Enron Debacle Has Advisors Revisiting Clients With Diversification Message
With another crisis on the front page of every newspaper–this time in the form of Enron’s bankruptcy–financial advisors are seeing the situation as an opportunity to help their clients.
“Every crisis creates an opportunity,” says Gary Rathbun, president of Private Wealth Consultants, Ltd., Toledo, Ohio.
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“Can we help the Enron people? Probably not; right now that’s out of our hands. But can we help the people at other big companies? I think there’s tremendous opportunity to get into conversations we’ve never been in before,” he says, “and I think that’s a good thing.”
The opportunity to which Rathbun refers is consumer education. With the recent events at Enron and the continued volatility of the financial markets, there are thousands of Americans who are taking another look at the holdings in their 401(k) plans. Many of the Enron horror stories involve employees who had a majority of their retirement assets allocated to company stock.
Retirement experts note that while holding employer stock is not a bad thing, it’s important for people to diversify. “We tell people in our seminars that you shouldn’t have any more than 10% of your total portfolio invested in the company you work for,” says Jim Cook, president of National Financial Services Group, Atlanta, Ga.
Employees of public companies may have a hard time disciplining themselves to limit their investments in company stock, says Rathbun. “Part of the problem with owning company stock is that you take a rose-colored glass view of your own company,” he says.
Roger Bozarth, president of The Insurance Advantage, Orlando, Fla., agrees. “I think when you look in the paper and you’ve got a stock that’s doubled, tripled, or even quadrupled in 4 or 5 years, and you’re sitting there working with a lot of activity going on, you’re in the midst of what you think is a company that’s doing particularly well. That gives you a comfort level.”
Bozarth says people shouldn’t assume that since a company has done well in the past it will continue to do well.
“I think with the Enron events, it’s going to be easier to discuss diversification and future planning than it has been in the past,” adds Rathbun.