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There’s a growing debate over how higher taxes on the wealthy affect interstate migration trends, and some experts say millionaire tax flight is underway.
“Taxes are an important part of this puzzle,” said Jared Walczak, vice president of state projects for the Tax Foundation, speaking at CNBC’s Financial Advisor Summit on Wednesday.

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There’s a growing debate over how higher taxes on the wealthy affect interstate migration trends — and some experts say millionaire tax flight is underway.
“Taxes are an important part of this puzzle,” said Jared Walczak, vice president of state projects for the Tax Foundation, speaking at CNBC’s Financial Advisor Summit on Wednesday.

“There’s more movement among the highest-income and highest-net-worth individuals than there is among the lowest,” Walczak said. He said studies show there’s an out-migration when states make these changes.

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“Tax policy is having an impact,” said Bess Freedman, CEO of Brown Harris Stevens Residential Sales, who also spoke on CNBC’s panel. But it’s not “earth-shaking” or the “end of the world for New York,” a city that still has more than 350,000 millionaires, she said. 
“People still want to be a part of New York and are willing to invest,” she added.
Other research suggests state taxes may have a minimal impact on migration trends, according to Michael Mazerov, senior fellow at the Center on Budget and Policy Priorities.
Top earners are more likely to leave certain high-tax states, but there’s no evidence to suggest a “mass exodus” from places like New York, said Mazerov, who released a report on this topic in August 2023.

Tax changes on the horizon

TCJA also added a temporary $10,000 cap on the deduction for state and local taxes, known as SALT, which has been a key issue in high-tax states such as California, New Jersey and New York. The limit was designed to raise tax revenue for other TCJA provisions.
Walczak said the $10,000 SALT deduction limit has contributed to migration. “It’s worth a couple of percentage points in a state like New York,” he said.
However, with control of the White House and Congress pending, it’s difficult to predict whether the SALT cap will lift after 2025, especially amid the federal budget deficit. More

FA Playbook

Speaking at CNBC’s Financial Advisor Summit, politics experts covered what investors should know about the stock market during the 2024 presidential election.
“Given this is going down in history as probably the most consequential and contentious election in the U.S. in 100 years, it’s kind of difficult to believe that the market is trading with the election in mind,” said David Woo, CEO of research firm Unbound.
Historically, potential election outcomes have a minimal impact on financial market performance in the medium and long term, according to a U.S. Bank Wealth Management analysis.

Joe Biden and Donald Trump 2024.
Brendan Smialowski | Jon Cherry | Getty Images

The stock market has yet to price in a potential outcome in the presidential election, a rematch between President Joe Biden and former President Donald Trump.
In general, election years are not great for the stock market leading up to voting day, David Woo, CEO of research firm Unbound, said Wednesday in a session during CNBC’s Financial Advisor Summit.

But this year is an exception, Woo explained.
“This year we’re up 12% so far. This is the best-performing year for the S&P 500 [in] an election year since [the] 1980 election,” Woo said.
Looking back to 1928, the S&P 500 returned an average 7.5% in presidential election years, versus an average 8% in non-election years, according to a March analysis from J.P. Morgan Private Bank.
“Given this is going down in history as probably the most consequential and contentious election in the U.S. in 100 years, it’s kind of difficult to believe that the market is trading with the election in mind,” Woo said.

What Biden, Trump could mean for the stock market

While domestic issues are usually determinative in presidential elections, the coming race will likely be focused on international issues, said Woo.

Both candidates will enter office with a budget deficit of $1 trillion, meaning “whoever is going to be the next president is going to be facing a real serious constraint,” said Woo. “When it comes to fiscal policy, frankly speaking, I don’t think there will be a huge difference.”

