Social networking sites have become a new risk worry for high-net-worth clients, according to a new report from Chubb Group of Insurance Companies.
The extraordinary growth of social networking sites like Facebook, LinkedIn and Twitter have resulted in “complex financial exposures like identity theft, slander, libel and personal security perils,” according to the Chubb white paper “Managing Property & Casualty Risk of the Affluent.”
Children of wealthy individuals who post inappropriate comments on social networking sites could expose their parents personal assets and net worth to costly lawsuits, said Jim Fiske, vice president and U.S. marketing manager for Chubb.
“One client’s son and friends had created on MySpace a real-looking but fictitious page for their teacher,” Fiske said. “They had imported pornographic material and superimposed the teacher’s head on the bodies. The teacher filed a lawsuit for slander, which is not covered by most standard liability insurance policies. The boy’s family was on the hook for a million dollars in defense and settlement costs.”
Travel may also pose “potentially alarming financial risks for high-net-worth clients and their families” according to the report, citing travel to less-developed countries, exotic locales and increased travel by corporate executives.
Financial advisors and wealth managers should evaluate their clients’ insurance policy and determine if personal injury is included in the liability coverage, Fiske said.
“They need to find out if the policy travels with the individual,” he continued. “High-net-worth clients frequently travel abroad and they should know if their liability policy follows them as they travel.”
Wealthy clients also “frequently face more complicated employment practices and directors and officers liability exposure,” the white paper noted.
Executives serving on the boards of public and private companies “putt themselves at personal risk — even if the organization indemnifies them in the event of litigation,” the report stated. “A settlement may exceed the financial limits of the directors and officers (D&O) liability insurance policy. In the case of Enron, directors were forced to pay a portion of securities class action lawsuit settlements out of their own pockets.”
The importance of risk management was also highlighted in the fiduciary responsibilities outlined in the Financial Planning Association’s new Code of Ethics, which elevates the importance of helping manage clients’ property and liability exposures.
While financial planners have an obligation to manage the asset side of clients’ balance sheets, “the heightened fiduciary responsibilities insist upon similar consideration of the liabilities,” according to the white paper.
“It underscores that wealth preservation is just as important for wealth managers as wealth accumulation,” Fiske said.