A wealth manager is like an orchestra conductor. While he does not play each instrument required for a symphony, he knows how to bring them all together to produce a beautiful piece of music. Similarly, advisors need to be familiar with a range of issues to help clients grow, manage and protect their wealth.
That said, why are so many advisors out of tune when it comes to asset protection?
Property and casualty insurance, which cover both hard assets like homes, jewelry, fine art, and the liability associated with them, are often overlooked in financial planning.
Many wealth managers overlook
property and casualty insurance because they do not write the business
and often don't clearly understand its full importance. Clients,
meanwhile, often look upon insurance as an expense that can be avoided.
Yet neglecting insurance needs is a mistake.
The asset protection and liability needs of high-net-worth individuals can be significant, often requiring the involvement of sophisticated property and casualty insurance policies. Advisors need to be aware that, absent proper insurance coverage, a client's entire wealth could be left exposed.
There are two major areas of concern when evaluating the property and casualty exposure of high-net-worth individuals. First is the complex task of insuring assets such as custom homes, art collections, jewelry, yachts, exotic automobiles and aircraft.
Specialty insurers, rather than mass-market carriers, are required to cover these types of assets. The second concern is liability-whether an individual is protected against catastrophic financial losses if he is held liable.
Let's discuss liability issues first. There is no doubt that affluence can make someone a target for liability lawsuits. In today's litigious environment, there are more liability risks for high-net-worth individuals than at any other time in history. Keith McVicker, CEO and president of Lane McVicker, LLC, wrote in the April 1998 issue of Trusts & Estates that "for a clear majority of the affluent, risk of liability loss represents the most catastrophic potential of their property-casualty form." He goes on to say, "the fact that defense costs (without a cap) are paid by the carrier in addition to the policy limits further illustrates the magnitude for potential loss."
The message here is clear: Not only do your clients have the risk of the liability, but they would also incur the cost of the legal defense fees without the proper liability insurance. In other words, if your client has a net worth that exceeds the liability limits provided by his present carrier, he has a problem. One is most likely to find this situation with clients who have bought property and casualty insurance from mass-market carriers. Specialty insurers such as AIG, Chubb and Fireman's Fund, however, can provide liability limits up to $100 million. Ascertaining the liability limits of a client's policy should be one of the first steps taken by a wealth manager in evaluating coverage. As Allstate states in its advertising, "Covered? Don't hope so, know so." Of all that you do for your client, ensuring they have adequate liability limits to protect their net worth may be one of the most important asset protection services you can provide.
Hidden Liability Issues
There may be cases where high-net-worth clients need extra liability coverage. Insurance specialists can identify potential worst-case scenarios that merit the need for extra coverage. They can also take steps to reduce the likelihood of these scenarios becoming a reality.