Full Financial Picture

Recognizing the financial strain relocating puts on transferees, a small -- but growing -- number of employers are providing personalized financial counseling.

Wednesday, May 16, 2007
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Take a look at any list of the most stressful life events, and you'll find relocation ranked near the top, along with divorce, health problems and the death of a spouse. According to the 2002 Facts for Families report by the Washington-based American Academy of Child and Adolescent Psychiatry, moving to a new community is "one of the most stress-producing events a family faces." Even if the change in scenery is determined to be positive, it takes time to get accustomed to changes in communities, schools and social networks.

Many employers take extra steps to ensure employees have the smoothest moves possible. "Site trips" to the new community, meetings with school and real estate representatives, mortgage subsidies and cost-of-living differentials combine to ease the sting and help workers and their families acclimate as quickly as possible.

When it comes to determining how the move will impact an employee's personal finances, however, employers rarely offer much in the way of assistance.

As a result, employees frequently do not fully understand the financial issues that should be addressed during the relocation process: How will the move impact their cash flow? How much home can they afford? What type of loan is best suited for them? What are the tax implications related to the move and the sale of their home? According to experts, these issues are significant and could actually spell the difference between success and failure of the relocation.

"You face the very real possibility of employees deciding to quit if they are unable to acclimate financially," says Lori Boyce, director of Deloitte Tax's Private Client Advisors Practice in New York. "They also might ask for more money from the company or they might ask to transfer back."

More commonly, the result is an unproductive employee whose mind isn't fully on the job because he or she is distracted by worries related to paying the mortgage or setting money aside for retirement or a child's college education.

"They are not acclimating financially because they didn't know what to expect [in the new location], so they made some poor choices when they relocated," says Boyce.

Those choices often involve the home purchase. Employees moving to a higher-cost location might inadvertently overextend themselves in an effort to replicate the home they had in the old location, for example.

Other times, a portion of the family may remain behind while a child finishes out the school year or if the spouse has difficulties securing employment in the new location. If the employee buys a home in the new location, he or she often finds it difficult to juggle two mortgages.

"Sometimes, when people get excited about going to a new area, they jump ahead of the game plan and make commitments in the new location before they finish business in the old location," says Katherine Trachta, director of global relocation consulting for Paragon Relocation Resources Inc. in Rancho Santa Margarita, Calif. "When that happens, it becomes a financial challenge."

In those instances, Boyce says, it's probably advisable to rent. Renting is also advised when an employee is on the fast track and is only likely to stay in the new location for two to three years. Rarely would it be wise to buy a house for such a short time period. Without someone to guide them, however, most people remain mired in the homeowner mind-set and suffer financial losses as a result, says Boyce.

The home purchase is far from the only financial facet that comes into play during a relocation. According to Cara Skourtis, leader for the relocation expense management function of Hewitt Associates in San Francisco, transferees are often faced with other unexpected costs, such as flood or earthquake insurance and the impact of differing income, sales or real estate taxes. If a dual-career couple makes the move, only to find that the spouse cannot find a job for a while, the family's finances also take a hit.

Bringing It All Together

Independently, employees may receive advice from their mortgage brokers or other providers involved in the process. However, they typically don't have access to one professional who can bring it all together and help them see their entire financial picture.

"Oftentimes, a mortgage broker or investment broker doesn't understand the relocation industry specifically," says Jarvis Racine, director of business development for Runzheimer International in Rochester, Wis. "Without fully understanding the implications of the relocation, you can't adequately capture the expenditure and the stress and the production requirements and all the other aspects that roll into that."

Both Runzheimer and Deloitte are at the forefront of a movement to ensure that transferees are aware not only of the potential financial implications of a relocation, but are also equipped to make wise decisions. Deloitte's relocation financial counseling practice was established five years ago as a direct result of client requests, while Runzheimer introduced its Relocation Advisor service in early 2006.

Both companies obtain financial data -- such as income, investments and current housing expenses -- from the transferee via e-mail and then compile a 10- to 15-year cash-flow analysis. According to Jeff Gadazc, manager of Deloitte's Private Client Advisors Practice, that analysis is critical because the choices employees make today can affect their finances many years into the future, impacting their ability to plan vacations or save for retirement or their child's college education.

"The intent is that we show them a 10-year forecast, so that they can make adjustments long-term," says Racine. "We don't tell them what they can afford to do because there are many things that employees don't include in this financial picture, things they may choose not to disclose, so we show them what the implications would be if they chose different parameters. What they do is ultimately their choice."

The results of the analysis are reviewed with the employee -- and his or her spouse, when possible -- via Web or phone. According to Boyce, Deloitte presents the information during a Web conference in which the employee sees the cash-flow model on the screen. That enables the financial counselor to perform real-time changes to the model and to show the employee how it would impact his or her situation.

When employees are somewhat financially savvy to begin with, Deloitte gets down to the "nitty gritty," helping them determine whether they may be able to afford specific properties, says Gadzac. With less astute employees, he says, "we give them more of a ballpark, a general-type figure they could shoot for."

Return on Investment

Carole Johnson, director of global consulting for Valhalla, N.Y.-based Prudential Relocation, says she sees very few companies currently offering such financial counseling to their transferees. That's not to suggest it will never be widely offered, however. As with other relocation benefits that are now commonplace, Johnson feels financial counseling may simply take a while to catch on.

She points to spousal assistance as an example. Just a few years ago, she says, only about one in 100 relocation policies had a provision for spousal assistance. Now, "they're in there all the time."

