Wealth can put a target on rich clients' backs: How advisors can help

Even the richest Americans may not be invulnerable to the slings and arrows of outrageous fortune. 

A high net worth client might be sitting pretty today but ordered in court tomorrow to pay tens of thousands of dollars to someone their dog has bitten. Their new home, which they neglected to fully insure, might be destroyed in a climate disaster. They could be scammed out of millions in a pig butchering scheme. 

READ MORE: How to protect your clients from scams and fraud

According to Katherine Frattarola, a risk management expert who is the head of HUB Private Client, affluent clients often underprepare for such cataclysmic financial events, even though data shows such incidents are growing in frequency. 

HUB Private Client, whose parent company HUB International is an insurance brokerage, partners with financial advisors to provide risk management services to wealthy clients including high net worth individuals and families and family offices. In the firm's recent study of high net worth individuals, nearly 90% of affluent respondents believed they had a personal risk management program that sufficiently covered all risks they might face, yet only 16% of them had recently updated their risk management procedures — a discrepancy that Frattarola found "pretty astounding." 

"There's this false sense of security that at some point, something was probably done right. They believe they were adequately prepared," said Frattarola, whose team specializes in working with high net worth and ultrahigh net worth homeowners. "The problem is, in those subsequent years, it's likely that the complexity surrounding their family and lifestyle has changed and oftentimes increased." 

Financial advisors can nudge their clients to prepare better and in doing so, demonstrate their care for the client's holistic financial life — potentially opening the door to warm referrals from a grateful client in the future. 

Wealth management

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From pets to investing, a wide variety of risks to reassess 
Climate-related disaster is the big risk that wealthy clients and their advisors must be sure to stay ahead of, Frattarola said. 

"Climate change has accelerated the need ... to review planning, particularly for people who live in coastal and wildfire prone areas," she said. In 2023 alone, through mid-August, the country experienced 23 weather events where losses exceeded $1 billion — "a new record," HUB said in its 2024 outlook report for wealthy clients. 

READ MORE: How advisors can respond to the fires on Maui and prep clients for disasters 

"Personal injury liability payments rose to $53.1 billion in 2022, with social inflation increasing the amount of litigation and settlements," the report authors added. 

Simply owning a pet dog can put someone at risk, Frattarola said. The average dog bite injury claim paid by insurers in 2022 was $64,555, an increase of 32% over the prior year, according a report in April from the Insurance Information Institute. 

Wealthy families also need to think more in-depth about their risk exposure, Frattarola said. While many consider risk in terms of insuring their property, whether that's homes, cars, boats, jewelry and other collections, "they're often not thinking about the risk that's inherent to their lifestyle." High-profile clients can have hyper-specific vulnerabilities, depending on factors like "how many connected devices their children are using, and how they're using social media websites." 

A financial advisor can sit down with such clients and develop a holistic risk plan, in partnership with a specialist risk advisor and a trust and estate planning attorney, Frattarola said. 

There's also investing risk for many clients to reconsider. Specifically, advisors should reassess risks for investing in the new likely lower-interest rate environment of 2024, according to Callie Cox, U.S. investment analyst at eToro. 

Cox said the Federal Reserve's signal that it would lower rates in 2024 and hold them steady for now is a "huge shift for how investors should view risk and how financial advisors should manage risks."