How advisors can respond to the Maui fires and prep clients for disasters

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

August 31, 2023 7:48 PM

Lahaina, Hawaii, destroyed by fire in 2023 — Lahaina, a historic town on western Maui, was destroyed by wildfire in August 2023. It was the deadliest wildfire in U.S. history in over a century.

The deadliest wildfire America has seen in over a century has been largely contained, three weeks after it spread rapidly over once-vibrant parts of western Maui.

But as the work of restoration begins, not only have many lives been lost — the latest count officially being 115 dead, though 388 were reported still missing as of earlier this week — but also a profound concentration of wealth on many levels: individual, communal and cultural. The vast majority of the 2,207 damaged or destroyed buildings in Maui County, where the fires were most concentrated around the historic town of Lahaina, were residential — 86%. Many survivors were left homeless.

"It's pretty devastating. I have clients who are in all ranges, some who had little or no insurance and some that were fully covered," said Jennifer Macedo, a financial advisor based in Lahaina.

Lahaina fire - Aug. 8 2023 — Fire in the evening around 9 pm on Aug. 8 in Lahaina.

Macedo, a certified financial planner who is the founder of registered investment advisor Front Street Financial, fled with her family in their car on the first afternoon of the fires. They almost lost their property, as they could see from the road that the flames were close, but were fortunate to learn later through aerial imagery that it had survived mostly unscathed. Macedo's family was able to stay with a friend immediately after the disaster, as their home was not yet cleared as a biosafe area to reenter.

"We've been in the community for 25-plus years. And so it's heartbreaking — every day we hear of new people that we knew that have passed away," Macedo said in an interview.

Lahaina, a former capital of the Hawaiian kingdom prior to the kingdom's annexation by the U.S., is likely known to many clients of wealth managers as an attractive tourist town. However, it was also a site of many important treasures showcasing the legacy of the Native Hawaiian people — treasures which have in many cases been completely destroyed by the wildfire.

Billionaires including Oprah and Jeff Bezos, who live on the island, announced multi-million dollar donations toward efforts to help their affected neighbors. An estimate released by the government puts the total financial damages so far at around $5.5 billion.

The sobering news comes as many other disasters have intensified in destruction and frequency, which scientists have linked to climate change and global warming. Several disasters have struck in recent weeks across the United States. The waters of Hurricane Idalia continue to ravage Florida, Georgia and the Carolinas as of this writing, and many parts of the country have experienced record-breaking heat and unexpected wildfires.

IMG_6838 - Clubhouse in Puamana in Lahaina.jpg — The local clubhouse in the Puamana community of Lahaina, after the fires on Maui.

"What we're learning is, wildfires can quite literally happen anywhere," insurance expert Kevin Daley said in an interview. "For a long time when you thought about wildfires, people would principally think of California or maybe expand that a bit to the Western states." Daley is the president and Western region private client leader at EPIC Insurance Brokers & Consultants, where he helps advisors find clients insurance.

Financial Planning spoke with experts on what financial advisors can do to help clients and the Native Hawaiian community affected by the disastrous fires on Maui, as well as help other clients at risk of suffering harm from future disasters. Below are five tips they shared.

Additional resources to help the Lahaina community include:

Deliver financial first aid

The simplest thing an advisor can do is call each client immediately, once the advisor and their own family are safe, and simply ask: Are you safe? For Macedo, this is when the long-term conversations around wealth building for the future have to be put aside; advisors need to be present in the moment for clients' immediate needs.

"Just let them know that the main concern is that they're safe and they're okay," she said.

A crucial next part of financial first aid in the case of clients who had home insurance, Macedo said, is that they can immediately file a claim on insurance. "They don't have to see and have pictures of the home" to do this, she said. "When their insurance agent calls them to have that first discussion, the client or person can ask for an immediate payout for loss of use" and begin to receive some cash that they can use for a hotel stay, food, clothing or gas, she said.

Additionally, advisors can inform clients about news developments like the arrival of FEMA support. In this case, "FEMA is giving a distribution of about $700," she said.

Offer pro bono financial education to protect disaster victims

Shortly after one or two of Macedo's Native Hawaiian clients lost their homes to the recent fires, they began hearing from outsiders calling and offering them money for their land.

This is where advisors have a role to play, Macedo said — they can provide crucial education to afflicted clients and their communities to prevent unscrupulous investors from making a quick buck off their misfortune. In her clients' case, the buyer was offering only $250,000 — much less than the land was worth, she said.

Surrounded by destruction, these vulnerable individuals can be pressured to sell their property, which leads to their wealth leaving the community and removes their ability to bequeath it as generational wealth to their children.

Macedo said that to better serve her community in this moment, "I've asked all of my other clients that are off-island to be patient and allow space for me to solely work with not only healing myself and my family, as we were directly impacted, but helping the community and clients in the area, too." To that end, Macedo visited local shelters to offer pro bono help. Advisors can also coordinate various pro bono financially themed community projects and educate on social media in the wake of disasters.

Seek training and expertise in insurance for future events

What Maui's crisis has shown, Macedo said, is the importance for all financial planners to become more knowledgeable about insurance as a key part of their holistic practice.

"A lot of this, I feel, is due to climate change and things that are happening across the globe," she said. "I always believed insurance to be more of a side note of financial planning, but the truth is as we do have increasing devastating and severe weather changes, insurance is becoming more and more primary." Insurance, as a critical part of asset protection, is playing defense for clients in addition to growing their wealth through playing offense, essentially.

In the case of many clients, advisors can add value by asking them to review and update their policies together. "Go look on Zillow and look at the value of their home. And compare their policy to their home, so that (you) can really help them get in the range of the point where their home is covered … should something happen."

One of Macedo's clients saved diligently for a home that he recently purchased for $1 million. Unfortunately, he only took out $350,000 of insurance on it — and the home was burned "down to the foundation," she said. "That's just devastating for this couple, who worked and worked and worked, and finally were able to purchase their dream home, and remodeled and worked on it."

Assemble financial emergency kits in advance

Financial advisors frequently speak of having emergency funds for clients to access in the event of a temporary setback such as job loss. As more disasters strike homes all over the map, advisors can step up to help clients assemble an emergency financial kit.

This can include preparing "a community checklist," Macedo said, so that when disaster strikes, they know who to direct their clients to for quick assistance.

Financial advisor Lisa Detanna, managing director and senior vice president of investments at the Beverly Hills, California-headquartered Global Wealth Solutions Group of Raymond James, said that even counseling clients to always have some cash on hand in case of a disaster can make a huge difference if they need to quickly pay for some assistance — for example, transportation.

"Take photos of all valuables and upload to (a) virtual vault or cloud with all copies of all your insurance policy's deeds, mortgage information. In a state of emergency there is no more running out of the house with the important metal box with all the papers, as the laptop computer may be destroyed," she said.

Facilitate direct aid to affected communities

Advisors can guide charitably inclined wealthy clients to donate effectively, Macedo said. If clients want to have an immediate impact with their support, they should go through credible platforms to donate their money — one of which can be GoFundMe, she said.

On the receiving end of aid, an advisor can also help a client solicit donations, helping to create an account on a trustworthy platform and ask for help restoring what they lost.

"The advisor (can) help the family open up a GoFundMe account, can really help allow space for others — family and loved ones and people who have witnessed their loss — provide gifts to them and they can then utilize that to get themselves back on their feet."