There is no question that wealthy individuals and families have always treasured the aesthetic value of their collections of artwork, wine, classic cars, antiques and other valuables. More recently, many high-net-worth families are increasingly appreciating the investment value of their collections as well, especially considering the recent record auction prices for gems, jewelry and paintings.
Too often, these wealthy clients neglect to protect their prized possessions through loss prevention techniques. Risks from water damage, sun exposure, careless transport and improper storage could severely damage clients’ collections and leave them with a significant financial and emotional loss.
Advisors can provide a deeper level of service to their high-net-worth clients by regularly speaking about the importance of loss prevention in a complete asset protection plan.
By definition, non-financial assets and valuable collections are subject to risks of physical damage, theft and the ravages of time. Yet HNW clients often neglect to take proactive steps to protect their art, jewelry, wine and other valuables from these threats. A recent ACE Private Risk Services study found that 40 percent of wealthy individuals surveyed failed to take advantage of the services of a risk consultant who could help them reduce the risk of damage and theft.
Many families display or store their precious possessions in ways that increase the risk of loss. For instance, they hang artwork above an active fireplace, where the hot, dry air and soot accelerates deterioration. They neglect to place a historical artifact, such as a letter written by a famous figure, in an archival box protected by glass that filters out ultraviolet light, exposing the artifact to dangerous rays and fumes. Or they store a valuable stamp collection in a closet beneath a bathroom. If the tub overflows or the toilet develops a leak, the stamps could be ruined.
For wealth advisors, and their high-net-worth clients, here are four strategies to help ensure complete asset protection.
Step 1: Keep an updated inventory
Most families do not maintain an accurate listing of personal property, yet an updated inventory may be the single most important step available to wealthy households for protecting their valuable items. The inventory represents the starting point to proper protection, because if clients don’t keep track of what they own and how much it is worth, chances are they are not insuring it properly and getting good advice about how to prevent loss.
Keeping an inventory will also make the insurance claim process much easier, should a loss occur.
Step 2: Incorporate an evacuation plan
In the event of an impending disaster, such as a hurricane, flood or wildfire, planning ahead is critical. Remind clients that the right insurer will help them develop a plan for evacuating precious items caught in the path of a disaster. It’s critical that high-net-worth families conduct pre-event planning, because when families only have two or three hours to vacate their homes, making rational decisions about the evacuation process and what to take with them can be very difficult.
Step 3: Conduct background checks
Recommend that your clients run background screenings by a professional for all household help and contractors as one preventive measure to avoid theft. Nannies, gardeners, cooks, drivers and contractors may all have significant access to a family’s confidential information and treasured possessions.
Step 4: Install a backup generator
Wealthy homeowners should install an automatic standby generator to ensure the ability to control the environment in which these tangible assets are held. Many types of collections, such as wine, paintings, photographs and stamps depend on a temperature- and humidity-controlled environment. The value of a wine collection can drop precipitously if it is left to cook in the summer or nearly freeze in the winter due to an extended power outage.
In addition, burglar and fire alarms and sump pumps require power to operate. With some recent storms causing power outages to last far longer than any battery backup for these systems could handle, the homes and the collections inside could be left vulnerable.
Considering the importance of these loss prevention steps, HNW-market carriers will often have special programs that make it easier and more affordable for clients to carry them out. Moreover, unlike carriers that primarily service the mass-market consumer, HNW-market carriers will often send experts to visit high-value homes, giving them a chance to observe the collections and suggest appropriate loss-prevention measures.
As valuable collections are increasingly recognized as a means of investment diversification, wealth advisors are challenged to sufficiently protect a client’s entire portfolio, including non-financial assets and other valuables. When consulting with HNW clients about wealth preservation and complete asset protection, advisors should highlight the importance of utilizing these key strategies to prevent unexpected losses and serious financial consequences.