The rich are different from everyone else: They may need different insurance policies.
Kidnap coverage, yacht pollution and liability for corporate board members are some of the complex needs of high- and ultrahigh-net-worth clients that have focused wealth managers 'attention on high-end insurance services.
Dynasty Financial is the most recent firm to make headlines, announcing the launch of a
In addition to standard products such as life insurance, annuities and long-term care, the wealthiest clients are also demanding more complex products to meet their particular needs, industry executives say.
PERSONAL LIABILITY
One increasingly important priority, for example, is personal liability insurance for individuals who serve as trustees, directors and officers on corporate and even nonprofit boards, says Ken Butler, chief executive of Legacy Risk Solutions, a Chicago-based risk management consultant for wealthy families.
People who serve on boards can be put at personal risk if those boards dont buy enough liability insurance, Butler says. Individuals dont realize the magnitude of the risk theyre assuming. If the board makes a decision that negatively affects a third party and causes financial loss, everyone on the board could be sued.
Wealthy families also tend to overlook problems associated with cross-trusteeship, Butler said. A family member may be a trustee for his or her nephews and nieces, while a brother or sister is in turn the trustee for that persons children.
No one thinks anything will go wrong, but things can go wrong, and the family needs insurance for that possibility, Butler pointed out.
ESTATE & TAX PLANNING
Policies for complex estate planning are the most common insurance need for wealthy clients at Highline Wealth Management in Rockville, Md., says chief executive officer Neal Simon. They want to make sure that as much wealth as possible is passed on to the next generation, while paying as little taxes as possible. Our job is to help them find the best policies and companies to help them achieve that goal.
Wealthy clients are also turning to insurance products that may help them offset their tax liabilities, says Boris Blum, president and chief executive of Wealth Planning and Management in Woodland Hills, Calif. They may use insurance policies within qualified plans or other strategies, but the advisor plays an important role because anything you use has to fly with the IRS and these strategies are a moving target -- something that worked five years ago may not work today.
The soaring value of collectibles has also increased demand for insurance coverage for art, wine and coin collections. Big-ticket assets such as yachts and vacation homes are also receiving more insurance policy scrutiny. In fact, one carrier -- Marsh Private Client Services -- even sells pollution coverage policies for yachts that may run afoul of local, state, federal or even international laws covering marine environment pollution.
And then theres kidnap and ransom coverage, not a concern for most people, but definitely one for wealthy families, especially those who travel abroad.
VARIOUS APPROACHES
Wealth managers are approaching these insurance needs in a variety of ways.
Highline advises their clients on complex issues, and recommends outside brokers, but doesnt sell any products. As an RIA, our clients want us to provide objective, sound advice, said Simon, and as holistic wealth planners, thats what we do.
Wealth Planning and Management, on the other hand, has an insurance brokerage division, WPM Insurance Services, that works with outside carriers to provide clients with products sold for a commission. Insurance can be difficult to understand from an investment perspective, said Blum. The value of an insurance product is not defined by price but by the features and contract provisions. And a wholesaler may not always explain the all the downsides of a product. You need a real insurance professional who can look at a contract and identify things that might go wrong.
Dynasty has partnered with Ash Brokerage, PKS Financial Services and other specialists for the new insurance platform it is making available to its network of advisors.
RIAs interested in insurance have probably developed networks of professionals they work with and may receive referrals from and give referrals to, said Howard Schneider, president of Practical Perspectives, a research and consulting firm based in North Andover, Mass. The advisors will need to assess how the new relationship adds value to clients versus the solutions already in place. They may also want to know how objective the new relationship is in recommending products and solutions and what revenue sharing arrangements exist between the various partners in the platform.
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