The DOL Fiduciary Rule’s Unintended Consequences

The Department of Labor’s Fiduciary Rule partially goes into affect tomorrow. I say partially because “enforcement” of the rule will be delayed until January 1st, 2018, if the Rule isn’t completely cancelled before then.Unintended-Consequences-300x210

The rule is designed to require brokerage firms to disclose conflicts of interest inside IRAs, such as getting a fee for the management of an IRA, but also investing the IRA money in an investment that pays the firm or the advisor as well. That’s called double dipping.

Disclosing conflicts like the above sounds good, doesn’t it? However, this rule is a typical example of how the Federal Government means well, but completely misses the point. You see, the Rule only applies to IRAs. So what about non IRAs such as taxable investment accounts, 529 plans, trusts, annuities, CDs, etc? The Department of Unintended Consequences, if it existed, would have a field day with this one.

Here’s the unintended consequence of the DOL Fiduciary Rule. In response to the Rule, instead of disclosing fee conflicts, many big brokerage firms are simply not allowing brokers to receive commissions or fees on IRAs. The net affect of this will be that the average American IRA investor will not get good advice or investment management on the biggest asset they own besides their house, because brokers won’t get paid for it.

The rule could actually make things worse for the average investor.

So what should you do about this? You could work with an independent RIA. As a reminder, Registered Investment Advisory (RIA) firms such as Wright Financial Group LLC have always been required to act as fiduciaries, for IRAs and non-IRAs.

Read about the benefits of working with an RIA.

What’s Wrong With This Picture?


“You can’t believe what you read in the papers 18364-whats-wrong-with-this-picture
Or half the news that’s on TV
Or the gossip of the neighbours
Or anyone who doesn’t want you to be free”

The lyrics from Van Morrison’s song, “What’s Wrong With This Picture”, ring too true today. Or do they?

I’ve been racking my brain about what to write this month. Besides the fact that I’m one year older this week, (turning 29 again) I can’t find anything that I can create a teaching moment out of. Of course I know that good news doesn’t sell, so I’ve been trying to figure out what’s wrong with:

  • The Stock Market
  • The Economy
  • The Bond Market
  • The Fed
  • Politics
  • International alliances

But everything seems to be going along just as it’s supposed to!

I know that some of you will argue with me and say that things are “wrong”. But luckily I’m here to tell you that things are “as right as rain”. (Nothing wrong with a good rainy day)

Let’s break each of the above items down, shall we?

The Stock Market

Can you believe that the market is over 21,000? No? But I can!

If you understand the way corporations work, you will understand that the market CAN keep going up infinitely over time. It’s all about greed.

Pretend you own a company. Your goal would be to earn LESS money next year, right? NO! You would want to earn MORE money! Your goal is to GROW your company. Guess what happens when you grow a company? It becomes worth more! When it’s worth more, the “stock” in the company goes up.

Some years may not be as good as others, that’s why your company stock may go up and down. Over time, if managed correctly, your company should grow. And you bet you will do whatever you have to to make sure your company grows, even if it hurts.

The stock market runs on greed. Nothing wrong here!

The Economy

The economy can be compared to a private company, only much bigger. And the same principles from above still apply. What makes the economy a bit different from a private company is that the government runs it instead of a Board of Directors. (Also the fact that’s it’s a lot harder to quit a country and find another one) (Also if you’re a dictator, the analogy of hiring and firing takes on a whole new meaning)

Unlike a private company where you do your job and go home, citizens live in their economy and are directly affected by many decisions the government makes. Hence, everyone has an opinion about what the government should be doing to improve the economy; raise or lower taxes, free college education, benefits for illegal aliens.

But whether or not you agree with a Government’s methods, their goal is (or is supposed to be) to grow the economy and improve the welfare of its citizens. If they fail, they won’t get re-elected. Remember, some private companies take much longer than four years to show solid growth.

Many people have different ideas about how to run the economy. Nothing wrong here!

