that dismal reality has a big upside. If worker retirement incomes are reduced by as much as one-third by excessive fees, reducing those fees means retirement incomes could be increased by as much as 50 percent. Similarly, reducing fees could also mean that the risk of running out of money could be cut in half.

That makes investment fee reduction a high-stakes opportunity.

So how can government make it happen?

One notion is very simple: Open enrollment in the federal Thrift Savings Plan to all workers anywhere. This program has annual costs of only 0.03 percent. It provides workers with simple choices of ultra-low-cost index funds or portfolios of same. Workers could then choose between the plan, if any, offered by their employer and the low-cost plan offered by the federal government.

A 30-year-old worker could choose between accumulating as many as 11.5 years of final wages in the Thrift Savings Plan or as few as 7.7 years of final wages in his or her employer’s plan. I doubt that it would be a difficult choice.

Better still, employers could save money. Rather than wasting up to 3 percent of payroll to provide matching contributions that are consumed by fees, employers could create efficient plans. Or they could encourage workers to join the federal Thrift Savings Plan. Either way, employers could save up to 3 percent of payroll.

Think about this a bit and you see that workers and employers would both benefit. Only the financial services industry would be unhappy. But, as they say, “Two out of three ain’t bad.”

Could something this simple actually get done, since it would benefit millions of workers?

Get real. This is America, the land of the lobbyist and home of the vested interest. A proposal this simple would be attacked as anti-free enterprise by the Investment Company Institute, the entire insurance industry, the Employee Benefit Research Institute (EBRI), and benefit consultants of all shapes and sizes who make their livings off the complexity and expense of the current system. Some would say such a change would be ruinous to an already damaged financial services industry— the same industry that workers are supporting with hundreds of billions of taxpayer dollars.