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In the Headlines-April 3rd, 2015

In The Headlines

Contact Lens Manufacturers and Discounters Battle Over Pricing

One by one over the last year and a half, all four of the major contact lens manufacturers have enacted pricing policies that seek to limit what contact lens discounters can charge for certain products, setting minimum retail prices and threatening to cut off supply if dealers do not comply. The manufacturers say the policies are intended to simplify the market and shift conversations between patients and optometrists away from the topic of pricing and toward the clinical benefits of their contact lenses. In addition to Johnson & Johnson, the other manufacturers are Alcon, Bausch & Lomb and Cooper Vision.

But opponents, which include big discounters such as Costco and 1-800 Contacts as well as the nonprofit group Consumers Union, say the policies amount to illegal price-fixing and are restricting consumer choice in an industry that has long been accused of anticompetitive practices. Earlier this month, Costco sued Johnson & Johnson, the industry’s biggest player, for what it says are antitrust violations, and a consumer class action has also been filed. 1-800 Contacts and Costco are lobbying state legislatures around the country in an effort to outlaw the practice, which is known as unilateral pricing. The Federal Trade Commission, which declined to comment, and several states’ attorneys general are investigating the issue, according to Christopher L. Lebsock, a lawyer representing consumers in the class action.

How the issue is decided could affect the buying choices of millions of Americans: Nearly 39 million consumers in the United States wear contact lenses, spending $4.2 billion annually, according to 1-800 Contacts. About 20% of the products sold by the four biggest manufacturers—who make up about 98% of the market—fall under such pricing policies, the company said. Because some of the products are best sellers, 1-800 Contacts said that about 46% of its sales in January and February involved products whose pricing was restricted by the new policies. “We want consumers to have meaningful choice—to be able to bargain, to be able to get the lowest price they can and the best quality they can,” said George Slover, a senior policy counsel at Consumers Union.

The manufacturers’ real motive, opponents say, is to curry favor with a key interest group: the optometrists who decide the brand that their patients will use. Unlike medical doctors who prescribe a drug and then send their patients to a pharmacy to fill it, many optometrists make money on both the eye exam and the glasses and contact lenses they sell in-house. But ever since a 2003 law required optometrists to give patients their contact lens prescriptions free of charge, many of those sales have moved to online sellers and discounters like Costco, who often charge less. Some company executives have been clear about the ways that the new policies will benefit eye doctors. In July, an executive for Johnson & Johnson told a trade publication, Vision Monday, “This gives the optometrist the ability to improve his or her capture rate in the office.” The executive, Laura Angelini, president of Johnson & Johnson Vision Care, added, “Now the patient has no incentive to shop around.”

Optometrists who support the new pricing policies say the manufacturers are simply leveling the playing field for independent practitioners; by selling contact lenses directly to consumers, they can ensure that patients are using them appropriately.

The impact on consumers, by contrast, is less clear. Johnson & Johnson, which claims about 40% of the global contact lens market, said its pricing policy simplified the buying experience for consumers by setting a minimum price and getting rid of rebates. In doing so, the company said, about 60% are paying lower prices for their lenses. But 1-800 Contacts, the nation’s largest seller of contact lenses, said its research showed that prices on many products had increased substantially. Close to 56% of contact lens wearers saw their prices increase after unilateral pricing policies went into effect; some customers saw price increases of 100%. Costco said its customers who use contact lenses affected by the new policies had seen their prices rise by a weighted average of 26%, with the increases ranging from about 6 to 50%.

The battle over pricing policies are reminiscent of the industry’s practices in the late 1990s, when dozens of state attorneys general, along with consumers, sued the major manufacturers, claiming that the companies were conspiring with the American Optometric Association to prevent competition from sellers like 1-800 Contacts. The suits were eventually settled, and the manufacturers agreed to allow more competition from outside retailers. Minimum-pricing policies were considered illegal until 2007, when the Supreme Court ruled that manufacturers should be allowed to have more leeway in setting prices. The court instructed judges to use a case-by-case approach to assess the policies’ impact on competition. The contestants in the latest industry battle may seek a return engagement in the nation’s top court to resolve the issue.