The Bond Market

Some would argue that low Interest rates are wrong, but that simply isn’t true. In fact, if interest rates were too high, that may be a signal that something is not right.

It’s true that (in general) if interest rates go up, bond values will go down. But bonds don’t always respond the way you think. Bonds also react based on their MATURITY and RATING. Anyone who sold their bonds in 2007 when interest rates “couldn’t go any lower”, missed one of the best bond rallies in history. A smart bond investor will create a bond ladder to hedge against all the above.

Bonds are affected by many factors. Nothing wrong here!

The Fed

What’s the Fed going to do? Well, they can raise, lower, or keep interest rates the same. They can issue Treasuries or buy them.

What the Fed does will have an impact on how your company from above (and also the economy) can lend or borrow money. This can affect profits. But as a good CEO, you’ll eventually figure out a way to grow your company DESPITE higher or lower rates.

You can hire or fire employees. You can expand or shrink inventories. You can relocate to other states or other countries for tax shelters. (Well, maybe not other countries anymore)

The Fed will do stuff and companies will react. Nothing wrong here!


Politics is polarizing because it’s personal. Just like the NFL, if your team wins, woohoo! If not, there are riots in the streets. In politics, there are also scandals. Remember, politicians are people, they do stupid things, that’s why it makes them so fun to watch, just like the NFL!

You wouldn’t assume the NFL had an influence on the stock market. Similarly, don’t confuse politics with economics. Politicians may set economic policy, but the politics you read about in the news, see on TV and vote on in the polls are generally sensationalist entertainment. (Donald Trump is a master of this!) Just ignore the man behind the Twitter account!

Private companies also regularly hire and fire CEOs in the hopes of moving their stock in the right direction. Like politicians, a CEO is sometimes little more than an expensive media image.

Politicians come and go and do some entertaining things. Nothing wrong here!

International Alliances

If you think our country is good or bad, there are always others who make us look downright rotten or absolutely genius. As a country, we play in a big sandbox with other countries. Some countries are more prosperous than others, some are bullies and others protectors. There are alliances and deceptions. (It’s like Survivor!)

If you are President, whichever alliances you choose to make or break, (Brexit anyone?) you do so because you believe it will be in the best interest of your country. The other countries will do what’s in their best interest as well. But remember, money talks! Your going to be friends with the kid who owns a car if you don’t have one.

International alliances are interesting. Nothing wrong here!

Without controversy, disagreement, mistakes, scandals, alliances, greed, etc, we as investors would not have the “opportunity” that we do. If no one was selling, we couldn’t buy. if no one was buying, we couldn’t sell. Investing is all about taking advantage of the normal workings of the world.

The only thing WRONG is not profiting from it.

“What’s wrong with this picture?
It’s only hanging on the wall
Why don’t we take it down and
Just forget about it ’cause that ain’t me at all”

Regulate This!

Food labeling regulations have made it retirement_funny_nutrition_label_postcards-r69350055770c47efa7f9a6f97a652366_vgbaq_8byvr_512easier than ever for shoppers to know how much of and what exactly they are eating. This country, however, still has an obesity problem. Similarly, increasing regulation for financial advisors won’t necessarily cure the retirement savings problem.

It’s big news that President Trump is considering doing away with the Fiduciary Rule that former President Obama created. The Rule is designed to protect investors against unscrupulous financial sales people by requiring them to act in the best interest of their clients. (Registered Investment Advisory firms such as Wright Financial Group have always been required to act as fiduciaries) The reality is that whether this rule goes forward or not, it won’t help the people who really need help because it doesn’t solve the underlying problem.

The Rule sounds good! Of course financial sales people should work in the best interests of their clients. The Rule would require financial sales people to sell their clients the investment with the lowest fees. Less fees means more money in the investor’s pocket, which means more money for retirement.

Problem solved! Everyone can retire now because we’re not getting ripped off anymore, right?


By regulating prices, many of the people who really need help won’t get it because they are not profitable accounts. Who remembers the gas lines of the 1970’s when the Government capped oil prices?

