Start with complexity
When it comes to UHNW clients, what’s the most important thing to address? “The number one place to start is complexity,” says Crystal. “They have often structured their wealth in a complex way… so what they seek is simplicity – administrative simplicity, a bit of control.”
He encounters families with “dozens of insurance policies” from “multiple insurance companies.” In these cases, the firm’s job is to “reformulate [the family’s] approach” to simplify and reduce spend.
Another top issue the firm deals with is clients’ concerns over personal security, which run “much deeper” than concern for their assets. This means preparing for risks when travelling abroad, for example.
“Another broader trend that we see is the globalization of families and their wealth,” says Crystal. This has led the firm to establish a global wealth unit to deal with transnational families.
Meanwhile, the heightened scrutiny of wealth in the media causes issues for some. “There’s two related issues going on,” explains Crystal. One is that with returns from liquid assets so low “clients are investing in hard assets” as “at least they have some intrinsic value.” This brings challenges of its own, such as transportation and storage. But it also can raise an individual’s profile - if someone is identified as the buyer of an extremely pricey piece of art or high-profile property, for example.
This, for many, will be unwanted. To aid clients with such issues the firm delves into the minutiae such as finding out whether they are acquiring assets through LLCs, and how it can help protect these. Tangible assets such as houses create other vulnerabilities: who is handling the build and project management?
Crystal is no doomsayer though. He does not bring up all these angles to suggest all wealthy people should avoid all risk through insurance.
“We have no problem with clients taking risks,” he says, pointing out that many of the firm’s clients are hedge funds, which make a living from managing financial risk. However, all clients need to understand the risks inherent in their lifestyles and be able to absorb the risks they take, and understand the alternative costs of insuring against that risk. It needs to be “conscious risk,” he explains, which is very different from an oversight.
Advice to wealth managers
For wealth managers looking to discuss clients’ insurance needs, Crystal says that firstly it’s important to go beyond liquid assets: “We recommend they look more broadly at the balance sheet. Art can be upwards of 10, 20 or 30 per cent of net worth…It should be part of the mandate of a wealth advisor.”
Secondly, on understanding your client’s insurance profile, he says questions need to go deeper than “Do you have insurance?” and “Are you happy with it?”
“Your clients are reviewing their investments on a quarterly basis” at least, says Crystal, while he finds people who haven’t reviewed their insurance policies for “15 or 20 years.”