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Portfolio > Economy & Markets > Fixed Income

A move toward more equal distribution of wealth?

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“The rich get richer” may not be an accurate adage anymore.

Economists pouring through data are saying – with increasing frequency – that the rich as a group are no longer getting richer. Over the last two years, many have become poorer, perhaps signaling the end of a 30-year period in which the super-rich became wealthier and more numerous.

In 2008, the number of Americans with a net worth of at least $30 million dropped 24% according to CapGemini and Merrill Lynch Wealth Management. Monthly income from stock dividends has fallen more than 20% since last summer, and the Mei Moses index, which tracks the price of art, has dropped 32% in the past six months.

An Aug. 21 New York Times article quoted Neal Soss, chief economist at Credit Suisse, saying, “Since the early ’80s, incomes have tended to get less equal. And I think we’ve entered a phase now where society will move to a more equal distribution.”

When the rich start changing their spending habits, it has widespread effects throughout society. Not only will it exacerbate budget worries for governments and charities, who rely heavily on taxes and donations from the affluent, but it also causes big trouble for a number of entities. Think exclusive country clubs and elite universities. High-end tourist destinations. Practically any luxury item. Many a private golf course or country club in the Denver area alone has advertised “drastically reduced” initiation fees, and a couple have even eliminated them outright in a desperate attempt to attract and maintain enough monthly dues-paying members to keep the club afloat.

The Times article also pointed out a recent study by a pair of economists at Northwestern University that found incomes of the affluent tend to fall more, in percentage terms, in recessions than the incomes of the middle class. The incomes of the very affluent – the top one-ten-thousandth – fall the most.

I see plenty of evidence of that in my own environment – particularly relating to the merely “affluent.” A friend who is a partner in a prestigious architectural engineering firm relates the story of how all the partners in the business this summer had to stop taking salary altogether for the remainder of 2009 in an effort to keep their business afloat. A year ago this golf enthusiast was a prime candidate to join a country club. Not so much today.

I could list several more examples of more affluent acquaintances having to make major lifestyle changes while the vast majority of my middle-class friends have essentially been minimally affected by the economic downturn. Sure it’s had an impact for most, but it hasn’t meant major lifestyle changes – like having to move to a less-expensive house or completely rethink their retirement plans or timelines.

All this just underscores the need for more-frequent contact between financial advisors and affluent clients who may be seeing their financial needs changing much more quickly than the typical middle-class client.


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