The Government’s job is to protect citizens from fraud and danger, not to make sure we all retire in style. That’s the job of the financial advisor! So why don’t all financial advisor clients retire wealthy? Is it because their advisors all charge high fees? With the exception of some who have endured real financial hardship, it’s because they choose not to. For one reason or another, they choose not to follow the financial advice given by their advisor.

The fact is that most financial sales people, advisors, planners or whatever they call themselves, “do” work in the best interests of their clients, even though they are not “required” to. Most financial people are genuinely good. Thinking about the advisor/client relationship objectively, logic tells us that when an advisor helps a client succeed, then the advisor succeeds as well.

The focus of the Fiduciary Rule is on the high fees charged by financial institutions and sales people. I agree, some of the fees I’ve seen people pay are out of control. But that isn’t the whole reason that many people won’t be able to retire. The problem that the Rule should focus on is that advisors and the financial companies they work for are “for profit”. This is am inherent conflict of interest.

So yes, it’s the Government’s job to mitigate this conflict of interest with regulations. I agree with the Rule on this point. One regulation I specifically agree with is pricing disclosure. 401(K) plans are required to provide transparent pricing now. Now we can see what a plan with “no fees” really costs. I believe this should be expanded to include all financial products, not just 401(K)’s. (No, a 250 page investment prospectus is not a good disclosure. It just wastes paper!)

As an example of good disclosure, how many of you remember way back before the Government required nutrition labels on food? Food companies used to try and trick us just like “no fee” financial products trick us into thinking we won’t pay anything. Before the new food labeling regulations, there was no way to figure out how many calories we were eating. The old labels would tell us there are 17 servings in a one-pound package, but the amount of one serving is two ounces.

But even with good disclosure, some of us still decide to eat more calories than we are supposed to. And that’s the real problem, self-control. Many people are just not saving enough.

It’s silly to think that transparent pricing disclosure (or rules capping the price) of financial products will mean that suddenly everyone will start to save enough. In fact, Fidelity jut released its annual survey of 401(K) account balances and found that they have increased to a record average amount of $92,500 per account by the end of 2016. While this is encouraging, I’d like to know the average age of the 401(K) account holders. This amount is good for someone in their 30’s, but not so good for someone in their 50’s.

We’ve all heard stories about the little-old-lady who lived frugally all her life, then retired with a multi-million dollar fortune. She kept all her money in the bank, so she paid no fees, but she also didn’t earn much interest. How did she do it then? She saved over half of her income for her entire working career!

I don’t think that President Trump should cancel all parts the Fiduciary Rule. I think the disclosure rules will certainly help people make better investment decisions. Disclosure requirements should also lead to lower financial product prices. It’s not a silver bullet, however. Retiring in the manor in which you desire takes personal responsibility and discipline to save and invest.

Let’s make a deal. I’ll eat less calories if you save more.

The New World Order

So 2016 happened. You may have noticed that I decided to sit out the second half of the year with blog posts and my newsletter, opting instead to send you news article of interest. And boy was the news interesting!

Now I’m back. And I’d like to inform you that I’ve joined the New World Order!

That’s right, Wright Financial Group LLC has gone solar!

We’ve had a busy second half of 2016. In-between the cycling holiday in France, the Dimensional Funds conference in New York City, the custodian switch to TD Ameritrade and the election of Donald Trump, we installed solar panels, batteries and lots and lots of cable. We’ve been running the home-office on sunlight since October 10th, 2016. (Well, until the winter solstice when we’ve had to plug into the grid for a few hours each day due to lack of sunlight)

Why did we do this? is it because we’re so green? Is it because it’s so cheap? Is it because it’s really cool and Elon Musk does it with Tesla and Solar City? Yes, yes and yes!

As a Registered Investment Advisory firm, Wright Financial Group is required to have a disaster recovery plan. All of our data is stored in the cloud and protected by two-factor authentication and 128 bit encryption. So yes, technically if disaster struck, we could just go anywhere and continue to work. But wouldn’t it be really cool if, while everyone else was without power, or running on loud, gas-guzzling generators, we could remain at our desks and work as normal?

