As the threat of a recession looms, how you may make sure your clients are prepared
Three years after the start of the COVID-19 pandemic sparked a wave of layoffs, U.S. job losses continue to impact some sectors of the workforce.
Some clients may understandably be nervous about navigating this uncertain economic environment. More than ever, they are relying on trusted financial professionals so they can be prepared if layoffs threaten their industry, workplace, or job.
Layoff trends and worker fears
Big Tech has been hit particularly hard by layoffs in the first half of 2023, with tech giants like Google, Meta, Amazon, and Microsoft implementing significant workforce reductions.
Overall, hundreds of tech companies serving a wide range of industries like retail, consumer, transportation, healthcare, and finance have laid off more than 191,000 employees this year to date, which is more than the total number of layoffs for all of 2022 combined, according to Layoffs.fyi.
Aside from the tech sector, continuing job losses are expected to vary widely by industry, according to the Conference Board Job Loss Index. They noted the industries at greatest risk for job losses in the coming year are information services, transportation and warehousing, construction, and repair and personal services, while jobs the least at risk are government, private education services, healthcare and social assistance, and accommodations and food services.
"75% of Americans are deeply worried about the threat of widespread layoffs..."
There are some bright spots regarding employment data. Though U.S. layoffs across industries increased by 1.8 million overall in March, employment continues to trend up in certain sectors such as professional and business services, healthcare, leisure and hospitality, and social assistance, the Bureau of Labor Statistics (BLS) reported.
Additionally, in April the unemployment rate and number of unemployed persons held steady—at 3.4% and 5.7 million, respectively—instead of increasing, according to the BLS, which noted the unemployment rate has ranged from 3.4% to 3.7% since March 2022.
Even so, the fear of looming layoffs is overshadowing any positive unemployment news for many people. Despite strong overall labor market data, 75% of Americans are deeply worried about the threat of widespread layoffs, with half of all adults worried about job losses in their industry, according to Morning Consult’s 2023 State of Workers report.
The youngest Americans feel least secure in their jobs, according to the report, with nearly two in five U.S. adults concerned about losing their own job, including 17% of baby boomers, 45% of Gen Xers, 56% of millennials, and 52% of Gen Zers.
Preparing your clients
Given the presence of ongoing layoffs, financial professionals should consider ways to help prepare their clients for the impact of layoffs and how to survive them.
For example, while workers are still employed, they can proactively consider building up an emergency fund, creating a plan to pay down current debt, evaluating the terms of their employer-sponsored 401(k) retirement plans, and analyzing the terms of their stock-based compensation, according to a recent Financial Planning article.
In the event the client does get laid off, financial professionals can play a vital role by evaluating the severance package. For example, producers should find out how long severance income will last, how long health insurance will last, and what benefits are portable to the client upon separation of service, said Tyler De Haan at financial planner site Think Advisor.
“The current backdrop provides an opportunity to start a conversation with clients who may be worried about the prospect of a layoff. Some clients may simply need someone to listen to their fears,” said financial planner Ben Henry-Moreland recently on Kitces.com, a resource site for financial professionals. “Others may perhaps need someone to talk them down from any rash actions like liquidating investments, while a few might value a more concrete set of steps—a plan, in other words, for handling a possible period of unemployment.”
Henry-Moreland points to two primary actions financial professionals can take to help clients feel more equipped to handle ongoing workforce reductions:
- Evaluating the client’s current level of preparedness for a layoff and identifying ways to improve preparedness
- Creating a game plan for what the client should do if actually laid off
Henry-Moreland provides several useful planning tools for financial professionals designed to increase client preparedness, including a checklist on setting up an unemployment safety net, an emergency funds inventory template, a formula for calculating an “unemployment term” for how long emergency funds will sustain a period of unemployment, guidance on using employing benefits such as insurance, stock options, and flexible spending accounts while they’re still available to the client, and more.
"While working through these issues can often be handled with clients one-on-one, there may also be a benefit, practice-wide, to hosting virtual or live events with groups of clients..."In creating a post-layoff game plan, he also recommends that financial professionals take several steps, including not only immediate steps needed to ensure the client’s financial stability but also tactical planning opportunities, which will depend on the client’s overall financial and tax situation as well as the timing of the layoff.
“Working through these considerations may, at a minimum, help increase the depth and trust in the relationship between the financial professional and the client by addressing the source of deep anxiety,” said Henry-Moreland. “But if the client does lose their job and the game plan really is needed, it may help ensure that, rather than worrying about their own financial situation, the client may focus on finding their next opportunity.”
While working through these issues can often be handled with clients one-on-one, there may also be a benefit, practice-wide, to hosting virtual or live events with groups of clients who are wrestling with this issue. These sorts of events would allow clients to share both their experiences and the financial planner’s advice, letting the clients know that they’re not alone in this situation, says Bill Sweeney, program director for Global Atlantic Consulting.
Layoffs are frequently an emotional experience for many workers, regardless of their age, profession, or life stage, so financial professionals can play an important role in helping their clients stay calm and keep things in perspective.
“We may help clients navigate these difficult times with a structured approach to help reduce emotional decisions,” said De Haan. “It’s an incredibly valuable way to help clients realign their financial goals with their new situation.”