Tag Archives: barclays

What Blockchain Means for Analytics

I recently had the pleasure of attending #CityChain17 (blockchain conference) at IBM’s SouthBank offices.

Chaired by Paul Forrest (chairman of MBN Solutions), the conference was an opportunity to learn about blockchain and how it is being applied.

In the past, I viewed the hype about blockchain (following excitement about Bitcoin its most famous user) as just another fad that might pass.

However, as more businesses have got involved in piloting potential applications, it’s become obvious that there really is something in this – even if its manifestations are now much more commercial than the hacking by Bitcoin fans.

CityChain17 brought together a number of suppliers and those helping shape the industry. It was a great opportunity to hear voices, at times contradictory,and see what progress has been made toward mainstream adoption. There was so much useful content that I made copious notes and will share a series of two blog posts on this topic.

So, without further ado, as a new topic for our blog, here is part 1 of my recollections from this blockchain conference.

Introducing blockchain and why it matters

The first speaker was John McLean from IBM. He reviewed the need that businesses have for a solution to the problem of increasingly complex business and market networks, with the need to securely exchange assets, payments or approvals between multiple parties. He explained that, at core, blockchain is just a distributed ledger across such a network.

In such a scenario, all participants have a regulated local copy of the ledger, with bespoke permissions to approve blocks of information.

However, he also highlighted that today’s commercial applications of blockchain differ from the famous Bitcoin implementation:

  • Such applications can be internal or external.
  • Business blockchain has identity rather than anonymity, selective endorsement versus proof of work and wider range of assets vs. a cryptocurrency.
  • Blockchain for businesses is interesting because of the existing problems it solves. Broader participation in shared ledger reduces cost and reconciliation workload. Smart contracts offer embedded business rules with the data blocks on the ledger. Privacy improves because transactions are secure, authenticated and verifiable. So does trust because all parties are able to trust a shared ledger – all bought in.
  • Several sectors are currently testing blockchain implementations, including financial services, retail, insurance, manufacturing and the public sector.

Finally, John went on to outline how IBM is currently enabling this use of blockchain technology (including through its participation in the Hyperledger consortium and its Fabric Composer tool).

See also: 5 Main Areas for Blockchain Impact  

Comparing blockchain to databases, anything new?

As someone who was involved in the early days of data warehouses and data mining, I was delighted to hear the next speaker (Dr. Gideon Greenspan from Coin Sciences) talk about databases. Acknowledging that a number of the so-called unique benefits of blockchain can already be delivered by databases, Gideon began by suggesting there had been three phases of solutions to the business challenges of exchanging and coordinating data:

  1. Peer-to-peer messaging
  2. Central shared database
  3. Peer-to-peer databases

He had some great examples of how the “unique benefits” of blockchain could be achieved with databases already:

  • Ensuring consensus in data (B-trees in relational databases)
  • Smart contracts (the logic in these equal stored procedures)
  • Append-only inserts (database that only allows inserts)
  • Safe asset exchanges (the ACID model of database transactions)
  • Robustness (distributed and massively parallel databases)

Even more entertaining, in a room that was mainly full of blockchain advocates, developers or consultants, Gideon went on to list what was worse about blockchain vs. databases:

  • Transaction immediacy (ACID approach is durable, but blockchains need to wait for consensus)
  • Scalability (because of checks, blockchain nodes need to work harder)
  • Confidentiality (blockchains share more data)

After such honesty and frankly geeky database technology knowledge, Gideon was well-placed to be an honest adviser on sensible use of blockchain. He pointed out the need to consider the trade-offs between blockchain and database solutions. For instance, what is more important for your business application:

  • Disintermediation or confidentiality?
  • Multiparty robustness or performance?

Moving to more encouraging examples, he shared a few that have promising blockchain pilots underway:

  1. An instant payment network (using tokens to represent money, it’s faster, with real-time reconciliation and regulatory transparency)
  2. Shared metadata solution (as all data added to the blockchain is signed, time-stamped and immutable – interesting for GDPR requirements, even if the “right to be forgotten” sounds challenging)
  3. Multi-jurisdiction processes (regulators are interested)
  4. Lightweight financial systems (e.g. loyalty schemes)
  5. Internal clearing and settlements (e.g. multinationals)

But a final warning from Gideon was to be on the watch for what he termed “half-baked blockchains.” He pointed out the foolishness of:

  • Blockchains with one central validator
  • Shared state blockchains (same trust model as a distributed database)
  • Centrally hosted blockchain (why not a centralized database?)

Gideon referenced his work providing the multichain open platform, as another source for advice and resources.

Blockchain is more complex, hence the need for technical expertise

A useful complement (or contradictory voice, depending on your perspective) was offered next. Simon Taylor (founder of 11:FS and ex-Barclays innovation leader), shared more on the diversity of technology solutions.

Simon is also the founder of yet another influential and useful group working on developing/promoting blockchain, the R3 Consortium. He credits much of what he has learned to a blogger called Richard Brown, who offers plenty of advice and resources on his blog:

One idea from Richard that Simon shared is the idea that different technology implementations of blockchain, or platforms for developing, are best understood as being on a continuum, from more centralized applications for FS (like Hyperledger and Corda) being at one end and the radically decentralized Wild West making up the other end (Bitcoin, z-Cash and Ethereum). He suggests the interesting opportunities lie in the middle ground between these poles (currently occupied by approaches like Stellar and Ripple).