Why yes, that would be very cool! So I set about researching solar power

I didn’t realize that these systems were so complicated though. The diagram at the right shows a sample system. (looking closely, this system would lose power even in ideal conditions. Can you spot why? (Click on the diagram to enlarge)

It turns out that configuring a solar power system is not as simple as just setting up a panel and plugging in your electronics. I needed to learn a lot.

Power Requirements

I had to figure out how much electricity I needed to run my home-office and then figure out how many solar panels I needed. Do you know Ohm’s Law? Neither did I! On the back of all electronic products is some basic power info which may or may not include, watts, volts and amps. Depending on what information is provided, you can use a version of Ohm’s law to calculate the other numbers. Since everything I wanted to plug in was 12 volts, I only needed to know amps and watts. Specifically I needed to know amp-hours and watt-hours. (I’ll get to why later)

I used a little trick to narrow things down even more. I knew that most heavy-duty extension cords have a 13 amp max, (One of mine had a little tag on it saying this) so I knew that anything that used more than 13 amps was not going to work. (like a refrigerator) So watts was going to be the deciding factor for the size of my solar power system.

If the electrical info on the device I want to plug in showed watts, that’s great. But in order to find watts if only amps were given, I could calculate as follows. volts x amps = watts. The back of my computer showed 1.3 amps, so to find out how many watts it uses, I calculated 12 volts x 1.3 amps = 15.6 watts.

Adding up everything I needed to run my office came to about 110 watts.

Solar Panels


Solar panels lose about 30% in efficiency  when they convert the sun’s power to electricity. A panel rated at 100 watts really only produces about 70 watts. The cables used to connect your panel to your batteries also rob you of some electricity.

I needed 110 watts, so I purchased two, Renogy Solar 100 watt panels to generate about 130 watts. More than I needed. I  would have a little room to grow!


Obviously you need to put your panels in the sunlight where there is nothing blocking the view in order to gather power from the sun. Luckily our building has easy roof access, (after I bought a 32 foot ladder) so putting the panels on the roof was an option.

Do you know that the sun moves? Specifically do you know that the sun moves a little differently every day? Yes, you do! That’s what gives us the seasons! So in order to get the most light on my panels, I needed to figure out what direction to face them and what angle to tilt them so that they faced the sun. Ugh!

Luckily there are many websites and phone apps that can help out. I downloaded an app onto my smartphone and faced my panels due south (not magnetic south!) and tilted them at an average angle that would gather the most sunlight for the season. (Current winter angle is 57.4 degrees) I will need to adjust the angle four times-a-year. In the summer, they will lay almost flat facing up at a 10.2 degree angle. Today, in the winter, they are almost vertical. Luckily, they always need to point south.


This was not so easy to figure out either. The length was easy to figure, (how tall is the building) but have you ever heard of an MC4 connector? Do you know what gauge the cable should be in order to carry the required amount of electricity without melting?

Neither did I.

In the end, I bought two 50 foot lengths of 10 AWG PV cable with MC4 solar panel connectors. Why two lengths, I have no idea why. I’m assuming positive and negative.

I also needed to learn that panels connected in serial double the volts and ones connected in parallel double the watts. I didn’t need 24 volts, (That would fry my computer) so I hooked up the two 100 watt panels together in parallel to achieve about 130 watts.

Are you following so far? This is almost as hard as studying for the CFP exam!

Charge Controller

Moving on…A solar power system needs batteries for those times when the sun is not shining. In order to keep your batteries from exploding when they are fully charged, you need something called a charge controller. Who knew batteries could explode? (I’m looking at you Samsung)

A charge controller makes the battery charging act like a football stadium. Right before the game, the seats tend to fill up pretty fast. But soon, the seats start to fill slower and slower as everyone has already arrived. Then at some point, they stop filling altogether. (like when the NY Giants are losing so badly that people stay home) When the batteries are fully charged, the controller cuts the power to them so they won’t blow up. Genius!