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Instead, the differentiator will depend on the candidate’s stance on foreign policy, he said.
Defense spending might increase under a Biden administration, signaling a potential boost for defense stocks, Woo said.
Meanwhile, emerging markets “may be more bullish” under a Trump administration, he said.
“I think Trump is going to come back with a more transactional approach in dealing with American adversaries,” said Woo, who believes the Republican candidate us going to revisit the Phase 1 Trade agreement between China and Russia as the “starting point” of any negotiation deal between the U.S. and China.
Elsewhere, energy stocks might benefit under Biden more so than Trump.
“Everybody thinks Donald Trump is going to be bullish for energy … that’s completely untrue,” Woo said.
“It was actually not until Biden became president and energy stocks soared because geopolitical risks went through the roof,” he said.
Meanwhile, all polls are pointing toward a Trump reelection, Steve Kornacki, National Political Correspondent at NBC News and MSNBC, said during the summit.
“Donald Trump in the average is leading Biden by 1.1 points nationally,” he said, as Trump has made gains among Hispanic and African American voters, as well as younger, nonwhite voters.
“That accounts for why Donald Trump is polling better now than he did four years ago,” he said.

When the market gets volatile during elections

Historically, potential election outcomes have a minimal impact on financial market performance in the medium and long term, according to an analysis by investment strategists at U.S. Bank Wealth Management. They studied market data from the past 75 years and identified patterns that repeated themselves during election cycles. 
Yet delays in verifying an election winner have negatively affected riskier asset classes in prior races, according to the analysis.
“The stock market does not like uncertainty whatsoever,” said Douglas A. Boneparth, a certified financial planner, president and founder of Bone Fide Wealth, a wealth management firm based in New York City.

If things are delayed and there’s not a “clear-cut winner,” that uncertainty can lead to market volatility, he said. “But it’s very hard to predict what the market is going to do based on simply who’s going to get elected.” 
Overall, the stock market has done well under both presidents, said Boneparth: “No one’s crying over how well the market has done in either administration.” 

‘You’re probably going to make a mistake’

“As financial advisors, we don’t really make decisions around politics, let alone who’s going to be elected president,” said Boneparth, a member of the CNBC Financial Advisor Council.
Therefore, it’s in your best interest to stick to your long-term strategy, said Boneparth.
“If you’re making any changes specifically because of one candidate or the other, you’re probably going to make a mistake,” he said. “If you’re going to let this disrupt your long-term strategy, what else are you going to let disrupt your long-term strategy?”

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FA Playbook

Behavioral economics combines the study of economics and the study of psychology to understand how people make financial decisions.
“The best investment is not necessarily the one that shows the highest long-term rate of return, it’s the investment that our clients can stick with,” said one certified financial planner.
Financial advisors can use behavioral science to understand people’s emotions and help guide them to make better decisions, but it’s not therapy. 

Skynesher | E+ | Getty Images

New technologies have given people access to more information and new tools to manage their money.
Robo-advisors can build and rebalance portfolios based on customer preferences. However, automation doesn’t factor in people’s emotional needs.

Experts say adding behavioral science to investing knowledge can help financial advisors get better results for their clients. 

Understanding behavioral science 

Advisors are increasing their use of artificial intelligence tools for more rote tasks, such as research, scheduling and even stock picking.
That change is one of the drivers that has more investment advisors focused on behavioral science to understand how and why people make the financial decisions they do. Behavioral economics combines the study of economics and the study of psychology to understand how people make financial decisions.
“For too long as a profession, we have been taught that we should be ignoring emotions,” said certified financial planner Tim Mauer, chief advisory officer at SignatureFD, which has offices in Atlanta and Charlotte, North Carolina. “We better be more astute students of our clients’ behavior and emotion so we can better understand how to point that emotion in the right direction.”

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Instead of a quantitative approach to managing a mix of stocks, bonds and other assets, Mauer suggests a qualitative approach that uncovers the person’s purpose behind the portfolio.

“We’re focusing our planning on the actual human felt needs that our clients have, rather than the tools and techniques that we might utilize in order to help them achieve their goals,” Maurer said Wednesday during a session at CNBC’s FA Summit.
“The best investment is not necessarily the one that shows the highest long-term rate of return, it’s the investment that our clients can stick with,” said Maurer, who is also a member of the CNBC Financial Advisor Council.

