Why Trust and Investment Pros Should Raise Their Fees

The way the New Rich spend is "reprehensible," says money manager Steve Leuthold.

Nonsense, retorts Floyd Norris($) in today's New York Times.

When, for example, a table of bon vivants at a chic New York nightclub runs up a liquor bill of from $3,000 to $12,000 per night, that's not wretched excess. They're merely spreading their wealth:

Mr. Leuthold is an old friend of mine, and I am surprised he does not understand and applaud the economic function of such things. It is a classic example of private enterprise stepping in to fill a void left when the government no longer fills a role it once did.

That role is income redistribution.

Half a century ago, when Dwight D. Eisenhower was in the White House, personal income tax rates ranged up to 91 percent on income of more than $400,000. The rate for those who made more than $100,000 a year was 75 percent.

Adjusted for inflation, that would be equivalent to around $3 million now for the 91 percent rate, and $730,000 for the 75 percent rate. The current top rate is 35 percent.

The high tax rates of generations past were often avoided or dodged through shelters, Norris concedes. Still, he sees in high rates "a certain egalitarian spirit . . . a reaction to the excesses of the very wealthy ‘robber barons’ of the late 19th century."

Those days are gone, and it may be that they cannot come back, even if the political will arrives to bring them back.

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But whether or not the government can redistribute the money, the private economy will try to do it. The wealthy are persuaded that they simply must be in hedge funds and private equity funds — and should pay a fee to a bank for getting them into such funds. That is on top of the high fees charged by the funds themselves. The investments may or may not do well, but those collecting the fees are sure to prosper.

Wealth managers of the world, unite! Raise your fees and perform a public service!