How Advisors Can Help a Recently Unemployed Client

By Jon Talamas

Financial advisors help clients navigate many turns in life— from highs to lows— including a client’s potential job loss. Registered investment advisors (RIAs) can address the financial moves needed to navigate such tumultuous life events through active listening and excellent communication while keeping their clients calm.

Financial advisors are in the business of planning— for the best and worst. Planning for the worst is challenging on many levels. It requires excellent communication skills and transparency. Advisors must have conversations with clients to discuss the many potential ups and downs inherent over a lifetime of investment activity. Not only must financial advisors assess the risk of investments, but they must also assess the risk of these investments and choices when everything may not be in the client’s favor.

One of many things we have learned from the COVID-19 pandemic is a job is not guaranteed. According to the Center on Budget and Policy Priorities, in April 2020, the country’s unemployment rate was so high that it was comparable to the 1930s. While the United States continues to reverse this into 2023, the pandemic led many to realize employment is not protected for many industries. Even the tech industry, known for its constant growth, is seeing recent volatility.

As a registered investment advisor (RIA), you will likely encounter clients who have lost their jobs for various reasons. Job loss is not cut and dry. Unemployment can result from layoffs, firing, disability or chronic illness. Research has shown that job loss, regardless of cause, negatively impacts mental health, affecting quality of life, marriage, relationships and sometimes physical health. These effects are often irrespective of financial stability. For some, job loss brings an immediate threat to well-being regarding the basic requirements of food and shelter.

Considering all this, RIAs must prepare for the possibility of client job loss and how to manage the financial aspects of the situation for all clients. How can financial advisors best serve clients who have suffered job loss? There are many ways financial advisors can assist clients as they enter new phases of life, including listening, reviewing and analyzing.

Actively Listen

Financial plans aside for a moment, one of the first actions a financial advisor can offer clients who have just suffered a job loss is active listening. Sometimes it comes down to the basics when considering how advisors help with client job loss.

A job loss typically comes as a surprise or shock, and there may be an adjustment period as a client registers this turn in their life plan. There is a stigma attached to job loss, and research has shown that people in the United States tend to criticize themselves for their loss of employment. All of this leads to possible anxiety and depression. Let your client talk through their situation and concerns— even those that may seem unrelated to their investment strategy. Use open-ended questions and validate their feelings. Permit your client to feel heard. Be an objective yet empathetic and knowledgeable resource for your client.

Active listening can be the first step for you and your client because, ideally, you have already considered possible client job loss in their financial plan. Much of this comes down to the education you offered at the start of your journey with the client.

Review

You have gained further knowledge of your client’s current situation through active listening. Review the client’s financial situation and what can and should be adjusted to mitigate financial damage during this likely stressful time.

When handling a client’s job loss as an advisor , context is critical. The course of action depends on where in life your client is when a job loss occurs. Someone in their 50s or 60s suffering from job loss needs a different action plan than someone in their 20s or 30s, particularly when pensions are in— or no longer in— play. Does it make more sense for your client to consider retirement? Or is it finally the time to launch the business they conceived ten years ago? What is your client’s goal when it comes to their career?

Review what assets may need to be reallocated due to this job loss. Importantly, examine debts or mortgages and how these can continue to be addressed. What is the state of your client’s liquidity? Should your client consider a Roth IRA conversion? If your client has an emergency fund, suggest best practices. Also, help them understand the possible penalties of utilizing funds from a 401(k).

Financial advisors are also excellent sounding boards for reviewing and allocating severance packages. The Department of Labor does not require severance pay. Still, companies often offer it by calculating one to two weeks of the employee’s salary multiplied by the number of years employed. It’s important to remind your client that severance pay is taxed accordingly and may move them into a different tax bracket. Additionally, you can be a resource in directing your client toward government benefits for which they may be eligible in this new situation.