Many financial advisors and insurance professionals encounter situations where potential new clients reach out for information.
A common question that arises involves what to do when employees are given a choice between a lump sum of money or a lifetime income option when separating from an employer. It can be difficult for them to quantify if it is a good deal or not, so they seek out the advice of a financial advisor.
A Typical Story
Consider this scenario: a group of 55 to 70-year-old professionals have been informed that their employment will be terminated in 60 days. Their company elects to give each employee an individual severance package. Employees then receive a letter in the mail outlining the choices they have for their personal severance. Often times the offer includes an income payment for a period of time. The second option would be a lump sum of a larger amount. At this point the employee begins to look at the options, and needs guidance from a financial professional. Many times, clients are uncertain which option is right for them. This becomes an important conversation.
In some instances, employees are not working with a financial professional yet. Naturally they book a “get acquainted” visit with a local financial advisor based on a recommendation from a friend or colleague. In the meeting, employees convey that they were given a severance agreement, but they don’t necessarily know if it’s a good one or not.
The offer states that they can receive an income stream of $31,000 a year for a lifetime. Or they can elect to take a lump sum of $480,000. At this point, employees or clients are simply looking to see if the advisor can beat the income offer.
Analyze Overall Needs
Time is every bit as valuable as the service provided by financial professionals. Don’t allow success obtaining these clients to be predicated on simply besting their income offer. The fact is, their income offer will most likely be higher than anything the open market can offer them. This is an opportunity to educate them on what the company is offering, while at the same time inquiring about the clients’ overall needs, or gaps in their plan.