This is where the watt-hours come in. If we need a battery that can run my office for an eight-hour work day during a snow storm when the sun isn’t shining, we need to figure out how big and/or how many batteries we need.

Solar batteries are just lead-acid car or boat batteries. They are designated in amp-hours (AH) or watt-hours (WH). If we know one, we can calculate the other by using the same formula from above. In my case, if i want my 110 watt desk to be powered for eight hours, I would calculate as follows. 110 watts x 8 hours = 880 watt hours. Then using the modified Ohm’s Law formula, 880 WH / 12 V = 73 AH. So I would need a 73 amp-hour battery. That’s a big battery!

I decided to go with two, 35 amp-hour batteries which would give me about 420 WH each or 820 WH total. In the absence of sunlight, and after subtracting more inefficiencies when the power is converted from DC to AC, these batteries would run my system for about 6 hours. Under ideal light conditions, the panels would actually produce more power than I needed, thus charging the batteries for a rainy day.

Good enough.

AC Inverter

The sun is not cooperative! besides not shining all the time, (except in San Diego) it shines with DC power! My electronics run on AC power. So to convert from DC to AC, I needed a power inverter.

This is a little more straightforward. since I would be using about 110 watts, I could get by with a small 300 watt inverter and have room to grow.

The Final System img_20161011_1258433

In the end, I cheated. I bought a ready-made solar generator from Goal Zero called the Yeti 400. It’s a charge controller, a battery (35 AH) and a 300 watt AC inverter all in a nice portable package. I chained the second 35 AH battery to it using the Anderson Powerpole connectors. (More stuff to learn)

This system not only looks better than all the components hooked together with bare wires, but it’s portable! (I took it camping with my son in August. It powered a fan, an LED light and a laptop on which we watched zombie movies every night and never ran out of power)

I wish I could have received CFP continuing education credit from all the research I did for my solar power system. In the end, I learned something new though. I also now have a solid disaster recovery plan for my business and a portable zombie camping cinematic experience. It’s a pretty cool New World Order.

You Won’t Believe What This Performance Graph Shows!

Please note, this post is satire. It is NOT about investing or investments and should not be confused with the topic of investing.

Performance Graph

Study the above performance graph carefully.

Can you see a pattern?

Can you see a trend?

Do you know how to achieve such high performance on your own?

I do.

And I can show you how to achieve it!

I’ve been collecting performance information for over 16 years now and have distilled it down to a science. I know what it takes to get great performance. In fact, using the above chart, and others like it, I’ve been able to achieve higher performance than I’ve ever dreamed possible!

And best of all, I’ve never lost money achieving it.

Interested? Read on…

First, some background. I majored in Economics in college. I studied under Professor Rosalind Seneca who attended Oxford High School and later matriculated at Cambridge University in England. I studied Statistics and Econometrics. I’ve read Adam Smith’s The Wealth of Nations and Jude Wanniski’s The Way the World Works. I worked at the American Stock Exchange in New York City and was an advisor to the Seattle Seahawks with Wells Fargo Investments in Seattle, WA.

When I first started analysing my performance data, computers were not very powerful. The internet was in its infancy and I had to learn on my own. This time of “reinventing the wheel” gave me a lot of insight into my performance. I made some mistakes. And I achieved some success.

Today, I’ve compiled all of my performance data from those prior years and am now able to see the trends and patterns that have created the best performances. I am now able to replicate great performance without fail. And I can show you how to do the same. I can show you how you may be able to more-than-double your performance, from less that 100 to over 258 as the above chart shows. You will have the opportunity to gain as much as 24.9 in one week!

Of course, it takes time and discipline, and maybe a little bit of luck. But if you follow my advice, you will achieve great performance. Many so-called “experts” want you to subscribe to a newsletter or buy a book to learn their “secret”.  I do not subscribe (No pun intended) to that attitude. I put my money where my mouth is. I eat my own cooking and am willing to share the recipe with you for free.