ETS Finds New Life for its GRE Exam Overseas

Fewer people are taking the Graduate Management Admissions Test, or GMAT, to get into business school. But the Graduate Record Examinations, or GRE—which has increasingly marketed itself as an alternative to the GMAT—has seen double-digit growth in test-takers since 2009, thanks in part to a surge in the number of international graduate school applicants hoping to score admission into American business schools.

In 2014, the number of people who took the GRE rose 3% from the year before and was up 12% from five years earlier, according to the Educational Testing Service, which administers the GRE. Officials from ETS are optimistic that demand will continue rising as a growing pool of educational strivers in Asian countries signs up for the test. From 2009 to 2013, the number of people taking the GRE increased 124% in India and 44% in China, according to ETS data. “We’re seeing massive growth in the middle class in India and China, and more people who have the financial means to support graduate education,” says David Payne, vice president and chief operating officer for global education at ETS. “We anticipate those markets will continue to grow.”

Payne says an increasing share of the foreign students who take the GRE are eyeing specialized programs in business schools. While B-schools have traditionally been the domain of the GMAT, ETS dissolved a non-compete agreement with the Graduate Management Admissions Council—the body that administers the GMAT—in 2006. The move opened the way for the ETS to market the GRE to applicants looking at MBA programs and specialized business master’s programs. They have made headway: Twenty-nine of the top 30 U.S. B-schools accept the GRE in place of the GMAT, according to ETS.

The GRE has also made gains in Europe, where ETS has sent outreach teams to try to persuade more B-schools there to accept the test. At least 78 European business programs accept the test, according to an ETS spokesperson. The University of Cambridge’s Judge Business School, which received 41 GRE scores from its pool of 777 applicants in 2013, expects to see an expanding number of applicants submit GRE scores in coming years. In pitching the test to schools, ETS officials have touted several advantages—including a diverse test-taker base, the “score-select” feature, which allows test-takers to choose which schools to send results to, and a relatively low price tag (the GRE costs $195, $55 less than the GMAT).

Not that the GMAT is disappearing soon. Even though more B-schools than ever accept the GRE, only one in 10 B-school applicants submit the GRE instead of the GMAT, according to a survey of admissions officers conducted by Kaplan Test Prep. While the growth of specialized master’s programs has attracted more students who may lean toward the GRE, GMAC officials believe the market for the GMAT remains strong. “For those who are serious about seeking a business career that starts with a business education, the GMAT is still the gold standard,” says Rich D’Amato, vice president of global communications for GMAC. “It’ll continue to be, in some cases, at the center of the business education admissions process.”

There is one place where the GRE has not grown: at home. The number of people taking the test in the U.S. fell 5%, to 422,668 from 445,135, from 2009 to 2013. The trend likely falls in line with a broader phenomenon that has hit college enrollment in the U.S., Payne says. When the economy is flat-lining, college enrollment rises. But as the economy picks up again, and the labor market strengthens, many people who might have been tempted to go back to school instead choose to try to find a job.

“Historically, the volume of test-taking domestically has tended to be countercyclical with the economy,” Payne says. With the economy recovering, albeit slowly, there is not much to suggest people in the U.S. will suddenly start flooding GRE test centers soon.

1. http://www.cnbc.com/id/102541324 – CNBC
2. http://bloom.bg/1BQ28tq – Bloomberg

The Good News Is . . .

• The number of Americans filing new claims for jobless benefits fell more than expected last week while activity in the services sector hit a six-month high in March, underscoring the economy’s solid fundamentals. Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 282,000 for the week ended March 21, according to tthe Labor Department. That was better than economists’ expectations for a dip to 290,000.

• Target, Corp., a leading U.S. discount retailer, reported earnings of $1.50 per share, an increase of 14.5% over year-ago earnings of $1.31. The firm’s earnings topped the consensus estimate of analysts by $0.04. The company reported revenues of $21.8 billion, an increase of 1.1%. Management attributed the company’s results to better-than-expected sales in its signature categories -style, baby, kids and wellnes.

