Lessons From The Pension Crisis

Adversity builds character. Many parents fall back on such homilies after their children encounter a hardship or disappointment.


Yet as Tracey Longo's cover story on financial advisor and United Airlines pilot Bob Thomas reveals, that advice isn't so reassuring to folks who have spent most of their working career at one company with the expectation they will receive a respectable pension, only to find it slashed by 50% or more after the company goes bankrupt. It's one thing to suffer this kind of setback when someone is in their thirties to mid-forties and still has time to recoup much of what they lost; it's something totally different when it hits somebody who is near or in retirement.

Still, as the article shows, people manage to soldier on, even in the face of outcomes that seem very unfair. As Thomas relates, those United workers like himself, who saved and invested independently of their employers for years while planning second careers, are in much better shape than those who headed for the golf links.

In recent months, giant, profitable corporations like IBM and Verizon, spooked by the travails of airlines and auto manufacturers, are terminating defined benefit pensions at a rapid clip. The only new defined benefit plans being set up these days are for partners of hedge funds, law firms, profitable medical practices and probably some advisory firms as well. In other words, folks who don't need it, but can take advantage of the ability to shelter large sums of money.

The message that more advisors, and even some intelligent individual investors, are taking away from this problem, and other problems that surfaced over the last five years, is that there's no such thing as overdiversification. During his confirmation hearings last year, it emerged that the portfolio of brainy Chief Justice John Roberts contained 46 different equities (lots of $10,000 positions) and 31 mutual funds.

It may not seem so today, but even overdiversification can be overdone. And it certainly wouldn't be the first time both institutional and retail investors fought the last war all too well, while failing to anticipate the next one. Still, the silver lining for this profession is that the retail public is getting yet another powerful lesson of the importance of self-reliance, and the smart ones will realize they need an unbiased advisor to cover their back.

If you are wondering whether this magazine looks a little different, it does. As we enter our seventh year of publication, we thought it was time to spruce up the design of Financial Advisor. Hopefully, we have created a cleaner visual presentation that will make it easier to read and for us to provide you with improved graphics.

Special thanks go to Managing Editor Dorothy Hinchcliff, Art Director Jenn Bartoli, Assistant Art Director Jodie Battaglia, as well as consultant Esther Coit, who provided us with numerous imaginative ideas. As always, we're interested to hear what you think, so e-mail me at [email protected].

Evan Simonoff

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