Simon went on to suggest a number of principles that are important to understand:

  • The shared ledger concept offers better automated reconciliation across markets.
  • But, as a result, confidentiality is a challenge (apparently Corda et al. are solving this, but at the expense of more centralization).
  • No one vendor (or code-base/platform) has yet won.
  • It is more complicated than the advertising suggests, so look past the proof of concept work to see what has been delivered (he suggests looking at interesting work in Tel Aviv and at what Northern Trust is doing).

To close, Simon echoed a few suggestions that will sound familiar to data science leaders. There continues to be an education and skills gap. C-Suite executives recognize there is a lot of hype in this area and so are seeking people they can trust as advisers. Pilot a few options and see what approach works best for your organization.

He also mentioned the recruitment challenge and suggested not overlooking hidden gems in your own organization. Who is coding in their spare time anyway?

In his Q&A, GDPR also got mentioned, with a suggestion that auditors will value blockchain implementations as reference points with clear provenance.

See also: Why Blockchain Matters to Insurers  

Time for a blockchain panel

After three talks, we had the opportunity to enjoy a panel debate. Paul Forrest facilitated, and we heard answers on a number of topics from experts across the industry. Those I agreed with (and thus remembered) were Tomasz Mloduchowski, Isabel Cooke and Parrish Pryor-Williams.

I took the opportunity to ask about the opportunity for more cooperation between the data science and blockchain communities, citing that both technology innovations needed to prove their worth to the C-suite and had some overlapping data needs. All speakers agreed that more cooperation between these communities would be helpful.

Isabel’s team at Barclays apparently benefits from being co-located with the data science team, and Parrish reinforced the need to focus on customer insights to guide application of both technologies. What panelists appear to be missing is that, in most large organizations, blockchain is being tested within IT or digital teams, with data science left to marketing or finance/actuarial teams. This could mean a continued risk of siloed thinking rather than the cooperation needed.

An entertaining, question concerned what to do with all the fakes now rapidly adding blockchain as a buzzword to their CVs and LinkedIn profiles. Surprisingly, panelists were largely positive about this development. They viewed it as an encouraging tipping point of demand and a case that some will need to fake it ’til they make it. There was also an encouragement to use meetups to get up-to-speed more quickly (for candidates and those asking the questions).

The panel also agreed that there was still a lack of agreement on terms and language, which sometimes got in the way. Like the earlier days of internet and data science, there are still blockchain purists railing against the more commercial variants. But the consensus was that standards would emerge and that most businesses were remaining agnostic on technologies while they learned through pilots.

The future for blockchain was seen as being achieved via collaborations, like R3 and Hyperledger. A couple of panelists also saw fintech startups as the ideal contenders to innovate in this space, having the owner/innovator mindset as well as the financial requirements.

It will be interesting to see which predictions turn out to be right.

What next for blockchain and you?

How do you think blockchain develops, and do you care? Will it matter for your business? Have you piloted to test that theory?

I hope my reflections act as a useful contact list of those with expertise to share in this area. Let us know if this topic is something you would like covered more, on Customer Insight Leader blog.

That’s it for now. More diverse voices on blockchain in Part 2….

The Need to Be Open on Mental Illness

Hoarding. Depression. Two instances of attention deficit disorder. These are personality characteristics of different people whom I have reported to over the years. Executives with titles like CEO, president, director or founder. I’m here to tell you that people in the executive suite, just like the rest of society, live with mental illness.

I know this because I’ve worked for them and, more importantly, because I am one of them.

I have lived with chronic depression since I was eight years old. I also, by many measures, have had a rewarding and successful career in consulting and financial services.

I want to share my thoughts on three vital issues: first, why senior executives should lead more conversations in the workplace about mental illness, including suicidal behaviors and suicide prevention; second, why I think it is important; and third, some ways we might be able to start more meaningful dialogue.

In the past, we’ve often treated mental health as a personal issue that individuals must overcome on their own or with a healthcare provider. But addressing mental health conditions such as depression, substance-related disorders, personality disorders and suicidal behaviors is just as important as addressing any other public health issue. Mental health problems are just as critical as childhood obesity, cancer, hypertension, heart disease, stroke or HIV/AIDS.

Over the past few decades, medical science has had great success bringing the death rates down in many diseases. There has been no significant reduction in suicide in more than 50 years. Just as we have  handled other public health issues, we must tackle mental health problems like suicide together in an organized fashion as a total community. Suicide and suicidal behaviors (or SSBs) are complex heterogeneous behaviors commonly manifested in the presence of mental illnesses. They are multifactorial and complex because not all SSBs have the same underlying etiologic factors.

I want to approach mental health from the perspective of my personal story. It is a story about one strategy I believe we can all support to improve mental health in the workplace by reducing stigma and increasing awareness and support, thereby lowering the number of suicides.

