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How Ultra-Wealthy Clients Value Tangible Assets

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What You Need to Know

  • Researchers found that 80.7% of UHNW investors consider tangible assets such as real estate, fine art and jewelry to be part of their total wealth.
  • Advisors focus on the traditional elements of investment portfolios — stocks, bonds, private equity and other financial instruments.
  • Advisors can better compete by partnering with an independent insurance agent or broker who specializes in coverage for the wealthy.

Advisors to ultra-high net worth (UHNW) individuals and families best serve their clients by developing a profound understanding of their clients’ attitudes toward money and life.

The Wharton School at the University of Pennsylvania recently conducted a study commissioned by Chubb that offers key insights into how financial advisors can better align their services and strategies with the preferences and values of UHNW clients.

The study — “Does Wealth Change the Way You Think? Risk Tolerance, Tangible Assets, and Risk Management: Observations for Prosperous Families and their Advisors” — also demonstrates how property and casualty insurance can improve the long-term risk-adjusted returns of UHNW portfolios.

Tangible Asset Disconnect?

At the heart of the study, researchers found that 80.7% of UHNW investors consider tangible assets — such as real estate, fine art and jewelry — to be part of their total wealth. But financial advisors often don’t think the same way about wealth as their clients.

As a result, they do not factor tangible possessions into portfolio measurement and risk management.

Understandably, advisors focus on the traditional elements of these high-octane investment portfolios — stocks, bonds, private equity and other financial instruments. But this focus, to the extent it excludes recognition of tangible assets, can undercut the quality of an advisor’s service and reduce risk-adjusted returns for clients.

But there is good news for advisors who act to correct this shortcoming. As the study reports: “[I]t’s likely that this gap represents a market opportunity for wealth advisors to expand the horizon of their practices to include the incorporation of risk-management assets outside traditional investment portfolios.”

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Improving Returns With Adequate P&C Coverage

There also was another critical takeaway, the study found: Adequate property and casualty insurance coverage can improve risk-adjusted returns. To help illustrate, the researchers modeled two case studies of UHNW clients over a 40-year period, where the annual probability of a left-tail event — a costly catastrophic event such as an accident and accompanying lawsuit — is 1%.

The case studies examined instances where a substantial portion of a family’s wealth is represented by personal real estate and high-value contents (17.5% of $30 million NAV) or an illiquid family business (38.5% of $30 million NAV). In both cases, incorporating adequate P&C insurance into financial management results in improved Sharpe ratios and higher risk-adjusted returns.

As the Wharton case studies explain, UHNW investors who self-insure or underinsure may take on greater investment risk to compensate for real or potential left-tail losses.

Uninsured or underinsured left-tail risk also can lead to overly cautious investment decisions — such as compensating for risk by maintaining high levels of cash — that impact total portfolio performance.

Actionable Steps for Advisors

For advisors working with UHNW clients or seeking to add this clientele, one clear actionable point emerges from the Wharton study: You can better compete and serve your clients by partnering with an independent insurance agent or broker who specializes in coverage for the wealthy.

Also note that the study finds that 80% of UHNW investors — and 95% of investors worth $50 million or more — prefer to pay a higher cost for insurance in return for appropriate coverage and service.

UHNW clients rank stability and expertise in handling complex risks and assets as the two most important factors in selecting an insurer.


Fran O’Brien is division president, North America Personal Risk Services, Chubb. She can be reached at [email protected].