Here’s how my performance system works.

Before we can analyse performance, we need to accumulate enough data. The graph below shows the previous year’s data. You’ll see multiple “build” phases followed by “recovery” phases. These phases can vary depending on a number of factors. Be careful though, if a build phase happens too quickly, it can lead to a “taper-tantrum”, as shown by the sharp decline on a particularly black Sunday in October.Training load.PNG

Take special note of the April through June timeframe. You’ll notice that the two graphs begin to diverge. This is the “sweet spot” where you can achieve the best performance. Comparing this graph with the performance graph at the top, we see that optimal performance in the light blue area is predicted to occur in early to mid June, coinciding with the green and red lines being farthest apart.

Be careful though, June, July and August are tough months for performance. Many people are away on vacation. The kids are out of school.  It may be difficult to achieve high enough volume to get good performance. That’s why many people refer to this period as the “Summer Swoon”.

You’ll also need to eat right and hydrate. Exercising in the heat can really deplete your electrolytes. You’ll need to make sure you eat enough protein for those long weekend workouts, and balance your diet with enough carbs so you can accelerate when on that group bicycle ride. Remember to dress appropriately for the heat. Always wear a hat and sunglasses and don’t forget the sunscreen!

On your recovery weeks, listen to your coach and take it easy! You can’t keep up the build phase and expect good performance when you are fatigued. Before your big race, be sure to taper so you can be rested and achieve your best athletic performance, as shown in the graph at the top of the page.

What, you thought I was talking about investing? For that, you need to click HERE.




Retirement Planning Is For The Dogs

Whoever said “happiness is a warm puppy” has a real sense of humor!

IMG_20160419_1154011My wife (The Master Traveler) is a very active volunteer with Peaceful Passings Senior Animal Rescue. So when she asked me if we could babysit a puppy for a week, I was a little surprised. It’s been awhile since we’ve had someone or something so young in the house and I had forgotten how much fun / work it is.

Our current four-legged family member, Reagan, (yes, named after the former President) was good enough to help out, as long as there were treats involved. And that’s when I started to realize that Retirement Planning is for the Dogs!

A little background first…

Day 1

My first reaction to seeing our new house guest was to immediately want to adopt her. Boy was she cute! Reagan thought so too! It was so cute when she would steal my son’s hiking boots and hide them under the dining room table. It was so cute when she nibbled Reagan’s ears to get him to play. It was so cute when she barked out the window at anything that moved. It was so cute when she peed on Reagan’s bed that first night. Wait, no, that was not cute!

Days 2

So cute! Puppy, no! Stop that! No! Come here! No! Puppy, no! No, no, no, no, no, no, no, no, no, no, no!

Day 3

Cute? Puppy, no! Here’s a treat, no! You can have a treat if you sit, no, sit! Sit, sit, sit, sit, sit, sit, sit! No, no, no, no, no, no, no, no, no, no, no! It’s a treat, please sit. Good dog!

Day 4

Ugh! You want a treat? You can have a treat if you sit, no, sit! Good dog! Another treat if you sit. No, sit! Sit, sit ,sit. Good dog! Treat for sitting. No, no, no, no, no, sit, sit, sit, sit, sit! Good dog!

Day 5

OK, if you sit you can have a treat. Good dog! Another treat if you sit again. Good dog! No, sit! Good dog!

Day 6

Look, she’s sitting! She deserves a treat!

The Lesson

A puppy is curious about everything. A puppy needs to be taught “almost” everything! A puppy doesn’t speak English. A puppy likes treats. The best way to teach a puppy is to bribe her with treats!

Retirement Planning Is For The Dogs

The Challenge

We as humans are born into a world that tempts us with treats on a daily basis. We want to enjoy the finer things in life and have a comfortable living. That’s natural. We are also expected to plan for the future so we can have a comfortable retirement or in case catastrophe strikes. The problem is that many of us humans never learn delayed gratification until it’s too late. Let’s take a look at a typical human.