While a change of culture has happened with many illnesses that were previously taboo, there is still a silence around mental illness and suicide. This is even more noticeable in the workplace. So, how do we break the silence?

I think there are a number of strategies, many of which we see today: public service campaigns, mental health parity in insurance coverage and workplace programs that provide employee assistance, just to name a few. These are all important components to raising awareness, providing support and changing attitudes. However, I think one of the most effective ways to break the silence is for business leaders who have experience with mental illness and suicide – either personally or through someone close to them – to start talking about it.

I have worked in places where we talked about religion, politics and even gun control. We talked about our physical health. We talked about our families and what we did over the weekend. We talked about our dreams and aspirations. So why in the world wouldn’t we talk about our mental health in the workplace?

We don’t because the stigma is so strong that the topic is buried. Yet when leaders remain silent about mental illness, there is a discernable and substantial cost to the rest of society. Such silence contributes to the misperception that successful people do not get depressed. It keeps people from seeing that treatment allows many individuals to continue in or return to successful professional lives. Silence also contributes to the myth that people who are brilliant or full of life cannot possibly have so much despair as to kill themselves.

They do.  Every day.

Just look at Robin Williams. Most people I know were shocked at the news of his recent death. Honestly, I was shocked that everyone was so surprised. I didn’t know Robin other than as a fan, but I did know he had a history of depression and substance abuse. As a celebrity, this was both the fodder of tabloids as well as the legitimate press. He was very open about his challenges. And, as someone who has lived with depression all his life, I know that frequently depressed people use humor to hide the pain they feel – to keep people from seeing the dark inside that no one wants to see. Like many of us who live with the condition, I believe Robin Williams wore a brighter self in public to distract from the darkness that settled over him behind closed doors.

Most people don’t see depression in others, and that’s by design. We depressed people simply hide ourselves away when we’ve dimmed so as not to shade those who live in the sun.

So the fact that Robin Williams died by suicide was not surprising to me at all. It certainly is a tragic loss of a great entertainer. But watching the mass reaction highlighted to me how little people know about depression and suicide. I even sensed a restraint at first to report his cause of death as suicide. Then, when it became known he had Parkinson’s, it was almost a sigh of relief, as though that, instead of depression, was the real cause. It almost allowed the suicide to be explained away and silenced.

It is this silence that helps perpetuate the stigma of mental illness. The notion is that successful people don’t get depressed and that depressed people are not successful. We know neither of those statements is true. But the stigma perpetuates the myths.

These myths pervade all facets of society, and business leaders are the community gatekeepers. It does not matter whether you are speaking about mega-corporations or small business. Leadership is likely to come into contact with those at risk for suicide or mental health problems. However, these business leaders ordinarily are not trained to be influential.

From the public health perspective, the reduction of stigmatization of mental illness including suicide must be a first step at prevention efforts on a large scale.

There is a difference between those exhibiting a diagnosable mental health issue and those who are able to have access to proper mental health care. This, too, is part of the challenge. Business leaders and those in the public arena have a unique opportunity to lessen this stigma, to mobilize research efforts, to raise money and to educate others who do not have the same financial and educational advantages.

Where I work, we do talk about mental health, depression and suicide. We talk about it because I talk about it.

People look to me to set the tone of the workplace. More than anyone, I am responsible for establishing what is okay and what is not okay to say and do in the office. Whether I like it or not. Whether I recognize it or not. As the senior person in the office, setting the tone and defining what is acceptable is one of the most important roles I play.

There are forward-thinking companies out there providing programs and assistance to employees. Prudential offers an employee assistance program, training for managers to spot distress among employees and health clinics that screen for mood instability and more. Still, the company recommends employees stop short of telling managers about their diagnoses, according to Ken Dolan-Del Vecchio, vice president of health and wellness. The reason he gives is, “We don’t want managers to be acting as surrogate counselors.” No company would say the same thing about heart disease or cancer.

Dupont trains managers to identify signs of distress in workers. However, Paul W. Heck, global manager of employee assistance and WorkLife services, says conversations with a boss about a diagnosis “would never be encouraged.” Managers at Dupont who do identify distress are asked to remind employees of the assistance program, which offers free counseling. While these efforts are laudable and provide valuable services to employees, it’s obvious that corporate America still views mental health as something not to be discussed.

It is not just a matter of confidentiality concerns for the firm. The message is to keep silent. But there is no way to break the stigma if we keep silent. And the reality is that the fear is unwarranted, and, if discussion starts at the top, it can easily change attitudes and behaviors.

There is much that business leaders can do. While leaders are more likely to be committed and indeed supportive if they understand what’s in it for the company, the most effective way to gain leadership support is if they personally relate to it. Senior executives like to have a cause, whether it’s cancer, homelessness, youth or any number of issues; business leaders frequently are champions. They use their position and influence to engage the staff, corporate communications, HR and other resources, including the community, to work together to address social needs. Their ability to effect change is vast and untapped when it comes to mental health and suicide. We just need to get them talking about it.

