Everyone from millionaires to middle-class executives to auto workers are finding themselves in unpleasant financial constraints nowadays. The recently laid-off, downsized or demoted are trying to cope with the new financial realities. For some, that means not buying the new yacht this year. For others, it means looking for sales on socks.

In both cases, financial advisors have to learn to walk their clients through these troubles, and many find themselves acting as amateur psychologists first, financial advisors second.

"I have become more of a psychologist recently than my college roommate who majored in psychology," says Kevin VanDyke of Bloomfield Hills Financial/SII Investments, a boutique investment advisory firm that focuses on auto industry employees and retirees in Bloomfield Hills, Mich. Working in the Detroit area has put VanDyke in the heart of the worst hit part of the United States during the recession, and most of his clients have been affected.

"This is a transition for everyone," says VanDyke. "We are trying to hope for the best, but we expect the worst."

Among those clients faring the best are those he switched to guaranteed income products more than five years ago. But others, depending on their auto company salaries and pensions, have been forced to work an additional five or six years before retiring, if they still have jobs at all.

"One couple I work with is in their early 50s, and both worked for Chrysler making more than $100,000 each a year," VanDyke says. "They have been forced to take early retirement and face an income cut of 40% to 50% from what they were used to. They have tried to adjust with such tactics as finding bargain fares for vacations to the Bahamas. The wife even thinks it is kind of fun to find socks on sale for $1.99."

When auto companies go bankrupt or get bought out they leave their employees in two classes. Those with qualified pensions may end up with half of what they counted on, VanDyke explains. For those with unqualified pensions, he tries to negotiate to see what he can get for the client. He tries to buy annuities for those who can cash out their investments to give them a cushion.

In the meantime, if the employees are young enough, they might need to move on to new jobs, at a time when as many as 40% of the executives in the Chrysler and General Motors headquarters offices have been let go, VanDyke says. In addition to the well-publicized unemployment issue, there is also an issue of "underemployment"-an evil less talked about.

"The media does not give enough attention to underemployment," says Robert A. Mecca of Robert A. Mecca & Associates LLC, Mount Prospect, Ill. "A lot of people are working for a company for years and then are offered a lesser job. I have not had a single client who has rejected this kind of offer. They feel they have to take it because they know how bad the job market is."
Mecca has clients who were making $75,000 with full benefits and are now reduced to $50,000 with fewer benefits.

"They put off capital expenditures; they do not get the new car or remodel the home. I am the one who helps them sort out 'needs' from 'wants,'" he says.