Human Years, 20’s

Humans are so cute when they’re in their 20’s. They graduate from graduate school, get married, buy their first house, have a baby, buy a beater car, adopt a puppy and land their first job! Wait, that’s not so cute!

Human Years, 30’s

So cute! Another baby! Human, save! A new car! Save! A bigger house! Save! Save, save, save, save!

Human Years, 40’s

Cute little human, save! No, don’t buy that sports car, save! No, don’t buy a vacation house, save! No, don’t renovate your kitchen, save! No, no, no, no , no, save, save ,save, save! You can have a tax break if you save.

Human Years, 50’s

Cute human? You can have a tax break if you save. No, don’t buy that boat, save! No, don’t buy a motorcycle, save! No, no, no, no, save, save, save, save!

Human Years, 60’s

Ugh! You can have a tax break if you save. No, don’t buy that RV, save! No, don’t take Social Security early, save! No, no, no, no, save, save, save, save!

Human Year 70 1/2

Retirement! No more tax breaks for you! Poor human can’t afford any more treats.

The Lesson

Humans are curious about a lot of things. Humans need to be taught “a lot”of things. Some humans speak English. Humans like treats. The best way to teach a human to save for retirement is to give him a tax break! Ugh.

Just as a dog needs a human to teach him to sit, humans need Financial Advisors to teach them Retirement Planning. I wish we had treats to give to our clients when they reach savings milestones. My firm gives out pretty nice pens. And we have some cool LED keychain flashlights on order! IMG_20160405_2026249~2

Maybe Financial Planners should be allowed to adopt humans and teach them delayed gratification just like humans adopt dogs. Dogs have a pretty good life!

As Jerry Seinfeld says, “Dogs have no money. Isn’t that amazing? They’re broke their entire lives. But they get through. You know why dogs have no money? .. No Pockets.”

The New Technology Pricing Paradigm

I’ve been discussing the future of technology and focusing on its benefits in the past two blog posts. This month, I thought I’d talk about the darkest danger of all of this new technology, pricing. Yes, technology can cause prices of some services to go down, but sometimes new tech can lead to higher prices. As the new tech paradigm matures into a way of life, there will be growing pains. And the consumer won’t always win.

Money TalksNot Part of package

Our economy is a free market economy. The theory is that buyers and sellers will come together to set prices based on supply and demand. Sometimes, however, technology can be used to remove the “free” in market.

For example, cloud technology has been a boom for the delivery of data: music, books, photos, file storage, and prices for those items have dropped accordingly. But to get to that data, one needs to have an internet connection. Who controls access to the internet? Are you paying less for internet access now than you were ten years ago?

There are two dangers that arise from the new technology pricing paradigm.

  1. Lower prices are not always what they seem
  2. New tech can also be used to raise prices

Whoever Owns Access, Dictates Pricing

If prices are driver by supply and demand, then the more scarce something is, the more it will cost, right? Well, what if someone could control the supply of something? Think back to the movie Superman. (No, not that one, the one from 1978 with Christopher Reeve) In the movie, Lex Luthor buys up real estate in the desert along the San Andreas fault for pennies. His plan is to cause an earthquake, knock half of California into the Pacific Ocean, then become the largest beach-front real estate mogul on Earth.

Sometimes new tech can be used as a way of sandboxing something in order to create artificial supply shortages. And even if prices do fall, tech can sometimes be used to redirect the revenue. Look at what’s happened with digital music.

In her now famous episode, Taylor Swift pulled her music collection from Spotify, not only because of the pricing pressure of streaming services, but also because the revenue from her music was being diverted to the access providers and away from the artists. I won’t argue whether musicians are paid too much or not, but if anyone should get revenue from music, it’s the artist, not the label or the access provider.