Two years ago, I had wrist problems and had to get physical therapy for several months. In the beginning, I went to a see a therapist twice a week. Everyone knew about my wrist problem. They knew where I went twice a week, and they were sympathetic to what I was experiencing. Today, I no longer need physical therapy, but I do go to a doctor every week. I go to see a different kind of therapist. The kind you talk to and get advice from. In the beginning, I told people I was going to see my psychiatrist. Now, I don’t feel the need to re-enforce the point every time I go to see my therapist, because everyone already knows. Seeing this therapist is just like seeing my physical therapist. I have declared it okay to leave the office to see your doctor, even if that doctor is focused on mental health. I’ve set an example that it’s okay to talk about this at work, and, more importantly that mental health should be treated no differently than any other health concern.

This openness definitely has an impact.  A while back, we were in the office on a Monday morning talking about the weekend. One person had been at the family house on the lake with the extended family – grandparents, aunts, uncles. One of his aunts was going through another depressive episode. The employee admitted that in the past when his aunt was depressed he tended to leave her alone and felt she should “just get over it.” But this weekend, he spent time talking to her, listening to her and reassuring her. His exposure to someone living with depression in a different setting allowed him to be more sympathetic and understanding. I’m sure if friends or co-workers exhibited signs of depression, he would be able to be more supportive of them, too. Getting to know a co-worker living with a mental illness changed his attitude.

While I would never have chosen to be born with depression, I have learned to appreciate what it has given me. True, it has presented some significant challenges and difficult times. But these challenges have also given me a tremendous amount of strength and resilience.

I draw on this both in my personal and my professional life. Having been in financial services for much of my career, I have experienced significant work challenges. I led the effort to keep a major financial service provider funded and operating as it went through a downsizing from more than 14,000 to fewer than 4,000 employees. Back in 2007, during the early stages of the financial crisis, I was at a major financial services company when an industry analyst used the “bankruptcy” word speaking about the company. The press descended in droves, customers were concerned and a year later the company was acquired by another bank. In all these situations and many more, I have been counted on as a leader during substantial adversity. Yet these challenges cannot compare to the difficulties I have faced with depression. It is through the struggles with depression that I learned how to attack really difficult situations and how to get through the tough times at work.

Depression has also given me an increased empathy toward others. While I think this manifests itself daily in the way I manage, it certainly helps in those situations when it is most needed.

Once, as soon as I had started a new job, an employee whom I had not met did not show up for work for several days. No one knew what happened until we heard through one of his friends that he was in the hospital psychiatric ward after attempting suicide. He had served in Afghanistan and had post-traumatic stress disorder (PTSD). He had just bought a house that he and his fiancée were going to move into. But, before moving in, his fiancée broke up with him.

When he got out of the hospital, he contacted another executive he knew. This person knew my background with mental illness and suggested the two of us meet. When we met, it was clear he wasn’t ready to come back to work, so I got him to agree to meet me for coffee twice a week. This was my way of making sure he got out of the house and allowed me to help him with referrals for things like therapists and support groups. I talked with him about being in therapy and how it had helped me. Because the people who hired me knew of my advocacy around mental health, I was brought into the conversation and was able to provide support as this young man started down the road to recovery. I’m happy to say he got the help he needed and now, years later, is thriving.

In the alpha-male-dominated, type A, adrenalin-charged executive suites of corporate America, admitting to weakness of any sort is viewed as taboo and a job-killer. The prevailing view is that people at the top get paid a lot of money and should be able to handle whatever their job throws at them. It is incredibly difficult to find examples in the press of senior executives who have taken a leave or resigned for mental health reasons. And we know death by suicide is often attributed to other causes.

However, we are seeing mental health in the press more and more. Last year, Barclay’s compliance chief resigned after taking a leave of absence for stress and exhaustion. In 2011, the new Lloyd’s chief executive took a leave of absence after eight months on the job for stress-related problems. Last year, the CEO and the CFO of two different companies in Switzerland died by suicide, and their deaths were reported in the press. And I’m sure you are all aware of the recent string of Wall Street suicides. So, while the perception is that people at the top can and should handle anything, the reality is somewhat different.

Clearly, there are people at the top who are experiencing mental health problems. People in the highest offices of corporate America do live with mental illness. Personally, I think depression is a much more common affliction with executives, entrepreneurs and leaders than society is willing to admit.  And, just going by the numbers, many, many more have a family member, relative or friend living with a mental illness. There have to be senior executives who have been affected by suicide.

It seems to me depression is the family secret we all share. Frequently, a bereavement leads to depression, which, in turn leads to suicide of a family member, which can lead to another period of bereavement, depression and suicide. It can be an evil circle.

So how do we create awareness and a sense of urgency around mental health in corporate America? How do we make sure suicide-prevention efforts are supported and sustained? There are many strategies. I’ve already mentioned things like anti-stigma campaigns, health care parity, wellness clinics and employee assistance programs. Together with mass media and extensive research into the causes and treatment of mental illness, we should see a change in corporate cultures. These are critical efforts, and we should continue supporting them.

I’d like to propose one more strategy. That is a concerted campaign targeting senior executive leaders to become mental health and suicide prevention advocates.

