Like every private client, you’d agree that you didn’t amass significant wealth overnight. It took years of hard work, smart decisions, and well-timed opportunities to reach where you are.
But unlike most people, your portfolio extends far beyond the typical mix of cash and publicly traded stocks. Your assets are complex, diverse, and often deeply interconnected.
You may own major real estate holdings, successful private businesses, or stakes in private equity and hedge funds. These assets can be difficult to sell quickly or value with precision.
This sophisticated mix offers impressive growth and long-term stability. But it also introduces unique risks that require careful attention.
Here, we’ll discuss the unique risks private clients with complex assets face and share some strategies to help you navigate them.
Unique Risks Faced by Private Clients With Complex Assets
Here are the unique risks you face when you hold complex assets:
1. Illiquidity Risk
Many of your assets are illiquid. This means they are hard to sell or exchange for cash quickly. Examples include real estate, antiques, and private company stock. If you must sell fast, you usually incur significant losses.
If you suddenly need cash for an unexpected tax bill, selling illiquid assets quickly usually means taking a huge loss. This lack of buyers increases price volatility. It can leave even the wealthiest person feeling ‘asset-rich but cash-poor’.
2. Concentration Risk
Most affluent individuals accumulate wealth by building a business, investing heavily in a particular industry, or holding large real estate positions. This success can create an unintended vulnerability: too much value in one place.
Take private equity, for instance. Last year was a challenging year for global private equity (PE). Fundraising declined for the third straight year, dropping 24%, while investment returns were modest compared to strong public markets.
This kind of imbalance can put your overall financial health at risk if that single sector hits a downturn. A dip in valuations, slower exits, or tightening credit conditions can quickly ripple through your net worth.
3. Liability Exposure
Another major risk is your personal liability exposure. If you run a business as a sole proprietorship, you have no legal separation from it. All business debts and obligations are considered your personal debts.
This puts your entire net worth, such as your savings, home, and personal investments, at risk from any business creditor or lawsuit.
How Private Clients With Complex Assets Can Manage Risk
Below are a few strategies that can help you manage risks associated with complex assets:
1. Get the Right Insurance Coverage
Insurance acts as a safety net for your wealth, shielding you from unexpected lawsuits or physical losses. For wealthy individuals, standard coverage is simply not enough.
Personal umbrella insurance adds an essential layer of liability coverage, stepping in once home or auto policy limits are reached. Ideally, your umbrella policy should cover your full net worth, along with a cushion for future earning potential.
If you own a business or serve on boards, consider professional coverage options, such as professional liability insurance.
HWP Insurance explains that this specialized policy protects individuals as well as businesses against legal claims related to negligence, errors, omissions, or inadequate work. It shields your personal assets from professional disputes or operational issues.
2. Diversify Across Different Categories
Diversification is one of the oldest wisdoms in finance. But for private clients with complex assets, it takes on a refined meaning.
Maintain a healthy balance between your liquid and illiquid assets. Liquid assets include cash or publicly traded securities. These funds provide immediate access for emergencies or seizing time-sensitive opportunities. You won’t face a forced sale of an illiquid asset during a crisis.
Investing in real estate or infrastructure expands your portfolio beyond your business. These assets can offer steady income and capital appreciation. They may also provide tax advantages.
Real estate can act as a hedge against market volatility. Not surprisingly, investor home purchases have reached their highest share of the housing market in five years.
3. Address Tax Risk With Precision
Taxes represent one of the biggest risks to accumulated wealth. Tax laws are constantly changing, so passive compliance is not enough. You need an aggressive mitigation approach.
Tax-loss harvesting (TLH) is one of the most effective ways to lower your tax liability. TLH works by realizing a loss from selling an underperforming security. You can then use that capital loss to offset capital gains you realized from selling profitable assets.
Trusts can protect assets, reduce estate taxes, and ensure smoother wealth transfer.
Charitable strategies are not just about philanthropy; they are tax management tools. Donor-Advised Funds are invaluable. You contribute appreciated assets and claim the tax deduction immediately. The funds then grow tax-free. You choose when to make grants to charities later.
Taking Action Today
At the heart of all this is a simple truth: good risk management isn’t about fear but freedom.
When your assets, lifestyle, and legacy are protected, you get to focus on what matters most. That is, growing your business and enjoying the rewards of everything you’ve worked so hard to build.
Don’t wait any longer. Adopt these strategies today, and you will be at peace knowing that unexpected events won’t derail your plans or compromise your family’s future.