Advice

The super wealthy fail to protect their assets

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But many fail to take adequate steps to protect their assets against risks.

ADVERTORIAL

The global pandemic may have changed the world, but for the super-rich, who spend their money on flash properties, fast cars, super yachts, luxury handbags and other goods, Covid-19 brewed pent-up demand, resulting in a spending spree. We also continue to see that the ultra-high net worth investor, informed by uncertainty, looks for alternative asset classes to diversify portfolios and provide resilient returns. This may explain why Hermes handbags were the best performing luxury collectible for price growth in 2020, up 17%, followed by fine wine (up 13%) and exotic cars 6%, according to Knight Frank’s Luxury Investment Index. Furthermore, according to the Wealth Report 2020, SA is the largest wealth market in Africa and the 32nd largest worldwide in terms of total wealth held. It suggests that the SA luxury sector generates revenue of about $2bn per year. Yet, unique challenges plague SA’s wealthy when it comes to protecting their wealth against risks. Despite spending mega money, we continually see high levels of underinsurance on high ticket items. In the context of SA, in which crime is rife and often sophisticated, this is risky.

This can be attributed to the complicated risk management needs of the ultra-rich, who often make the mistake of over insuring against low risk threats. This can be especially devastating for those with tangible collections of passion investments, whether it be classic cars, jewellery or art. Furthermore, investors with sizeable collections often assign a substantial amount of sentimental value to their collections, but do not always realise their financial value. In SA, the wealthiest investors prefer to have collections in art, classic cars, jewellery, fine wine and watches. Watches under the Patek Philippe name brand, both classic and new, fetch the highest prices by HNWIs, according the SA Wealth Report 2020. Data suggests that many of the super wealthy are clueless as to the value of their collections, and therefore don’t insure it. A US study suggests that of 2,475 investors who can be classified as wealthy, 44% have not had their collections insured.

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house of the super wealth

 

It also found that roughly 40% of wealthy collectors don’t know the full value of their collection, while 51% have never had their collection appraised. As the numbers of the super-rich rise, wealthy investors should carefully consider their unique risks and remember that it pays to insure collectibles and assets. The Knight Frank Wealth Report 2021 suggests that there were 44,605 dollar millionaires living in SA as of December 2020. This number is expected to grow to 63,400 by 2025. It also suggests that Africa is expected to see the second biggest regional five-year growth in ultra-high net worth wealth investors (UHNWI), a rate of 33% – led by Zambia and SA. How can the super-rich take adequate steps to protect their assets against complicated risks?

Choose a specialist underwriter

The most important thing to do is to work with a specialist underwriter who offers comprehensive and tailor-made solutions, given the sophisticated needs of the wealthy. This will allow the HNWI to have complete peace of mind and confidence that their assets are adequately protected. Make sure that the specialist underwriter is able to provide access to a network of specialist services in various fields, as well as collectable valuators, security advisers and motor vehicle repair professionals. HNWIs must also ask their specialist underwriter whether their claim service is efficient and discreet, which is in keeping with the unique needs of collectors.

 

Ownership of assets

HNWI tend to register ownership of their assets in private entities such as trusts, companies and closed corporations. Brokers must work closely with their clients to understand the ownership structures of all assets – as they would for ensuring a business with multiple entities – to ensure that insurance cover is properly coordinated and adequate risk protection is being provided.

Security risks

Security at home and during travel, including the risks of political turmoil and global conflict, remains a top concern for HNWI. For wealthy families with complex risk exposures, it is highly recommended that a security expert is consulted. These experts typically provide a full risk assessment that would minimise any security breach, such as home intrusions, a cyber-breach or any other issue that could put the family at risk.

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