Most of us are familiar with the Wealth Effect: when people perceive themselves to be richer, they spend more. This personal wealth pendulum is usually influenced by rising property values or an uptick in investment performance. While real property and traditional investments are critical to a high-net-worth individuals’ financial portfolio, advisors would do well to recognize the ever more critical role tangible assets play in a client’s overall wealth management picture.
Historically, tangible wealth (valuable personal property) is little more than a few lines on a balance sheet or a schedule on an insurance policy. And therein lies the rub. Today, however, tangible assets demand focused attention because such assets reflect a greater percentage of an individual’s total wealth. As the relative value of this class of investments increases so too will the need to include it as part of an individual’s total wealth picture. Yet, because of information opacity and a dearth of technological solutions few advisors apply the same rigor to these passion assets as they do to an individual’s other financial assets.
This lack of rigor with respect to tangible assets sets up four major risks:
1. Inadequate asset protection: In the event of loss, theft, fire or damage to valuables, the owner may be severely underinsured and face significant financial loss.
2. Estate exposure: If items are undervalued or inaccurately valued, the estate may suffer hefty tax bills at wealth transfer upon revaluation by the government.
3. Opportunity cost: Without tangible asset value transparency, clients and advisors are forced to make decisions about liquidity options without complete information.
4. Undervaluing personal wealth: If a client doesn’t have a complete view of his wealth, he is missing opportunities to spend, donate, invest, lend, borrow, and otherwise benefit from his possessions.
To-date, total wealth management has excluded rigorous management of tangible assets primarily because of the labor required to capture and actively manage the information about possessions. Now, however data, indices, applications, and technologies exist and allow individuals to easily collect and benefit from the information about every thing they own. These advances include virtually unlimited cloud storage, ubiquitous connectivity, access to data about luxury items, and the onset of multiple points of digital collection, which easily allows people to capture information about possessions on-site, at retail point-of-sale, through mobile applications or via electronic receipts. With these and other technologies, advisors will be able to track their clients’ tangible wealth – both what they own today, and what they acquire in the future – in ways similar to those that have been applied to their more liquid financial instruments.
It’s time wealth managers embrace technology to help high-net-worth clients gain visibility into the dynamic valuations of their tangible assets – and the role of those assets in their overall wealth picture. Not only will the clients make better-informed decisions to protect and leverage these assets, there may be a new Wealth Effect, as high-net-worth individuals realize that perhaps they’re wealthier than they thought.
Scott Walchek is the Founder, CEO, and Chairman of Trōv, a software company that helps people collect and benefit from the information about every thing they own. Follow him at www.scottwalchek.comor on Twitter @ScottWalchek.