St. Louis-based Anheuser-Busch Cos. has offered financial counseling to its domestic transferees since early 2006. Al Blumenberg, manager of global relocation, first recognized the need for such a service when an employee who had agreed to move to a relatively high-cost location came to him later and said he just couldn't afford the move. So Blumenberg began talking with Runzheimer about its Relocation Advisor service and quickly became sold on the idea because, he says, it "connected the dots." He had no trouble selling the idea to company leaders.

"I presented the idea to management as an opportunity [to] help our employees better understand how a move would financially impact them," says Blumenberg. "They said, 'Well, then, that's what we need to do for our employees.' "

When meeting with transferees, Anheuser-Busch's relocation coordinators explain the benefit and then put interested parties in touch with Runzheimer. From that point on, Blumenberg says, Anheuser-Busch is out of the picture -- except for paying the bill, of course.

"All we know is that we're offering something that we think is good for the transferee and, hopefully, it has a positive impact," says Blumenberg. "It's strictly confidential. And to be quite honest, I think if employees thought there was any possibility that the company was getting that information, they wouldn't be using the service."

Interest in the service is growing slowly, with Blumenberg estimating that 12 percent to 15 percent of transferees take advantage of the offering. That said, he remains optimistic that usage will increase as awareness of the program and its value grow through word of mouth.

Blumenberg does not plan to extend the financial counseling to Anheuser-Busch's international transferees because they already receive counseling on tax issues from other consultants. However, he believes so strongly in the service that he is now trying to convince senior management the company would be even better served by extending the benefit to employees when they are first offered the opportunity to relocate -- before they decide whether the move is right for them. According to Blumenberg, the value to the company is clear.

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"It's a lot cheaper for me to spend $600 to find out that somebody doesn't want to relocate than to spend $75,000 and have an employee [who is] not happy, not productive and, 18 months later, [costing the company even more when] we're relocating them back somewhere else," says Blumenberg. "If we can prevent one person from taking a move that they're going to be miserable with, and it only cost me $600 to find that out, that's money well spent."

Few Companies Signing On

Regardless of whether Anheuser-Busch starts offering financial counseling as part of the pre-decision phase, the company is clearly in the minority. According to a 2003 Runzheimer survey of 86 corporate relocation professionals, just 17 percent of companies offer financial counseling during any point in the relocation process. Interestingly, nearly twice that number recognize the value of such a service, with 30 percent saying they believe the involvement of a qualified financial counselor would reduce the number of failed relocations.

So why the disparity? According to Boyce, companies are often short-sighted in their approaches to relocation and fail to recognize that spending a small amount up front could mitigate a huge expenditure later on.

"It is a drop in the bucket, compared to the cost of relocating an employee," says Boyce. "If the company has to relocate the employee a second time because [he or she hasn't] been adequately informed, it will have to spend so much more money that could have been saved by having this service offered."

Frequently, Boyce says, HR professionals express an interest in Deloitte's relocation financial consulting, but are unable to sell the concept to senior management. If a company can't justify the expense of one-on-one personalized financial consultations, she recommends it at least provide transferees with a workbook and possibly consider the more economical option of providing financial counseling in group sessions.

Boyce says the financial benefit is offered most frequently when companies are moving employees from low-cost to high-cost areas. That's the case for Detroit-based General Motors Corp., which relocates approximately 2,000 employees each year. Roughly 100 to 125 of those moves are to locations deemed "high-cost areas" -- primarily coastal cities, such as New York, San Francisco, Honolulu or Miami -- according to Relocation Manager Carol Pickens. Transferees to those areas are given a "relocation premium" intended to offset some of the additional financial burden of living there. Employees have the option of taking the premium as a lump-sum or over a four-year period.

Just because the company has anted up some extra cash to make the move less painful, that doesn't mean the employee is set financially. On the contrary, Johnson says, there's still the need for someone to help employees develop big-picture visions of their finances, so they can plan for both short- and long-term expenses.

"Even though the dollars may be there, there's still the need for someone to sit down with them, look at all the pieces, and help them figure out how they're going to do it," says Johnson. "It really empowers them to make the right decisions."

Recognizing that need, GM issued a request-for-proposal about four years ago, but found that no one had an "off-the-shelf" solution for helping transferees with their finances. Thus, Pickens said, the company worked with a provider (that he declined to name) to devise the kind of program its employees needed.

Once employees accept a relocation, they receive an introductory phone call from the provider. If they opt to use the financial counseling service, they are then sent a financial questionnaire, which they complete and return to the provider, who then drafts a 10-year cash-flow analysis.

The analysis takes a variety of factors into account, beginning with the employee's and spouse's income, and extending to investments, discretionary spending and inflation rates. The employee is also asked about additional factors that could potentially impact personal finances -- an upcoming wedding, an elderly parent in need of care, children who will soon be entering college, etc.

A final written report is mailed to employees, who are then encouraged to call the provider with any questions or to discuss their financial options. GM pays for up to four hours of counseling. Today, only half of eligible employees take advantage of the benefit. According to Pickens, those who have used the service have been extremely satisfied with the results, with no one rating it lower than four on a five-point scale. Pickens feels that's because it helps employees feel more confident they have made the right choice.

"Relocation is a very stressful time," she says. "If the employees can go into it feeling a little more comfortable that this is a good move for them and that they are going to be OK financially, it makes for a better transferee and a better worker."

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