Recent record-setting auction house sales prices—$83 million for the Pink Star diamond and $142 million for Francis Bacon’s “Three Studies of Lucien Freud”—have returned attention to valuable collections as a potentially rewarding asset class. In recent years, these tangible assets, such as fine art, wine, jewelry, antiques, sports memorabilia and classic cars have finally been recognized as an asset class in their own right.
Yet high-net-worth individuals rarely apply to these items the same rigor they have when making financial investments or business decisions. Homeowners can only sufficiently protect their wealth and understand the financial options available to them if they and their wealth advisors have access to a comprehensive view of their tangible assets.
Here are seven steps that wealth advisors can help their clients take to manage the complex and evolving set of risks associated with this increasingly important asset class.
Step 1: Assemble the Right Team of Experts
To most effectively manage the risks involved with investing in tangible assets, families and their wealth advisors should select a qualified team of experts to assist with documenting, valuing, insuring and protecting their prized possessions. First, the team should include an independent insurance agent or broker who specializes in serving HNW clients. To identify these agents, check to see that they have a well-defined process for assessing personal risks and have access to carriers that also specialize in serving HNW clients. Other experts to engage include a loss prevention specialist, estate and tax planners, a CPA and an attorney.
Step 2: Secure an Accurate Appraisal
The appraisal is the foundation for almost every decision made with tangible assets. Picking the right expert is essential. Appraisal industry associations, such as the American Society of Appraisers, can provide guidance in this regard for insurance purposes. The IRS provides and requires additional rules for appraisers and appraisal reports for income, gift and estate tax purposes.
For especially valuable items, consider two or three appraisals by different appraisers at the same time to guarantee your assets are valued accurately.
Step 3: Track New Transactions at the Point of Sale; Monitor Price Changes
Consider cloud-based software to help manage the records of your assets. These systems should store important details about each item along with its value, proof of authenticity and a schedule to update valuation. The most robust solutions will be able to accept information about transactions at the point of sale, eliminating the tedium of manually entering new items. They will also be able to automatically adjust valuations, or notify the owner about the need for an updated appraisal, as related sales occur at retail and auction houses.
Step 4: Schedule Highly Valuable Items on Valuables Policy
Proper insurance coverage represents a critical component of any wealth protection plan. Yet a 2011 ACE study found that nearly 40% of wealthy collectors did not have all of their precious items insured with a valuables policy.