• Working with the billionaire investor Warren Buffett’s Berkshire Hathaway, 3G Capital, a Brazilian investment group, announced that it will merge Kraft with Heinz, the condiment and canned foods giant it acquired with Mr. Buffett in 2013. Kraft Heinz will have revenue of about $28 billion. It would create the third-largest food company by sales in North America. Heinz will control 51% of the combined company, while Kraft shareholders, who have yet to vote on the deal, will own 49%. Kraft shareholders will receive a special cash dividend of $16.50 a share, or about $10 billion, to be paid for by 3G Capital and Berkshire. The stake owned by 3G Capital and Berkshire will remain privately held while the rest of the company’s stock will be publicly traded on the Nasdaq.

1. http://usat.ly/1HTxsja – USA Today
2. http://www.cnbc.com/id/18080780/ – CNBC
3. http://bit.ly/1GxrUcB – Target Corp.
4. http://nyti.ms/18WPfai – NY Times Dealbook

Planning Tips

Tips for Choosing an Adult Living Community

Many people today are considering adult living communities as a retirement option. But the task of picking the perfect community can sometimes be overwhelming. You need to make sure your choice meets your financial, social, cultural, and recreational requirements, as well as your potential future health-care needs. Below are some factors to consider when making the decision about which adult living community to select.

Calculate your budget – Upon entering into an adult community, you will have to agree to pay an entrance fee and a recurring monthly fee, both of which will be relative to the type of residence you choose, and you may also have to pay additional fees for any extra services and amenities you opt for. Therefore, it is important that you decide how much money you are able and willing to spend before you shop around for a community.

Check for financial stability – Performing due diligence on a community is crucial. Unfortunately there are too many communities with serious financial problems. The list of things to look out for is exhausting. Some of the biggest issues include communities with too many foreclosed units and too many non-due paying residents. This can put a financial burden on the other residents and can cause serious problems. Often communities, both old and new, have not planned well for rainy days. Their infrastructure, is wearing out. For many of them, expensive assessments will be the only way to pay for these repairs. In relatively new communities, the transition from developer to Home Owners Association (HOA) can be either unclear, or stacked against the HOA, which can cause problems. You have a right and an obligation to yourself to obtain past financial statements, condo/HOA association documents, and HOA minutes. If you are not familiar with reading these documents, hire an attorney or accountant to study them for you. Ask other residents about the community. You will usually find out if there are problems.

Determine what specific amenities and recreational activities are included – You should study a lot of different communities and then visit the ones that look appealing. That will not only give you an idea of the range of amenities and activities that exist, but give you a chance to find out which ones, if any, you enjoy. If you like to play golf, look for a community with a well-run, interesting golf course. Some people want to keep things very simple with just a few amenities, perhaps just a small clubhouse with a fitness room and an outdoor pool. While golf is fading somewhat in popularity, sports like pickle ball are attracting more fans. Many retirees are increasingly looking for indoor swimming pools, walking and biking paths, fitness classes, Pilates, etc. Hobbies like arts and crafts, singing, and majhong ring may be important. A community with a full time activity director or fitness director will usually make for a more stimulating place to live. The activities that you find in a community are a tip-off to the age of the residents – so look for a place that matches your interests.

Consider your healthcare needs – Different communities offer different levels of care, from housekeeping to live-in nursing, and your community of choice should be able to provide you with healthcare services that are tailored to your individual circumstances. It is important that you also plan for your future healthcare needs when choosing a retirement community.

Understand the contract – Before committing to a community, carefully read over the contract and have it reviewed by your attorney and accountant. Be sure to ask for clarification from the community’s administrator, if needed. Two important considerations are:

• Refund policy – Some retirement communities will refund your entrance fee if you change your mind about living there, while others keep the fee regardless.
• How they handle those who can no longer afford to pay – Although most communities run thorough financial screenings before approving your application, it is inevitable that some of their residents may eventually fall into the predicament of running out of money. Some communities have special fund reserves in the case of such circumstances, while others will simply evict you.

1. http://on.mktw.net/1iSPXpd – MarketWatch
2. http://bit.ly/1icVY3Y – AARP
3. http://fxn.ws/1HTy34w – Fox Business
4. http://bit.ly/1nwhk8J – WikiHow
5. http://onforb.es/19SzWwJ – Forbes

Please don’t hesitate to give us a call if you need help with any component of your financial planning.

In the Headlines-April 10th, 2015
In the Headlines-March 27th, 2015

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