How do we accomplish that? Let’s reach out to senior executives in a number of ways. Above all, we have to make talking about, and then communicating about, mental health concerns acceptable in their rarified sphere of influence. Only then can we create support groups, arm them with thorough training about mental health and suicidal behaviors, create speakers bureaus of senior leaders who are open and sharing and teach them to become knowledgeable advocates.

First, let’s provide support for the leaders themselves. Clearly, there are people at the top are who are experiencing mental health problems. Why not create a support network for these individuals? Let’s provide a safe environment for senior executives to talk with their peers about what they are going through – personally and professionally.

Philip Burguieres was the youngest CEO of a Fortune 500 company. In 1996, this self-described workaholic had to leave his job because of depression. It was several years before he returned to work. Today, he is a vice chairman of the Houston Texans football team. He is actively sought by CEOs with similar stories. He has been rather public about his very private support of a secret network of CEOs with depression. We could extend Philip’s example to create a safe community for senior executives challenged by mental illness to talk, share, and find support. It could even be positioned as an extension of the increasingly popular executive coach strategy.

Let me give you another example. Last year, the UK arm of Deloitte, the international business advisory firm, appointed a British senior partner, John Binns, as its mental health and personal resilience advisor. Deloitte is one of the most forward-thinking companies with respect to human resources of all the places I have worked. After taking a leave for depression, John created a group of nine mental health champions at Deloitte UK, partners in the firm who were trained to discuss and support mental health in the workplace. He provides one-on-one advice for individuals in the firm who want to speak about mental health issues affecting them or their family. He also provides mental health awareness and advisory services to other businesses across the UK.

We know that most deaths by suicide are by individuals with a diagnosable mental health issue, but only a minority those individuals receive any mental health service. Confronting mental health in the workplace should be an effective method of reducing deaths by suicide. As the stigma is reduced and more people get the care they need to recover, efforts like zero suicides among people who are receiving care become more significant. Moreover, to the degree benefits like employee assistance programs, wellness programs and general awareness and prevention programs are used in the workplace, advocacy by senior management is the best way to make these efforts a sustainable and core part of the organizational culture.

So why do I think this will work? Why should corporate leadership become a major force in mental health efforts including suicide prevention? Why will it make a difference for people with mental illness and suicide attempt survivors to be open in the workplace?

For me, the answer is simple. I’ve been through this before. Coming out of the mental illness closet is not the first closet I’ve come out of. Twenty-three years ago, when I was accepted into business school, I made the decision to be open and honest about being gay. It may not have been a revolutionary act at the time, but it was a time when almost everyone in corporate America still was in the closet. I decided that I didn’t want the next generation to experience the same prejudice, ignorance and stigma that I experienced. I told myself that if I were someplace that didn’t want me because I’m gay, I could take my Stanford bachelor and Kellogg MBA degrees and go somewhere else.

This spring marked my Kellogg 20th anniversary. I ran into someone I knew quite well during school but had lost touch with over the years. While re-connecting at the reunion, he mentioned that he was against my being open while at business school. But now he sees what’s happening with gay marriage and thinks my being open must have made a difference. I look back at the past 25 years, and I know the important role every out and open gay person has played by simply being honest about who they are. And one important lesson we have learned is that to ask others to accept us means we have to accept ourselves.

I think the people living with mental illness and suicide attempt survivors at the corporate level need to come out of the closet. We are the best positioned to shatter the silence. If we can combine this openness with change in the business world driven from the top down, I know we can make a significant impact on the stigma around mental illness and suicide.

I talk about mental health in the workplace because it’s the best way I know to break down the stigma. I want to make a difference, and I can afford to take the risk in an effort to effect change. As the senior executive in charge, setting the tone and defining the organization’s core values is one of the most important roles I play.

Living with depression has not always been easy. However, in many ways it has made me a better person, a better manager and a better business leader. Living with depression has been challenging, but it has not kept me from succeeding.

Breakthroughs in Managing (and Insuring) Tangible Assets

In recent years, high-net-worth families have increasingly turned to tangible assets for more than their aesthetic values. A 2012 Barclays report found that high-net-worth individuals in the U.S. hold an average of 9% of their wealth in tangible assets. A 2011 ACE Private Risk Services study of high-net-worth households found that 74% of respondents, all with more than $5 million in investable assets, cited investment value as a reason to purchase rare art or wine, valuable jewelry, sports memorabilia or classic cars. Two-thirds said the potential for appreciation in value was important in their purchase decision.

As values of many categories of tangible assets have escalated, these assets increasingly serve to diversify investment portfolios during periods of volatile market gyrations. In the ACE study, more than half of the respondents reported that the investment diversification value of their tangible assets has become more important to them since 2008.

“Investors are increasingly looking to hard assets, such as valuable art, antiques or fine watches and wine collections, because of the perceived ability of these assets to hold value during market fluctuations,” says Tom Livergood, chief executive officer and founder of The Family Wealth Alliance, a Chicago-based family wealth research and consulting firm. “Across the industry, we’ve seen investors rush to safety and stay there.”

