In recent years, more and more high net worth families are turning to tangible assets, and not just for their aesthetic value. According to a 2012 Barclays report, high net worth individuals hold an average of 9 percent of their wealth in tangible assets, and according to ACE, 74 percent of survey respondents cited investment value as a reason to purchase rare collectibles and memorabilia. Investors have the opportunity to reap financial and aesthetic benefits by investing in tangible assets, but these investments do not come without risk.
These tangible assets hold aesthetic value as well as being subject to appreciation. While wealthy individuals take comfort in the fact that their investments will, more than likely, be subject to price appreciation in the future, agents need to make sure that these clients understand and address the critical issues facing these assets and protect themselves accordingly.
Click through the following slides to learn about ACE Private Risk Services and Trov's 7 Steps for Managing Tangible Risks.
1. Assemble the right team of experts
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. The team should include the following experts:
- 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 such as ACE Private Risk Services that also specialize in serving HNW clients.
- Loss prevention specialist. HNW-market carriers like ACE often have risk consultants who can offer complimentary advice about minimizing the chance of loss, including recommendations for specialized security and safety vendors.
- Estate and tax planner, CPA and attorney. Family offices, collectors or wealthy donors each face a unique set of estate, accounting and tax planning needs. Research an estate planner or tax attorney who is best suited to meet these specific needs and provide specialized advice for different types of assets or changing circumstances.
2. Secure an accurate appraisal by a qualified appraiser and consider appraisals from several appraisers for especially valuable pieces.
Appraisal industry associations, such as the American Society of Appraisers, Appraisers Association of America and International Society of Appraisers, provide guidance when it comes to selecting a qualified appraiser for your assets, for insurance purposes. The IRS provides and requires additional regulations and guidelines for appraisers and appraisal reports for income, gift and estatetax purposes. Consider two or three appraisals, by different appraisers at the same time, to guarantee your assets are valued accurately, as the appraisal is the foundation for almost every decision made with tangible assets.
3. Implement a tangible wealth management system to continuously track new transactions at the point-of-sale and monitor price changes that affect your property's value.
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 as related sales occur at retail and auction houses.
4. Work with the insurance agent to set proper limits of coverage for general contents and schedule valuable items on a valuables policy.
Proper insurance coverage is a critical component of any wealth protection plan. For the best protection, families should insure their precious possessions with a valuables policy, which enables them to declare the value of each piece, or group of pieces, on the policy. This coverage is not restricted by specific coverage limits for certain items in homeowners policies, and it applies to a broad array of risks, including those excluded by homeowners policies, such as flood. No deductible applies. The best policies will guard against price fluctuations by providing coverage for the market value of an item just before the time of loss up to 50 percent more than the value listed on the policy.
5. Engage the services of a risk consultant to help prevent loss.
Wealthy families often fail to work with a professional risk consultant, leaving themselves andtheir assets exposed to serious risks. Even if a property is adequately insured, virtually all owners would prefer to prevent loss in the first place over having to make a claim. A risk consultant can recommend and help owners implement key loss prevention strategies, including an updated inventoryof property, evacuation planning, background screening of domestic staff and contractors, and backup power supplies for environmental controls and security systems.
6. Determine a lifetime strategy for your valuables, including a succession plan, at the outset.
Too many families wait to develop a strategy for their valuables until it is too late to make a rational decision about a succession plan. It is never too early to begin planning. Discuss the various methods with your key advisors, such as lending pieces to museumsfor a period of time, which can enhance their value. If you're planning on leaving your assets in a will or trust, donating pieces to a museum or writing an estate planning letter, you will need professionals who have experience dealing with these assets and their unique tax and financial opportunities and consequences. Proper documentation enables proper planning and ensures that the proper tax basis is reflected, which can save family members thousands of dollars.
7. Regularly discuss your tangible assets with your circle of advisors.
In every wealth planning consultation, devote sufficient time to discuss the quantity of tangible assets in your portfolio and the values for each item. Families maynot consider themselves to be collectors, but anyone who owns jewelry, watches, memorabilia, antique furniture or other luxury items must ensure those valuable items are properly accounted for. Unless advisors are kept up to date about your tangible assets, they will be unable to help you minimize risk or capitalize on opportunities, such as being able to secure a loan
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