Misguided Rocket Scientists

The following question and answer shall best encapsulate both the implicit and explicit elements that will become obvious before the conclusion of this article.

Question: Why wouldn’t the senior managing director of the bank’s proprietary trading desk rely on a consultant to hire a proprietary trader? Answer: Because the available candidates do not already have $500 million under management and there are no 5-year impeccable track records to rely on.

Pension advisory and manager search
The corporate and government sponsored defined benefits schemes are in a serious mess. The timing could not be any worse. The predicament coincides with a time when a significant part of the population is retiring and corporate balance sheets are stretched. Pension plans are indicating significant actuarial deficits to a point where they may jeopardize numerous corporations as going concerns. Municipal and other government-sponsored pensions pass on these deficits as increased taxes to the population. But these rather “stealth” events have increasingly become as obvious as the problems experienced in the corporate sector. The state of both public and private pensions has been deemed by some economists and authors as the next shoe-to-drop in an already weak economy.

The actuarial consulting firms advising both public and private pensions have evolved in a much similar pattern to that experienced by the accounting firms whose original and core mandate was to verify and certify the accuracy and fairness of financial statements. These accounting firms, already in relationships and well versed in the intimate details of their client’s business, developed and evolved into the consulting business. This consulting business became immensely lucrative, and as history proved, to a point it compromised the accounting industry’s integrity to deploy its original mandate. And this clearly became evident in the Enron scandal.