In a similar vein, Jay Z started his own streaming service to combat this revenue theft. Tidal is an effort to help redirect royalties back to the artists. But the new company is having a hard time convincing people to pay $20 per month. Thanks to Steve Jobs and iTunes, people are only willing to pay $.99 for a song. And many people even think music should be free. Remember Napster?

Internet Neutrality

When digital music first appeared on the scene, Apple owned the access point to the user base through iTunes. The iTunes catalogue has since spread to more than just music, to books and movies as well. Apple forces these content providers (authors, musicians, studios) to share revenue or pay fees to have access to the iTunes user base.

Cable companies are famous for this behavior as mergers have created new monopolies. Internet providers and wireless telecoms control the access to content such as iTunes, Kindle books, Netflix Movies and cloud storage. They can not only demand high fees from customers, but high fees from these same content providers as well. Services like Netflix, Hulu and YouTube can be held hostage by the access providers. They can be given lower priority, slower data feeds or even be excluded altogether unless they pay for access to the internet service provider’s user base.

Stopping behavior like this is why we have the “net-neutrality” debate. Unless people like you and I are aware of this behavior and vote accordingly, we are at the mercy of the internet provider lobby groups.

Incremental Upgrades

Here is an example every cable TV subscriber can relate to, the incremental upgrade. In order to get NBC Sports to watch pro cycling races, I need to subscribe not to America’s Top 120, not to America’s Top 200, but to America’s Top 250 channels that I will never use!

My internet provider also keeps sending me upgrade invites. I can upgrade from the plan I currently have, 50 Mbps up and down, to 100 Mbps up and down for only $20 more per month. Do I really need that? And studies have shown that the Internet providers don’t even provide the maximum speed advertised!

You know that box that connects you to your internet or you cable TV? It’s not free. You pay a rental fee for hardware unless you buy your own equipment or somehow convince your provider to waive the fee. Depending on the hardware you opted for, only some services are available. For example, I can’t stream my DVR recordings to my smartphone (should I ever want to) unless I upgrade to “The Hopper” and pay extra for the “Sling” service.

Don’t even get me started on the “Get a 2-year price guarantee with a 2 year agreement” scam. It’s only for new customers unless you theaten to cancel your service or sign a new 2-year contract.

Wireless carriers play the upgrade game too. Uunlimited data is not what you think. Most wireless companies will throttle you back to the stone age when you hit their high speed data cap. Unlimited, yes, but good luck getting anything done at 2g speeds. You are always welcome to upgrade for more high speed data.

Cord Cutters Could Pay More?

Cord cutting is the promise that if you cancel your $100+ per month cable bill and sign up for cheaper a-la-cart services, you can save money. But watch out! spend a little here and a little there and you might actually spend the same or even more money.

Cost per month                    Service

$9.99                                        NETFLIX

$7.99                                        HULU

$8.99                                        Add Showtime to HULU

$8.25 ($99 / year)                Amazon Prime

$14.99                                      HBO GO

$9.98                                        2 movie rentals / mo at $4.99 each

$60.19                                    Total not including live sports (Perfect example of cable companies controlling access to content)

Beware of Monthly Pricing

Finally, we’ll discuss monthly fees. It used to be popular to buy a song for $.99, buy a CD for $9.99, a DVD for $19.99 or a software package such as Microsoft Office for $120. As seen above in the cord cutter example, the new tech paradigm has re-categorized this content into “services” with a monthly fee for unlimited access.

I think in general; the monthly fee for unlimited access to content is a good deal. Recently, however, the new pricing paradigm has taken an unexpected turn. The content providers themselves, publishers, record labels, software companies and artists like Taylor Swift have started to withhold their content from the content providers, whose content you can only access from the internet providers. My head hurts.

It’s only a matter of time before Taylor Swift creates her own monthly service for fans to access her songs.

A Bright Spot

Remember the days of long-term cellular contracts? If you are diligent in your search for access and content, you can usually sign up on a month-to-month basis for most services. Thankfully, this seems to be a trend. The demise of long-term contracts is one bright spot in the new tech pricing paradigm.