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advisors
Dec 7, 2016

How do I appropriately protect my “passion investments”?

The term “passion investment” has gained currency within the wealth management arena to describe high-end collectibles and other luxury possessions that hold emotional as well as financial value for their owners.

Passion investments run the gamut from fine art and antiques to coins, fine wine, luxury timepieces, collector cars—and more exotic categories, such as rare baseball cards or Hollywood memorabilia. What constitutes a passion investment for you depends, by definition, on your unique tastes and interests.

Many passion investors, and sometimes even their wealth advisors, make the mistake of underestimating the importance of these treasured possessions within their overall portfolio. As a result, they also underestimate the importance of protecting their collections adequately with appropriate safeguards, including specialized insurance policies.

Since passion investments, unlike traditional financial investments, are vulnerable to physical damage or loss, owners further leave themselves open to significant financial harm on top of their understandable emotional distress should an item be damaged or stolen.

In the past, wealth advisors often simply ignored a client’s passion investments when providing guidance on an overall wealth-management strategy. They may have viewed their client’s collection of vintage cars, rare wines or first-edition Victorian novels as little more than a personal hobby—just one of the perks of financial success. But this view misses the fact that the overall value of a client’s “passion portfolio” may represent a significant portion of that individual’s net worth.

Your passion investments represent an asset class that deserves to be treated as part of your overall investment portfolio.

This is true today more than ever, according to Ron Fiamma, vice president and global head of private collections for AIG’s Private Client Group, which specializes in insurance solutions for those of high net worth. “That’s because we’ve seen dramatic valuation increases in these asset classes over the past ten years—in many cases outperforming an index like the S&P 500 by more than 2 to 1,” Fiamma says.

Most high net worth individuals have now eased up on the short-term belt-tightening they put into effect immediately after the financial crisis. They are again confident enough in the economy to begin adding to their collections more aggressively. At the same time, memories are still alive of turmoil in the financial markets. For this reason, alternative asset classes have attracted more capital, steadily driving up values.

The bottom line is this:

And because passion investments—unlike traditional financial investments—are vulnerable to physical damage or loss, they require appropriate insurance solutions that take into account their special nuances, including rarity and challenges in valuation. A qualified insurance broker with expertise in serving wealthy clients can provide the knowledge needed to design an effective and appropriate personal insurance strategy to protect your treasures.

ADVICE FOR ADVISORS

As wealthy individuals put more investable assets into passion investments, more wealth advisors are addressing these investments as part of their overall service offering. By doing so, they more comprehensively manage client wealth to fulfill their fiduciary duty.

If you are a wealth advisor, don’t let lack of expertise in your client’s portfolio of fine art, heirloom timepieces, collector cars or any of the other myriad categories of passion investments, stand in the way of adding additional value to your services and to your client’s traditional asset portfolio.

Instead, call on a trusted personal insurance broker with a high net worth focus to consult with you or your client on protecting this asset class. A good personal insurance broker who works regularly with clients owning passion investments will understand the associated risks and have access to appraisers, restorers and other experts in preventing and insuring against loss.

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