Blind spot

Even as tangible assets gain recognition as a new asset class, high-net-worth individuals rarely bring to their passions for art, wine or jewels the same rigor they have when making financial investments or business decisions. In ACE’s 2011 study, despite the growing number of households reporting greater importance of tangible assets to their investment portfolios, nearly 40% of those surveyed did not have all of their precious items insured against property loss with a valuables policy. Additionally, one in three reported that they were not updating the market value of these assets at least once every three years, and a full 15% of respondents had no formal documentation of their non-financial assets.

“It’s amazing how often some advisers, especially those with sophisticated knowledge of financial markets, suddenly turn unsophisticated when it comes to non-financial assets, notably art,” says Ronald Varney, owner and president of New York-based Ronald Varney Fine Art Advisors.

To Evan Jehle, a New York-based principal at Rothstein Kass, a professional services firm with a significant family practice, wealthy families typically pay 
far less attention to their personal property than to their business affairs. “Our clients would never let something fall through the cracks in their professional lives, but many families have never thought of their tangible assets in this way before.”

Thomas Handler, partner and chairman of the Family Office Practice Group at Handler Thayer, a Chicago-based law firm recognized as a leader in serving family offices, private businesses and high-net-worth individuals, says his office often advises clients who don't have a business plan for their tangible assets. “It is incredibly important for wealthy households to understand how to hold, report, title and insure their non-financial assets in estate planning.”

Challenges of managing tangible assets

Today’s investors have the opportunity 
to reap significant benefits – financially
 and aesthetically – by investing in
tangible assets, but these investments 
pose risks and challenges different from investment
 in traditional assets. Wealthy households and their advisers may cheer the rebounding market for art and other valuables, take comfort that they have diversified their investments and look forward to potential price appreciation in the future. However, those cheers could be premature if owners of non-financial assets fail to understand and properly address the critical issues facing these assets. Those issues include: value and authenticity, documentation, estate and tax planning 
as well as insurance; additionally, owners of tangible assets should embrace the new technology tools that dramatically improve the management of tangible wealth.

Value and Authenticity

The market value of tangible assets can change, sometimes rapidly. In July 2013, a 1954 Mercedes-Benz sold for $30 million, the highest price ever paid for a car at an auction, shattering the previous record of $16.4 million set in 2011. Global sales of wine, diamonds and precious gems have also been increasing, often to record levels. In December 2012, Sotheby’s recorded its highest one-day jewelry sales in the Americas, selling $64.8 million of high-carat diamonds and precious gems. The Live-ex Fine Wine 50 Index reached 106 in April 2013, up 5.3% in the first half of 2013. Over a 10-year period, prices for gold more than quadrupled, only to retreat more recently.

The market for fine art is especially robust. In 2012, Christie’s auction sales totaled more than $6 billion, a 10% increase from 2011. In May 2013, Christie’s reported $640 million of sales in its Post War and Contemporary department in one week, setting an auction record for any individual category.

Dramatic shifts in the market present challenges as well 
as opportunities for investors in tangible assets. “Today’s market is both global and complex,” Varney says. “Modern and contemporary art have made all the headlines, for that is where the greatest demand is today; but by next year the market could be turned upside-down, as happened in the fall of 2008 amid the global financial crisis.

Alan Fausel, vice president and director of the Fine Art Department in the New York office of Bonhams, a London-based auction house, cites the rapidly changing market as a serious issue for investors. “There is a huge risk and reward in today’s market because so many investors are entering uncharted territory. Today’s contemporary market has seen so much volatility and so much uncertainty with newly famous artists, that investors are especially challenged to understand the true value of the works they own.”

Protecting investments in art, jewelry, antiques or wine begins with an appraisal. Smart investors should perform their due diligence to select appraisers with specific expertise in the genre of their assets. “An accurate appraisal is the foundation for every decision 
an investor will make regarding his or her tangible assets,” says Anita Heriot, Philadelphia-based president of Pall Mall Advisors, a U.S. and U.K. art appraisal firm. Before donating, selling, insuring or placing valuable items in a succession plan, investors must know how much everything is worth. “Wealthy individuals must understand that the values of their tangible assets have changed, and these values will continue to change over time,” Heriot says. “Without understanding the value of their property, people cannot even begin to make correct decisions.”

Heriot observes that wealthy individuals sometimes drastically undervalue their tangible assets. She recalls one family that was tracking assets based on appraisals from 1983, with nearly 30 years between consultations. The collection was originally valued at about $2 million, but, after an updated appraisal, the
 fair market value was nearly $100 million. “There were paintings of incredible value hanging on only one nail, including a Rothko with an insurance value of at least $70 million. Had this family known what their property was worth, they certainly would have taken better care
 of it.” An appraisal from a qualified professional can
 also minimize other risks, as well as provide guidance regarding potential fakes and forgeries. In addition, an appraisal can identify other issues that could affect the value of the item or the right to ownership. These include the sale of items made from protected species, protected antiquities or stolen works.

Documentation

All too often, high-net-worth individuals and families find the process of documenting, tracking and managing
the contents of their home, including fine furniture and other valuable items, to be onerous. Proper documentation of personal property typically involves photo or video records, storage of purchase receipts and, in the case of highly valuable items, expert appraisals, proofs of title and provenance and records of any restoration work. Moreover, values need to be regularly updated, sometimes on both a depreciated-value and replacement-cost basis.