Connecting to the human

Keeping emotions in check can help guide people through rocky financial markets and help them, as famed investor Warren Buffett once notably said, “Be fearful when others are greedy and to be greedy only when others are fearful.”
While AI can help with finding different ways of explaining financial strategies, it can’t connect with people.
“You can give great advice and people won’t take it. So the creative problem-solving comes in being vulnerable and being able to communicate that in a way that’s going to speak to them,” said Sam G. Huszczo, a CFP and founder of SGH Wealth Management near Detroit. “There’s no AI that’s doing that for you.” 

Don’t confuse behavioral science with financial therapy

Financial advisors can use behavioral science to understand people’s emotions and help guide them to make better decisions, but it’s not therapy. 
“Financial therapy is looking at a situation that is intractable, where somebody cannot get past a particular financial behavior,” Maurer said. “And then they’re working with a therapist that has a specifically financial bent, to go back in time and determine what was it in my past that may have generated this particular behavior.”

Financial therapy digs deeper into issues that may be keeping people from reaching their financial goals.
“The financial therapist can peel back the layers so that folks can be more comfortable with their relationship with money and better understand why they’re making the decisions with money that they are and work towards their goals that way,” said Ashley Agnew, president of the Financial Therapy Association.
For example, Agnew says she worked with a client who had in his financial plan to sell his family business to fund his retirement, but he kept derailing deals to make the sale. To understand why, in therapy sessions they dug deep into his feelings about the sale. He revealed that the business was the only thing his father had praised and they unpacked his feelings from there to help him move forward.   
“It makes a little bit more sense once you get to that,” said Agnew, who is also a director at Centerpoint Advisors in Needham, Massachusetts.
Financial therapists will often refer clients to licensed mental health counselors if the issues, such as abuse, get too far beyond the finances. More

FA Playbook

The U.S. economy has remained remarkably strong and yet, not everyone is celebrating.
There is a disconnect between how the nation, overall, is faring and how Americans feel about their own financial standing, said experts at CNBC’s Financial Advisor Summit.
Here’s how to handle a “vibecession.”

The U.S. economy has remained remarkably strong.
Boosted by a strong labor market, the country has continued to expand since the Covid-19 pandemic, sidestepping earlier recessionary forecasts even after a series of Federal Reserve interest rate increases.

And yet, consumer sentiment recently sank to a six-month low.
That disconnect is what Joyce Chang, JPMorgan’s chair of global research, calls a “vibecession.”

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“If you’re a homeowner or if you own financial assets, you’ve done very well, but you’re leaving out huge segments of the population,” Chang explained in a session during the CNBC Financial Advisor Summit on Wednesday.
“The wealth creation was concentrated amongst homeowners and upper-income brackets, but you probably have about one-third of the population that’s been left out of that — that’s why there’s such a disconnect,” Chang said.
On the flip side, the combination of higher interest rates and inflation have hit working-class Americans particularly hard. 

Many of these households have exhausted their savings and are now leaning on credit cards to make ends meet.
Recent reports show credit card delinquency rates are rising — especially among young adults who are burdened by high levels of student loan debt and steep costs across the board.

Perception vs. reality

“Though the data on the economy continues to be really strong, the consumer is not feeling that and it’s really showing,” said Courtney Garcia, senior wealth advisor at Payne Capital Management.
“Every client we’ve been talking to over the last several months has brought up the concern of, they’re worried about inflation, worried they can’t spend money,” Garcia said. “That’s regardless of whether the data is coming in good or bad,”
Further, “that consumer sentiment is absolutely fitting into how they’re investing — that’s absolutely why you’re seeing so much cash on the sidelines,” Garcia added.

Although younger generations are more likely to feel heightened nervousness about their financial standing, they also have the advantage of a longer time horizon, Garcia said. “We’re really making sure we’re talking to clients about the importance of looking long term.”
Even in the face of potential headwinds, there are plenty of opportunities for investors in areas such as commodities and small-cap stocks, which underperformed large caps last year, she said.
“Making sure you are broadly diversified is going to be key,” Garcia said. “Your large U.S. companies have done so well; a lot of people are actually overexposed there.”
“It’s probably a good time to take some profits, if you haven’t already,” she said.
Despite the bad vibes, “generally speaking, I’m more positive on the fact that the data is showing the economy — and the consumer — is still on good footing,” Garcia said.

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