ELITE ADVISOR BEST PRACTICES
Protecting Your Clients’ Passions
Viewing valuables as part of the overall portfolio
By Rand Silver and Ron Fiamma
- Art, antiques, wine and collector cars constitute an important asset class.
- Appraisals are usually the basis for valuing fine art, antiques, jewelry, collectibles and antique cars.
- Collections should be appraised every few years.
- Specialized insurance, comprehensive risk management and up-to-date appraisals serve to protect a client’s collection portfolio.
- A sophisticated insurance company can provide the expertise to help owners preserve long-term value.
Chances are your affluent clients are among those Americans in collective possession of the trillions of dollars in art, antiques, jewelry, antique cars and collectibles that are in private hands. While some of these clients might be sophisticated, lifelong connoisseurs, others may have simply inherited jewelry, received art as gifts or purchased valuable antiques to decorate their homes. Regardless of annual or seasonal market trends, these collections constitute a meaningful asset class that will increase in value over time.
A crucial step in protecting a collections portfolio is maintaining updated values. Not only is an appraisal the basis upon which values are usually set, but it provides an important record of the owner’s holdings. If a piece is lost, stolen or damaged, an outdated or incomplete appraisal could limit your client’s ability to be fully compensated through an insurance policy. The following guidelines will help your clients evaluate and act on their appraisal needs, regardless of their collecting level.
1. Assess the need
Your clients could need an appraisal for a variety of reasons: when donating or gifting, for estate or divorce situations, when contemplating a sale, when requested by the IRS, or when using items as collateral for a loan. Different valuation methods are used for each type of appraisal, but retail replacement value—generally the highest valuation figure for personal property—should be used as the basis for insurance. To avoid confusion, it is important to note that no appraisal serves as an authentication.
2. Consult the right professional
The right appraiser will be a specialist in the type of item being evaluated and one who can give references. Ideally, the appraiser has been tested and certified by a recognized professional organization, such as the Appraisers Association of America or the International Society of Appraisers. The expert’s work should also conform to Uniform Standards of Professional Appraisal Practice (USPAP), the quality control standard for real and personal property appraisals in the United States. A fine art specialty insurance provider should have strong relationships with a wide range of appraisers and can be a valuable resource for referrals.
3. Consider all valuables, not just what’s on the walls
It’s not just the fine art on your clients’ walls that needs to be valued. Men’s watches and antique carpets are often overlooked in appraisals. These genres also are highly susceptible to loss and damage, respectively. In addition, be sure to consider your clients’ antique cars and investment-grade wine; both collecting categories have been rapidly increasing in interest and in value.
4. Keep it current
Because different segments of the art and valuables markets appreciate at varying rates, there’s no fixed schedule for getting updated appraisals. However, a good rule of thumb is to do so every three or four years. This may sound extreme, but depending on the specific genre in question, insurance claims experience has shown that even a three-year interval between appraisals can be inadequate in an active market. Specific genres of art can enjoy periods of unusually strong sales, and record-breaking sales for a particular artist can fuel a spike in prices. Similarly, the ever-changing prices of precious metals and stones dramatically impact jewelry values. As a result, your clients may discover the need to re-evaluate some parts of a collection more frequently than others.
5. Putting it all together
Effective collection management means more than merely determining value. Just as there are hedging tools or stop-loss strategies to protect a financial portfolio, tools exist to protect a collection’s portfolio, including comprehensive insurance and dedicated risk management, along with expert appraisals. Because volatile financial markets may be the norm for the foreseeable future, moves to protect tangible assets should be an integral part of managing wealth.
Getting up to speed on collector car insurance
It is commonly understood that a specialized collection insurance policy covers rare and often irreplaceable items, such as Impressionist paintings, Bordeaux wine or Tiffany lamps. Even though they constitute a genre that may not be thought of as a collectible, there are roughly five million collector cars in the United States, and that number is growing. Furthermore, 2012 was a particularly strong year for collector car sales across nearly all categories, mimicking the activity in the fine art market.
As such, part of your strategy to ensure that everything has been done to protect your clients’ portfolios should be considering specialized insurance for collector cars.
Insurance policy details for collector cars can vary from carrier to carrier, but these are some key coverage details:
- Agreed value coverage
- Worldwide coverage
- Full transit coverage
- Single liability policy for the entire collection
- Market appreciation coverage to account for rising values
- Diminution in value coverage for partial loss
- Automatic coverage for new purchases
A knowledgeable insurance carrier also will draw from its risk management experience to help your client answer these key questions:
- Are the vehicles’ values accurate, and is the collection insured to value?
- Is the garage facility properly constructed to withstand floods, tremors or storm surges?
- Is there an emergency evacuation plan in place for the collection?
- Are vehicles in low-lying areas on risers to prevent damage from a flood?
- Are necessary vehicle repairs or restoration being performed by qualified experts?
- Is the transportation company suited to the needs of the car and the move?
- Has the appropriate international shipping protocol been put in place for a smooth overseas transit?
A policyholder at our company was involved in a collision that virtually totaled his Ferrari Enzo, one of only 400 ever produced. The extensive damage required lengthy and complicated repairs for the car to be restored. We offered to reimburse the policyholder for the full value of the vehicle, but he preferred that we attempt to repair it. The rarity and design intricacies made it nearly impossible to find a qualified technician and replacement parts in the area. We determined that the only craftsmen qualified to complete the repairs were the ones who originally built it—at the Ferrari factory in Italy.
We shipped the damaged remains and flew the policyholder to Italy twice to inspect the progress. When all repairs were completed to the policyholder’s satisfaction, the vehicle was shipped back to his residence, and to this day he remains the proud owner of one of these rare beauties. As you can see, this isn’t your standard-issue auto insurance.
Collectors may be motivated by a variety of factors, including aesthetic enjoyment or diversification of an investment portfolio. Regardless of the original intent, their appreciating assets need to be viewed and protected as an alternative investment class. Just as hedging tools or stop-loss strategies protect a financial portfolio, comprehensive insurance and dedicated risk management can protect a collection portfolio. And the deeper your understanding, the more value you can deliver.