No one wants to hear the words “It’s over” – especially from their employer. For an advisor working with a client going through this transition, the important thing is to listen to your client and ask thought-provoking questions to help them to think through the implications of decisions they will make at this crucial time in their lives.
Encourage your clients to retain the services of a legal professional familiar with employment termination. Employment lawyer Lambert Boenders warns against “signing off quickly on a termination letter, no matter how tempting it may be in the moment to do so.” In the wake of an unexpected termination, feelings of anger, guilt and surprise may lead to wanting to sign off on a termination and final settlement and release letter just to get it over with. According to Boenders, the key is to take the time to speak with someone who is familiar with the options to determine whether the settlement being offered is fair and legal.
Ensure your client gets a copy of their record of employment [ROE] so that the paperwork can be filed as soon as possible. An ROE lets the government know the reason for the employee’s termination and also helps to identify when the employee may be eligible for employment insurance benefits. If the employee was terminated for cause, they would not be eligible for employment benefits, which is why the employer needs to accurately document the reason for termination on the ROE.
Help your clients understand how their severance package will be paid and what options for allocating the payments may be available to them. Is there a severance, and will it be paid out in one lump sum? Will some of the severance be paid now and the remaining paid after a period of time? Will some of the severance be contingent on not finding another job? Will it be a working notice termination? Will the severance package delay eligibility for employment insurance? All of these scenarios will require different contingency planning strategies for a person facing sudden unemployment.
Educate your clients about having their severance classified as a ‘retiring allowance’ and how it can help them reduce the taxes on their settlement. If your client has worked for their employer for many years and is currently being downsized, they may be eligible to roll over funds from their settlement into their RRSP without reducing their current RRSP contribution room.
Now is the time for your clients to take stock of their insurance needs and confirm when their life and health plans will expire. What is your client’s family situation and their current state of health? What type of coverage is currently available to them at work? Have they taken advantage of medical benefits available to them while they last?
Determine what will need to be done with your client’s group retirement or pension plan. Carefully weigh the options with your client.
Prepare your clients financially for the transition by helping them to map out their current financial circumstances in detail. For example, how much does your client need to live each month? Do they have a budget? How much debt is the client in? What is their credit score? Can they access low-interest financing such as a consolidation loan or a home equity line of credit? How long can they live on their severance based on current lifestyle needs? What expenses can be reduced by the client at this time? This an important time to devise a plan to take control of discretionary spending and interest costs as much as possible.
A CBC news article published in June 2016 predicted that 42% of jobs in the marketplace are at risk of being automated. Are your clients prepared for this potential ‘new normal’ in the labour market? To fully prepare for any future job insecurity, your client must be willing to take personal responsibility for their own career development like never before. Encourage your client join their industry’s professional associations, whether or not their employer pays for it. Get them to commit to lifelong learning in their profession and to think like a consultant, even when working in a full-time position. Maintaining a LinkedIn profile is an important tool for your clients to promote themselves and make contacts for their next career move, even after securing employment.
In this day and age, there is no way to predict when the next tap on the shoulder will come. The best way to help your clients to bulletproof their finances is to get them to embrace uncertainty by planning ahead and managing what they can control.
Jackie Porter is an award-winning financial planner who has been in the financial ndustry for the past 18 years, serving more than 400 families, established businesses and professionals in the GTA.