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.”