“Families rarely keep accurate records of their tangible assets because, quite frankly, it can be a lot of work,” says Jarrett Bostwick, wealth transfer and estate planning specialist at Handler Thayer, the Chicago law firm.

“If someone buys two pieces of art, a piece of jewelry, two watches and a diamond pendant for his wife, then they have to sit down and put a schedule together, contact the insurance company and have them come in and have them ask you a whole bunch of questions, which is kind of a pain. Rarely do our clients partake in this kind of rigor.”

If documentation is done at all, it tends to be completed inadequately and infrequently. ACE Private Risk Services and Trōv have been collaborating on a program in which specialists have examined the contents of more than 3,000 homes of high-net-worth families. In this Home Contents Valuation program, ACE risk consultants used Trōv technology to provide the industry’s first customized estimates of the value of a home’s contents at policy inception. Nearly 50% of the homes evaluated did not have enough insurance to cover their contents, and the average amount of underinsurance exceeded $415,000 per home. Condominium homes were particularly at risk. Nearly 80% had inadequate contents coverage. Among homes warranting an increase in contents coverage, those with a structural value of $2 million to $3 million had an average shortfall of $417,000 in contents coverage; those with a structural value of $5 million to $7.5 million had an average shortfall of $852,000. Furthermore, many valuable items were only protected by general contents coverage in the homeowner policy, when they should have been listed as scheduled items in a valuables policy.

The lack of proper documentation of a family’s tangible assets can lead to wide-ranging problems. “You have to know what you have in order to be worried about it, and to take steps to avoid losing it,” says Joy Berus, attorney at Berus Law Group in Newport Beach, Calif., a specialist in tangible asset protection. “If a family doesn’t have an updated inventory of their valuable possessions, they leave themselves vulnerable to taxes that could have been planned for and reduced, discrepancies, risk of serious financial loss and the inability to pass down their assets to the next generation with a step up in basis. Proper documentation of a household’s tangible assets is the first step in identifying a family’s tangible wealth, and can make the difference between security and paralysis.”

The magnitude of the potential issue is evident in one statistic: Over the next
 30 years, as much as $27 trillion of 
family wealth will be transferred from 
Baby Boomers to their children and grandchildren. That inheritance will include a great deal of tangible assets that will need to be documented, appraised, accounted for and protected.

Wealth managers often encounter situations in which a client dies and the family or trustee does not know where all of the valuables are. “These issues don’t usually come up until a client passes and you have to collect all of the assets and figure out what’s there,” says one wealth manager who works with high-net-worth clients. “Tangible assets aren’t addressed enough in the typical conversations between wealth managers and their clients.”

Handler, the attorney, points to a noted photographer who was living in a retirement home. 
He kept with him a large collection of negatives of images of leaders, celebrities and historical events.
The photographer suffered from dementia, and over
 the years most of the collection slowly disappeared. “Unfortunately, the family did not have a record of everything and didn’t know who took the photographs,” Handler recalls. “We found some of the items on the black market on websites. But the vast majority is never going to see the light of day.”

Berus recalls working with professional athletes and asking if their wealth advisers asked them if they possessed sports memorabilia. “Every one of them said the same thing, ‘Nobody has ever asked before.’ One retired football player talked about how he lost the majority of his lifetime collection because it had been in a fire, and it wasn’t insured. He couldn’t prove what he had and had a major loss because of it.”

Berus adds, “When people don’t know what they have, they can lose money and be taken advantage of by people who do know what they have. You don’t want to lose the value of what you own or be taken advantage of. You also don’t want to cause tax problems for yourself or pay unnecessary taxes. When you know what you have and know what it is really worth, you can make better decisions.”

Loss Prevention

By definition, tangible assets are subject to risks of physical damage, theft and the ravages of time. Yet experts say that high-net-worth families often neglect
 to take steps to protect their art, jewelry, wine and other valuables from these threats. One ACE study, for example, found that 40% of wealthy individuals surveyed failed to take advantage of the services of a risk consultant who could help them reduce the risk of damage and theft.

Collectors do not always realize the risk-prevention measures available to them to help guard against, 
and minimize, exposures, says Heather Becker,
 chief executive officer of the Conservation Center, a Chicago-based provider of conservation services for fine art, textiles, photography and sculptures. “No one wants to think a significant loss will happen to them.”

Many families display or store their precious possessions in ways that increase the risk of loss. For instance, they hang artwork above an active fireplace, where the hot, dry air and soot accelerates deterioration. They neglect to place a historical artifact, such as a letter written by a famous figure, in an archival box protected by anti-ultraviolet protective glass, exposing the artifact to dangerous rays and fumes.
 Or they store a valuable stamp collection in a closet beneath a bathroom. If the tub overflows or the toilet develops a leak, the stamps could be ruined. “So many people forget that these assets – art, wine, gems – are very fragile,” Varney says. “Valuable assets can go from $1 million in value to $0 in the blink of an eye.” Investors who fail to properly address these threats remain vulnerable to severe financial loss.

