Volatility in the stock market is a reminder that thoughtful advisors can help their clients by preparing them for the possibility of a correction. Identifying and discussing risks that could affect a client’s hard-earned nest egg may not be the fun part of an advisor’s job, but it’s important and much needed.
One such risk — and one that is often overlooked by clients and advisors — is the risk stemming from accidents and losses involving property. In this area, research conducted by the consulting firm Oliver Wyman finds that advisory firm clients want and expect their advisor’s help in identifying risks and taking steps to help protect them from those risks.
Protection, of course, often involves insurance. Most financial advisors don’t profess to be property and casualty (P&C) insurance experts and quite understandably do not provide advice in this area. They don’t have to.
Advisors can help their clients and at the same time protect assets under management by developing a strong relationship with a trusted independent agent who can be part of yearly asset protection reviews with clients.
Such reviews are crucial, because while most homeowners have P&C insurance coverage, for many affluent clients such coverage often is inadequate or absent entirely. This means that if a client experiences an incident where the costs to repair the damage or replace the loss exceed policy limits, the money beyond what insurance coverage provides typically must come from the client’s own pocket.
Consider a family with a homeowners’ policy that was purchased several years ago and which never has been updated. Many such families, and probably many of your clients, have made extensive and expensive improvements to their home over the years.
If a catastrophic event were to occur involving their home — say, a pipe bursts and water destroys an expensively renovated kitchen or ruins the home’s new, energy-efficient heating and ventilation system — they may discover an enormous gap between the reimbursement they receive from their insurance policy and the total expense of repairing the damage.