Even items made of strong, durable materials can be
ar risk. Becker recalls the story of an ancient metal sculpture, which its owner stored in a warehouse for several years while not on display. While the owner made sure the sculpture was stored in a protective crate, the crate was stored on its side, instead of standing up. “The sculpture was severely warped and sustained considerable damage,” Becker says. “There is a cumulative effect to these risks that individuals must account for.”

Insurance

Given the increasing value of rare art, precious gems and fine wine, and the array of physical threats and other financial exposures confronting these pieces, proper insurance represents a critical part of a complete wealth-protection plan. Often the best place for families and their wealth advisers to start addressing this need is with an insurance broker or independent agent who specializes in serving families with emerging or established wealth. These insurance advisers, who can be recognized by their access to specialty insurance carriers, can usually suggest and coordinate services from a variety of experts.

While investors of tangible assets may go to great lengths to acquire the items they desire, they frequently fail to adequately protect them. In a 2012 ACE survey, fully 86% of insurance agents said the families who insure their homes and possessions with mass-market insurance companies likely carry too little insurance for their treasured items. One in three wealthy families was updating the market value of their collections every three years.

“Waiting three years or more mean their valuations will be wildly out of date,” says Fausel of Bonhams.

ACE Private Risk Services and Trōv analyzed 94 valuables schedules to compare stated replacement values with current market values. For the 48 schedules of fine art assets, comprising 1,722 objects, 665 objects were potentially underinsured. For the 46 jewelry schedules, one in four objects was potentially underinsured. Moreover, 32% of all the analyzed items had descriptions that were too vague or incomplete to allow for an accurate valuation. If a loss were to occur, this could lead to a dispute.

Emerging technology

For individuals and families with substantial tangible assets, new technology tools exist to make tracking, analyzing and sharing information about their assets significantly easier and more efficient. Pall Mall’s Heriot sees high demand for these tools: “As tangible assets become more valuable and wealthy families become more invested in their personal property, we see clients begging for a better understanding of what they own and greater knowledge of what it’s all worth.” The goal for wealth advisers and their clients should be to make tracking and analyzing information about personal property regular, everyday actions rather than infrequent behaviors.

Progress is promising. ACE Private Risk Services offers clients access to its Home Contents Valuation service, providing guidance regarding general contents coverage at policy inception–at the moment, coverage for personal property, a home’s contents, is typically assigned based on a percentage of the home’s structural value or it is a guess. Trōv has developed technology, partnerships and applications to tame the unruly mass of data about every tangible asset in its members’ lives. The core of the
 Trōv platform is a private, online digital locker where the information about property and possessions is collected and securely managed (called a Trōv, like treasure trove). Because most of Trōv users’ important personal property is located in their private spaces, Trōv is training appraisers and insurance risk managers to use its Trōv Collect application when they are in their clients’ homes. With the acquired information, a Trōv is activated – and with it a complete knowledge of what each family owns, where it’s located and what it’s worth. Acquisitions can be automatically added to a personal Trōv at retail point-of-sale, via electronic receipts and through a mobile application. The Trōv Mobile app enables members to snap a picture of any acquired item, add any support information, such as a receipt, package art, bar-code or QR-code, and send it to their Trōv in real time. As purchases are added, and as values change within the Trōv, the member can choose to have his or her advisers automatically notified to ensure the items are always accounted for and adequately protected.

Vision of the future

The future of wealth management encompasses an understanding of a client’s tangible assets as well as financial assets, completing the picture of total 
net worth. By using a continually updated inventory
 of personal property, families can manage risk on a real-time basis, applying effective loss-prevention techniques, securing the proper amounts of high-quality insurance coverage and anticipating tax and estate-planning issues. Insurance companies such as ACE will be able to recommend safety measures and introduce coverage rates that are increasingly fair, accurate and economical. Private bankers, estate planning attorneys and family offices will develop deeper relationships with their clients and referral networks. Wealth advisers will be able to expand the perspective they offer to clients and engage other appropriate professionals, such as insurance brokers, on a more timely and routine basis. Advisers who provide clients with a full-circle view of their assets will be well-positioned to gain a competitive advantage.

Cloud services, such as those provided by Trōv, will even enhance enjoyment of prized possessions. With a few simple strokes on a mobile device, an owner will be able to find like-minded collectors. Buying, selling and sharing will become a dynamic experience, and, because it will be easy to track the history of an object, every possession with have a story built into it. 

Conclusion

Demand for tangible assets of art, wine, jewelry and other collectibles is on the upswing, and auction sales across the globe continue to skyrocket. As these tangible assets are increasingly recognized as means of investment diversification, wealth advisers are challenged to provide a full-circle, comprehensive view of a client’s entire portfolio. Fortunately, new technology tools are meeting these ever-expanding demands. Mobile and cloud technology services improve the tracking, management and valuation of tangible assets, providing families and their advisers with greater awareness. Furthermore, these tools enable families to secure comprehensive insurance coverage and loss-prevention services, assess investment risk across both financial and tangible assets and more effectively anticipate tax and estate-planning issues. In today’s digital age, an analysis of any high-net-worth individual’s assets must include these tangible assets to complete the picture of total wealth management.

For the white paper on which this article was based, click here